Global Regulators Squeeze Merger Control as FTC Proposes Strict Revisions to Guidelines

The FTC indicated these changes will redesign the notification process, significantly broaden the type of information required at filing and introduce new reporting requirements to the U.S. merger clearance process. These amendments are expected to drive a fourfold increase in the cost and time required to prepare an initial Hart-Scott-Rodino filing. Moreover, transacting parties will need to involve technology experts earlier on in the deal-making process to ensure compliance with onerous new data identification, retention and discovery obligations.

Looking at merger control internationally, this move by the FTC is the latest signal that antitrust agencies are escalating their scrutiny of the potential anti-competitive impact of transactions. Companies engaging in M&A will need to be prepared for a higher degree of rigor at the outset of the U.S. merger review, similar to the processes adopted in Europe and other global enforcement agencies.

Private equity is also going to feel the effects. There will be more work to obtain antitrust clearances in the U.S., for deals that are otherwise unproblematic in substance. In addition, competition authorities globally are increasingly taking a closer look at PE “roll-up strategies” and buyouts, which previously did not draw significant regulatory attention. In June 2022, FTC chair Lina Khan warned that such activities have “life and death consequences” for the economy, and that she was working to improve oversight of such PE-backed mergers. On the heels of Khan’s comments, the U.K. Competition and Markets Authority and the Australian Competition and Consumer Commission took steps that suggest a higher level of scrutiny over PE firm acquisitions of minority shareholdings in competing companies.

In light of these proposed changes, there are several key issues organizations should watch and prepare for. These include:

• More aggressive, time intensive and costly clearance processes. One of the many changes in the FTC’s proposed Hart-Scott-Rodino revisions is an explicit note on the requirement to include information from emerging data sources (i.e., chat, cloud and collaboration tools) in the scope of documents that may need to be submitted in response to a Second Request. The proposal states, “Each filing party would be required to identify all communication and messaging applications on any system or device used to store or transmit information or documents related to its business operations.”

  This is not a wholly new concept — in recent years, regulatory authorities have increasingly focused their attention on new forms of communications as important sources of information. Still, the specific reference to emerging data sources within the Hart-Scott-Rodino amendments reinforces the trend. Moreover, because these sources are often highly complex to preserve, collect, review and produce, increased attention to them will inevitably result in more difficult merger clearance review exercises.

  The FTC’s proposal also mandates that Hart-Scott-Rodino submissions expand what is covered under the 4(c)/4(d) requirement to include draft versions of any transaction-related documents, ordinary course documents such as board and strategic plans, certified translations of any provided foreign language documents, and responsive documents prepared by “deal team” leads. If draft documents are to be required at the notification stage, a more forensic-based approach to disclosing these documents may be necessary to preserve relevant metadata.

• Need for fast fact finding and deep qualitative analysis. As it is today, Second Requests and other merger control inquiries require rapid response to fact finding and document review. Such exercises become exponentially more time-intensive and complex as data volumes grow and emerging data sources account for a larger share of relevant information. The FTC proposal ups the ante, adding a requirement that during an acquisition, both parties (buyer and target) produce detailed narrative responses addressing issues including transaction rationale, business operations, supply relationships, prior acquisitions over a 10-year period, labor market impacts, anticipated competitive effects of the transaction, and other relevant information about existing and planned products and services.

  The EU, U.K. and Japan already require narrative reporting along these lines, but the detailed requirements proposed by this amendment could create a greater burden on transacting parties. Especially for private equity firms that traditionally haven’t needed to organize their business information in this manner and may not have the enterprise-wide IT systems in place to support such efforts — and are expected to face greater scrutiny given the acquisition reporting period increase by five years and requirement for this information from both transacting parties.

• Enhanced information governance and preservation obligations. Based on the FTC’s proposal, companies will need to ratchet up their litigation hold and data retention processes to ensure necessary steps have been taken to account for “all documents and information related to the transaction.” This includes chat messaging systems as discussed above, and also, will likely result in the front-loading of business interviews to ensure all potentially relevant systems are identified and preserved ahead of the initial filing. Designing data preservation strategies can be a time-consuming and costly process, especially for companies that do not have a strong information governance framework in place to inventory, manage and retain critical information.

• Implications of cross-jurisdiction cooperation. Many global competition authorities have strengthened and formalized their ties to corresponding agencies in other major countries. It is likely there will be an ongoing increase in the sharing of intelligence and reporting between agencies. U.S. guidance has outlined that cooperation may include practices such as informal discussions about the stage of investigations, detailed discussions on substantive issues, information exchange, coordinating remedies and more.

  The Multilateral Mutual Assistance and Cooperation Framework for Competition Authorities was established in 2020 between agencies in Australia, Canada, New Zealand, the U.K. and the U.S. It denotes “exchanging information” as the top item on its list of forms of cooperation defined within the framework. Additionally, the U.S. maintains cooperative agreements directly with roughly a dozen jurisdictions, including the EU, Canada, Australia, Brazil and others. Similar agreements exist between many highly active jurisdictions such as Canada, the EU, the U.K., Australia, Japan, Singapore and Brazil.

  Such cross-border collaboration between regulatory bodies has been developing for several years, and is further reinforced in the FTC proposal, which adds a requirement for filing parties to “identify all international antitrust filings that have been or will be made in connection with the transaction.”

• An increase in merger litigation, deal investigations and rejections. Several recent decisions signal that regulatory agencies around the world are prepared to reject deals, even if they’ve been approved in other jurisdictions. In an unprecedented series of events, the CMA prohibited a major global acquisition that had already received approval by other agencies, later indicating it was open to considering potential remedies. Similarly, the Belgian Competition Authority recently turned down a transaction, in what might have been the agency’s first flat out denial. Other European competition authorities and agencies in the Middle East are increasingly opening investigations into deals as well. Several recent cases have further signaled the potential for antitrust enforcement action or litigation even in the wake of an approved transaction — for example, the European Commission recently pursued an abuse of dominance case against a company after approving its merger.

As enforcement tightens, there’s a corresponding tension across markets, industries and other segments of the public sector. Although the FTC is attempting to front-load its merger control system, the agency has lost some recent cases and lawmakers are questioning current approaches to global competition governance. There will likely continue to be a push and pull effect between differing views and authorities. Notwithstanding this, M&A deals, especially PE-driven ones, should expect increased rigor in filing processes, intensified data-related challenges, and an increase in formal investigations into potential antitrust issues. This places greater pressure on transacting companies and legal teams to be flexible, alert and proactive in order to comply with these extensive data preservation and disclosure requirements.

Ashley Brickles is London-based Senior Managing Director within the Technology segment of FTI Consulting. She has more than 15 years of experience specializing in the use of technology to address challenges in investigations, particularly in large, complex, multi-jurisdictional regulatory matters. She has led some of the most high-profile European cartel and merger clearance cases over the past decade. She holds a J.D. from Syracuse University and is admitted to the Bar in New York and Virginia.

Colleen Casey Voshell is a Senior Managing Director within FTI Consulting’s Technology segment, based in Philadelphia. She advises clients on a variety of electronic discovery issues and has more than 10 years of experience leading major, multi-jurisdiction mass tort and product liability litigation and high-stakes investigations. She holds a J.D. from Temple University School of Law and is a member of the Philadelphia Bar Association.
 

The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, its management, its subsidiaries, its affiliates, or its other professionals.