- Total filings and filings for large transactions increased for a second consecutive year, suggesting continued strength in deal flow.
- Vigorous enforcement by the agencies continued, including more enforcement actions in federal court than usual and the imposition of record civil penalties for procedural violations.
Recently, the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) jointly issued the Hart-Scott-Rodino Annual Report (2015 Report), which reviews activity under the Hart-Scott-Rodino (HSR) Act during fiscal year 2015 and provides valuable insights into current merger enforcement trends. The report, which compares fiscal years 2014 and 2015, shows that HSR filings have increased, the average dollar value of deals is up and, most importantly, the agencies continue aggressive enforcement, particularly in relation to larger deals.
The HSR Act requires that most acquisitions valued above a certain dollar amount and not otherwise exempt must be reported to the agencies. The parties must honor a waiting period (typically 30 days) before they may close their acquisition. HSR filings contain certain basic data used to assess potential competitive impact, including revenue data by product code, and documents that discuss competition, markets and the potential for growth, synergies and efficiencies. If either agency has concerns, it requests “clearance” to conduct a preliminary investigation. A subset of cleared transactions then results in a “request for additional information,” commonly referred to as a “Second Request,” an extensive discovery exercise that can be both expensive (potentially costing millions of dollars) and time-consuming (often taking three to six months or more). A further subset of Second Request investigations results in a formal challenge to block a deal.
The first trend revealed by the 2015 Report is an increase in the number of deals filed under HSR for the second consecutive year. There were 1,754 adjusted transactions filed in 2015, an 8.4 percent increase from 1,618 adjusted transactions filed in 2014 and a 36.4 percent increase from 1,286 adjusted transactions filed in 2013. This is also the most transactions filed since 2007 and the third-most since 2001. These numbers suggest continued strength in deal flow and may indicate that last year’s 25.8 percent increase was the beginning of a trend and not a blip on the radar.
The second trend is an increase – again, for the second consecutive year – in the number of large transactions filed. In 2015, 259 transactions valued at more than $1 billion were filed, a 15 percent increase from 2014 and an 82 percent increase from 2013. Moreover, transactions valued at more than $1 billion comprised a larger percentage of total transactions in 2015 (14.8 percent) than in 2014 (13.9 percent). In addition, 329 transactions valued at $500 million to $1 billion were filed in 2015, a 9.7 percent increase from the 300 filed in 2014 and a 31 percent increase from the 251 filed in 2013. More than one-third (33.6 percent) of all transactions filed in 2015 were valued at $500 million or more.
The third trend is continued vigorous enforcement. According to a recent post about the 2015 Report on the FTC’s Competition Matters Blog, the agencies typically “bring one or two merger enforcement actions in federal court” each year, but in 2015 they “filed a total of four preliminary injunction actions…, and prepared to file papers in an additional nine before the parties abandoned their plans.” The 2015 Report indicates that the number of formal merger challenges (in which a consent order was agreed, litigation was initiated or the transaction was abandoned or restructured) increased 27 percent, from 33 in 2014 to 42 in 2015. Of those 42, all but one – in which the FTC dismissed the administrative complaint after a federal court denied its motion for a preliminary injunction – resulted in a consent order, settlement, restructuring of the transaction or abandonment of the transaction.
Other related agency actions also suggest continued aggressive enforcement. Although the number and percentage of Second Request investigations decreased slightly, larger deals appear to have attracted more scrutiny than smaller deals. More than three-fourths (76.6 percent) of the Second Requests in 2015 involved transactions valued at more than $500 million, compared with just 68.6 percent of such transactions in 2014.
Finally, the agencies continued to enforce HSR’s procedural aspects in 2015, resulting in more than $4 million in civil penalties assessed for failures to comply with premerger notification requirements. Enforcement of the requirements continues in 2016, including the imposition of a record $11 million fine in July. Moreover, the maximum daily civil penalties for failure to comply with the requirements more than doubled, from $16,000 to $40,000, on August 1.
Faced with more and bigger deals in 2015 than in 2014, the agencies continued their trend of heightened antitrust scrutiny, with even more focus on larger transactions. Formal challenges increased, and the agencies demonstrated their willingness to commence litigation in federal court seeking to halt mergers they consider problematic.