On May 23, 2024, the Federal Trade Commission ("FTC") and Antitrust Division of the U.S. Department of Justice ("DOJ" and together with the FTC, the "Agencies") launched a request for information ("RFI") aimed at identifying sectors of the economy being impacted by serial acquisitions and roll-up strategies.
Serial acquisitions typically involve private equity firms consolidating a fragmented market by acquiring multiple smaller companies in related sectors or industries. The Agencies reasoned that such roll-up strategies may otherwise elude federal antitrust scrutiny, therefore resulting in undue consolidation. The RFI broadly sought out information on serial acquisitions "in any sector or industry in the U.S. economy, including, but not limited to, housing, agriculture, defense, cybersecurity, distribution, construction, aftermarket/repair and professional services markets." The RFI comes on the heels of a cross-government inquiry launched by the FTC, DOJ, and U.S. Department of Health and Human Services on the impact of private equity transactions in the health care industry.
Companies should assess their acquisition histories and antitrust risk in light of the inquiry, whether or not such acquisitions meet the applicable Hart Scott Rodino ("HSR") threshold.
The recent RFI is driven by a concern that the U.S. economy is becoming increasingly concentrated and is consistent with steps that the FTC and DOJ have taken in recent years to ensure their enforcement methods adequately address current U.S. business practices. In June 2023, the FTC and DOJ proposed sweeping amendments to the HSR Form and Instructions that would substantially increase the time, burden, and analysis required to prepare such premerger notification filings. The Agencies reasoned that the proposed changes were influenced by an increase in the challenges of premerger review due to a number of factors, including more complex transaction structures and a growth in sectors that rely on technology and digital platforms (which require a more nuanced analysis of likely competitive impact).
The new HSR Form would require filers who have not yet executed a definitive transaction agreement prior to making an HSR Filing to submit a draft agreement or term sheet that describes the transaction in sufficient detail to warrant review, rather than allowing filings to be submitted on the basis of "bare" preliminary agreements or non-binding letters of intent. Additional information will be required with respect to the transaction terms and timeline, including closing targets, conditions to closing, extension provisions, payment terms, and deal milestones.
The new requirements would also require filers to provide detailed entity structure charts that identify additional minority interest holders or other interest holders who may exert influence over business decisions or have access to proprietary business information (including, by way of example, creditors or board members or observers). In addition, parties must provide narrative details with respect to business operations, potential horizontal competitive overlaps, supply relationships, labor market impacts, and prior acquisition histories. The new rules would also require the parties to identify and provide contact information for top customers, although whether the FTC is likely to actually contact such customers will likely be case-specific. These narrative disclosures are intended to help the Agencies address underreporting of horizontal overlaps.
Filers would also be required to submit English-language translations for all foreign-language documents required as part of the HSR filing (and not just those that already exist in the ordinary course of business, as is currently required). Further, the proposed rules would require that parties disclose all jurisdictions where merger control filings will be made, which disclosure has until now been a voluntary practice.
In addition, the proposed changes would require disclosure of economic subsidies from certain foreign governments and entities of concern, including China. The definition of "subsidy" is broad, including tax credits, grants, loans, and government purchases.
In some cases, the proposed changes would cut back on certain requirements, such as the reporting of revenue by specific dollar amounts by industry codes, as defined by the North America Industry Classification System ("NAICS"). Instead, filers would report revenue ranges for the NAICS codes.
The public comment period for the proposed new filing requirements ended on September 27, 2023. There has not been clear guidance on when the forthcoming rules are expected to be finalized, but commentators predict that this could be a matter of only weeks or months. Compliance will require careful advance preparation, analysis, and resource allocation by merging parties filing the HSR Form.
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