The most substantial overhaul of the HSR rules in over 45 years is due to take effect February 10, 2025. The new rules will impose a significantly increased burden on corporate M&A teams, demanding more time, effort, and cost to prepare filings.

This is not just a procedural adjustment

The overhaul was intended to address information gaps that have emerged at the FTC and DOJ from changes in deal-making practices, more sophisticated corporate structures, and increased attention on vertical and horizontal market dynamics.

The changes will result in a more rigorous and detailed process, aimed at providing antitrust agencies with earlier insights into potential competitive concerns.

For corporate M&A teams, the most notable changes include expanded document disclosures on the strategic rationale for the transaction, assessments of market shares, competition analysis, details of supply relationships and customer data, human capital impacts, and the potential for sales growth or expansion into product or geographic markets.

Describing the market

Of course the HSR-required narrative can be strategically prepared to emphasize the pro-competitive benefits of the transaction.

To head off missteps in the process, emphasis should be placed on early preparation, accurate documentation, and a current understanding of the regulatory requirements.

It would seem prudent for corporate M&A teams to start 2025 by taking pro-active steps to adapt to the more demanding disclosure requirements, increased time commitments, and enhanced scrutiny from antitrust agencies.

They want all of the documents

Bare-bones letters of intent (LOIs) or indications of interest (IOIs) will no longer suffice.

Filers using preliminary agreements must include most of the material deal terms; the scope of acquisition, purchase price calculation, transaction structure with a diagram, estimated closing timeline, detailed classification of employees, employee retention policies, post-closing governance, and transaction expenses.

The scope of required documents has been significantly broadened to include draft documents. This is a significant change from the previous requirement, where only drafts shared with the entire board needed to be produced.

Nearly all documents produced or received by the “supervisory deal team lead” will need to be submitted. The new rules establish this role and use the definition “the individual who has 'primary responsibility for supervising the strategic assessment of the deal and who would not otherwise qualify as an officer or director.”

Documents from consultants and investment bankers may need to be disclosed as well, including analysis on synergies and post-close opportunities. This may include references to any existing or potential vertical relationships as well as any additional future acquisitions or opportunities to foreclose rivals in vertical or diagonal relationships.

In addition to deal-related 4(c) documents, ordinary course business documents, including annual and quarterly plans and reports that discuss market shares, actual and potential competition, or market dynamics where both parties are active may need to be produced, in particular if those documents were shared with officers or directors of any entities involved in the transaction.

The agencies also want to see information about officers, directors, board observers, and shareholders with 5% or more ownership. If there were any prior agreements between the parties, such as non-competes or licensing agreements, those may also be subject to disclosure.

Coordinate HSR obligations and document control

Corporate M&A teams will need to carefully negotiate HSR-related aspects of the deal process and documents, including cooperation obligations to avoid divergence between parties.

Both the buyer and the seller will each have their own, distinct HSR form. Although they have different disclosure requirements, both forms require a description of any competitive overlaps or supply relationships. Both parties must also now disclose relevant prior acquisitions from the last 5 years. Previously, this requirement only applied to the acquiring party.

Some dealmakers foresee uncertainty about when the filing will be considered complete and when the HSR clock will start.

They are also concerned about the somewhat vague, ambiguous, and subjective requirements, given signatures under penalty of perjury will be required. A continued and thorough review is needed as the new rules take effect.

Given the expanded scope of required documents, establishing rigorous control practices early in the process will likely become a standard best practice.

This will need to extend to outside advisors, who often produce overly optimistic projections.

Plan on spending more time and money

Corporate M&A teams should anticipate spending significantly more time on the HSR process.

Estimates range from 3-5 weeks of preparation time, compared to the previous 5-10 business days. The FTC estimates an average increase of 68 hours per filing, with the highest burden for acquisitions with overlapping products, services, or supply relationships (120+ hours).

Some believe the FTC’s estimates are likely an underestimate.