Committed Capital

Sidecar: A New Dawn for HSR – What the FTC’s New Premerger Notification Requirements Mean for Private Equity

• Dechert LLP • Episode 15

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The FTC’s recent overhaul of its premerger notification requirements has culminated in a completely new HSR form, which recently became effective and now obligates parties to reportable transactions to disclose substantially more information to the antitrust agencies up front.  What impact will these new requirements have on private equity firms now that they are in effect? In this Sidecar episode, Dechert antitrust partner James Fishkin and counsel Beverly Ang highlight a few key changes in the new rules and how PE firms should adjust in order to ensure compliance with the new regime.

Show Notes 

The New Hart-Scott-Rodino Reporting Requirements: A Roadmap for Filers, Dechert OnPoint (Oct. 30, 2024)

Intro:

Welcome to Dechert Committed Capital. This is an episode of Sidecar, a special bite-sized discussion of the latest market issues.

James Fishkin:

Hello, and welcome to Committed Capital Sidecar, Dechert's series of bite-sized podcast episodes giving quick updates on developments affecting private equity. My name is James Fishkin, and I'm a partner in Dechert's antitrust group based in Washington, D.C. I'm joined today by my antitrust colleague and HSR specialist, Beverly Ang, who is based in New York. On today's episode, we want to provide an update on the changes to the Hart-Scott-Rodino, or HSR, rules that the Federal Trade Commission proposed back in 2023. The FTC issued its final rulemaking this past October, and the changes took effect on February 10, 2025. These new rules, as modified following the public comment period, are expected to greatly impact the timing of deals and increase the burdens on many types of filers - in particular, private equity firms.

Beverly Ang:

Many of our listeners have probably heard of or had experience with HSR as a condition to closing transactions that are of sufficient size. The HSR Act requires parties to transactions that meet certain thresholds to submit a pre-merger notification to the FTC and Department of Justice. On February 21, 2025, the minimum size of transaction threshold above which a filing could be required will increase from $119.5 million to $126.4 million. When a filing is made, the parties then observe a waiting period - typically 30 days - before they can close a deal, even if there are no substantive antitrust issues.

James Fishkin:

Right, and we first should mention that none of the changes that we are discussing today should impact the reportability of transactions. The culmination of the FTC's rulemaking process over the last 19 months or so is a completely new HSR form that now requires parties to gather much more information up front. Beverly, in an earlier podcast, you described some of the key changes in the FTC's initial proposal that would affect PE sponsors. Could you go over some of the important changes that made it into the final rule?

Beverly Ang:

Sure. So, the first big change is with respect to documents that need to be submitted with the filing. Historically, filing parties have been required to submit deal-related documents that discuss competition-related topics that were prepared by or shared with an officer or director or equivalent, such as a member of the investment committee. Under the old HSR rules, we refer to these as item 4C and 4D documents. And now, under the new rules, they've been rebranded as transaction-related documents. The new rule expanded the relevant individuals beyond the usual decision makers to include a supervisory deal team lead or an individual who may not be an officer or director but has the primary responsibility for supervising the strategic assessment of the deal. For most PE firms, this individual is likely to be someone who's already an officer or director, or would have, in any event, been expected to search their files for responsive materials. The more controversial change was the FTC's proposal to require the submission of drafts of responsive documents. Before the rule change, only the final version or latest draft was required to be submitted unless an earlier draft had been shared with the full board of directors or a similar body, such as the investment committee. The final rulemaking states that drafts should be included if shared with any member of the board of directors or similar body.

James Fishkin:

Many commenters, including Dechert, argued strongly against the inclusion of drafts, noting the substantial increase in burden for both filing parties and the government staff, and questioned the value of what could amount to a huge increase in the volume of submitted documents. It seems like even the modified version could still be problematic. Beverly, has the FTC provided any guidance on how parties can be expected to comply?

