Mergers and acquisitions have become increasingly common to growing business opportunities. In 2022, the U.S. recorded 18,072 M&A transactions, including 314 valued at more than one billion U.S. dollars. Developing enhanced technologies are resulting in exponential growth. With this growth, the Hart-Scott-Rodino (HSR) second request threshold is also increasing. The Federal Trade Commission (FTC) has set the threshold amount at $111.4 million for 2023. There are also many newer revised values that are worth bearing in mind.
But before diving into the details, let’s first understand what the HSR Act and second request mean.
The Hart-Scott-Rodino (HSR) Act is a federal law in the United States that requires certain companies to notify the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) before completing a merger or acquisition that meets certain thresholds. The HSR Act aims to allow antitrust regulators to review proposed mergers and acquisitions for potential anticompetitive effects and take appropriate action to protect consumers and competition.
A company must submit its intentions and transaction estimation to the governing authorities whenever it plans to make an acquisition that would exceed a certain threshold. When a company submits an HSR filing to the FTC and DOJ, the agencies have a limited period to review the proposed transaction and determine whether it raises antitrust concerns. If the agencies believe the transaction will likely harm competition, they may issue a “second request” for more information.
A second request is a formal demand by the FTC or DOJ for additional information about the proposed transaction. It is essentially a request for the merging parties to provide more data and documentation about their businesses and the proposed transaction to enable the agencies to conduct a more thorough investigation. Second requests are issued only if the agencies believe that the transaction may have anticompetitive effects and that additional information is necessary to make a determination.
Complying with a second request can significantly burden the merging parties. Gathering and producing the requested information typically requires significant time and resources. The merging parties may need to provide documents, data, and other information about their businesses, customers, suppliers, competitors, and the proposed transaction itself. They may also need to provide testimony from executives and other personnel.
The length of time it takes to comply with a second request can vary widely depending on the complexity of the proposed transaction and the information requested. In some cases, the process can take several months or more, which can delay the completion of the transaction and add to the overall cost.
Issuing a second request doesn’t necessarily mean that the proposed transaction will be blocked or require significant divestitures. However, it is indicative that the agency has identified potential antitrust concerns and requires additional information to prior to completing their investigation.
Overall, the HSR Act and the second request process play an important role in preserving healthy competition in the U.S. marketplace. By requiring companies to provide information about proposed mergers and acquisitions, antitrust regulators can identify and address potential anticompetitive effects before they harm consumers and competition. While the second request process can be burdensome for merging parties, it is important.
The bar has risen this year. As per the FTC, below is the revised filing fees that will be effective from 27 February 2023:
| SIZE OF TRANSACTION | FILING FEE |
| Greater than $111.4 million to $161.4 million | $30,000 |
| $161.5 million to $499.9 million | $100,000 |
| $500 million to $999.9 million | $250,000 |
| $1 billion to $1.9 billion | $400,000 |
| $2 billion to $4.9 billion | $800,000 |
| $5 billion or more | $2.25 million |
As the trend in mergers and acquisitions and their valuations continue, the number of second requests may rise in 2023. As a result, companies need to be extra cautious when planning their response to these requests. Any misstep can result in a high cost in terms of both money and time for the companies involved.
In conclusion, the Hart-Scott-Rodino (HSR) Act and the second request process are crucial in maintaining competition and safeguarding consumers in the U.S. marketplace. Despite its potential burdens, the second request process plays a vital role in the battle against anti-competitive moves.
As companies continue to pursue mergers and acquisitions, it’s critical for legal professionals to have a robust information governance solution that can help them respond efficiently and promptly to second requests. Proper record management and document administration are necessary to navigate the second request process with minimal hassle and enable companies to focus on their business objectives.
As a market leader in our industry since 2002, we have experienced several instances where such requests have impeded the progress of our clients’ M&A deals. To mitigate this risk, our GRC solution ensures that information is managed promptly, providing you with instant access to the necessary data, and enabling you to stay prepared for any unforeseen demands.
To learn more about how our GRC solution can help you confidently navigate the second request process and achieve success in your M&A endeavors, please reach out to Knovos experts here.
Photo Credit: Carol M. Highsmith
