In the 80’s movie Top Gun, the elite fighter pilot Maverick (played by Tom Cruise) stated, “I feel the need for speed”. When it comes to HSR Second Requests to reply to the Federal Trade Commission (FTC) and Department of Justice (DOJ) regarding planned mergers and acquisitions (M&A) and potential antitrust considerations, it’s important for your discovery process to satisfy the government’s need for speed to respond to their request – it’s discovery “at the speed of sound” compared to the typical discovery lifecycle for litigation!
Understanding the HSR Act and Second Requests
The Hart–Scott–Rodino Antitrust Improvements Act of 1976 (commonly known as the HSR Act) is a set of amendments to the antitrust laws of the U.S. and has been in place since 1976. The HSR Act requires that parties wait to complete certain mergers, acquisitions or transfers of securities or assets, including grants of executive compensation, until they have made a detailed filing with the FTC and DOJ and waited for those government agencies to determine that the transaction will not adversely affect U.S. commerce under antitrust laws. If the FTC or DOJ seeks additional information through what is known as a “second request,” the law forbids merging firms from consummating a transaction until the companies have substantially complied with the additional investigatory request.
Once a second request is issued, the FTC and/or DOJ negotiates with the parties involved to discuss the scope of information needed to satisfy the government’s information needs to approve the merger or acquisition and the time frame for the information to be provided (among other things). The typical scope of information requested to support most second requests are quite voluminous (compared to the typical discovery request to support litigation) and the time frame to provide that information is typically a fraction of the time to respond to discovery requests in litigation – as soon as 30 days!
HSR Second Request Trends
As the FTC reported in this blog post in September 2021, mergers and acquisitions have hit an all-time high. Mergers filed with the antitrust agencies have more than doubled in the past decade. While 2020 was a down year because of the pandemic (only 1,637 transactions), 2021 rebounded – and then some! In the first eight months of 2021 alone, 2,436 acquisitions had already been filed with the agencies, which is many more filings than most other years. As the FTC stated, estimating as many as 3,500 merger filings before the end of 2021: “There is no question now that this is going to be a record-setting year.”
However, typically a small percentage of transactions result in second requests. In both 2019 and 2020, the percentage of second requests was 3% in both years and the range over ten years (according to the Hart-Scott-Rodino Annual Report for 2020) was 2.2% to 3.9%, so 3% is a good average over recent years.
We’re just getting started with our discussion about HSR second requests. In other posts in the HSR second request series, we will discuss the elements of an HSR second request investigation, five key challenges to address in your HSR second requests and the advantages and constraints of using TAR for HSR Second Requests. Stay tuned!
The significant rise in M&A transactions has led to a similar rise in second requests and, if you’re involved in a second request, you’re conducting discovery at a speed very different from the typical litigation. The ability to leverage the expertise of industry-veteran experts who understand the process along with workflows powered by AI and machine learning are particularly important to keep up in satisfying the need for speed required to respond to HSR second requests! Failing to do so could put you in the Danger Zone!
For more regarding Cimplifi corporate transactions & antitrust capabilities, click here.