Beverly Ang:

Yes, in the few weeks leading up to the effective date, the FTC posted on its website some answers to questions it received from the public about complying with the new rules. First, they mentioned that filers do not need to produce drafts that a director merely had access to through a collaborative drafting tool such as Google Docs or Teams or a shared platform, as long as the director didn't download, edit or print the document. In that case, however, the filing would still need to include a statement of non-compliance, saying that board members had access to draft versions that were not produced. Second, and perhaps more importantly to most PE filers, the FTC stated that if an individual holds a board seat but a draft document was not shared with the individual in their capacity as a board member, the draft does not need to be submitted if a final or later version is being produced. This is an important distinction for PE firm employees who may serve as a director at some entity within the structure, but are reviewing or preparing documents as a member of the deal team and not as a board member.

James Fishkin:

What other document-related requirements should PE firms be aware of?

Beverly Ang:

Well, if there's an overlap in the products or services offered by the acquiring person and the target, in addition to transaction-related documents, filing parties now need to produce annual, semi-annual and quarterly reports provided to the CEO or board of directors of relevant entities within the same ownership chain as the buyer or the target, depending on which side of the transaction they're on. These ordinary course materials need to be included in the filing if they've been prepared or modified within a year prior to the filing date, and analyze market shares, competition, competitors or markets pertaining to the overlapping products or services.

James Fishkin:

In our previous podcast, we discussed the FTC's proposal that would have required the disclosure of the identities of 5% or greater minority equity holders, including limited partners and funds. This would have created a new source of conflict between a filing party's obligation to comply with HSR and the obligation to maintain the confidentiality of investors and co-investors. How did the FTC respond to that issue?

Beverly Ang:

Basically, the FTC adopted a compromise that Dechert suggested in its 2023 public comment letter. Recognizing that limited partners are typically passive investors, the final rule only requires LPs in a partnership to be disclosed if they have or will have board rights at relevant entities within the same ownership chain as the buyer, or at the GP or management company. However, aside from LPs that don't have such rights, 5% or greater minority equity holders at relevant entities within the same ownership chain as the buyer still need to be disclosed. On the other hand, sell-side HSR filings no longer need to disclose 5% or greater minority equity holders that will no longer hold an interest in the target or acquiring person post-closing, and minority LPs and partnerships that will continue to hold an interest won't need to be disclosed unless they have board rights.

James Fishkin:

Beverly, I think it's fair to say that these are just the tip of the iceberg when it comes to the new disclosures that filing parties will need to make under the new rules. Dechert has put together a roadmap summarizing all of the disclosures required in the new HSR form that is available on its website, and we'll provide a link to that in the show notes. We invite our listeners to use the roadmap as a reference that will give them a more detailed view of the types of information that they will need to pull together for HSR filings going forward.

Beverly Ang:

Jim, it's also worth mentioning again that HSR lawyers will need to get involved in transactions much earlier on. There are some pieces of information that have longer lead times or could benefit from the guidance of experienced HSR counsel. Some of these include translations of foreign-language documents, information regarding officers or directors at various levels in the ownership chain, org charts showing fund structures and information about foreign subsidies and countervailing duties that have been imposed on the filing party. Also, HSR filings now need to include more detailed narrative information about the deal, the strategic rationale and overlapping products and services, which will require HSR lawyers to work more closely with the business side.

James Fishkin:

It seems like the new administration could have delayed the implementation of these new rules, but that delay did not take place here. Last month, a lawsuit was filed by the U.S. Chamber of Commerce and other industry groups calling the new rules unlawful, but no court has issued an injunction pending the resolution of the lawsuit. So, we are now in a time where the parties have to contend with the new rules.

Beverly Ang:

That's right. So, PE firms planning for transactions should begin mapping out plans for tackling the various new HSR-related work streams and, again, they should be working with HSR counsel as early as possible in the process to help guide them through.

James Fishkin:

Beverly, thank you for joining me today and for sharing these updates with our audience. If you found today's discussion interesting, please do not hesitate to reach out to your usual Dechert contacts or Beverly or me with any specific questions.

Outro:

Thank you for listening to Dechert's Committed Capital. Please subscribe, and for more information visit Dechert.com.