FTC Overhaul of Hart-Scott-Rodino Act Brings Heightened Scrutiny for Private Equity in M&A

FTC Overhaul of Hart-Scott-Rodino Act Brings Heightened Scrutiny for Private Equity in M&A

A Bloomberg Law article by Anat Alon-Beck, a Case Western School of Law professor, discusses the latest Federal Trade Commission (FTC) update of the Hart-Scott-Rodino (HSR) Act filing process. The significant revisions, done in collaboration with the US Department of Justice (DOJ), introduce stricter requirements that will affect private equity firms in mergers and acquisitions (M&A). 

The new rules, set to take effect in January 2025, will demand more detailed filings, such as internal documents, board meeting minutes, and information on overlapping board members. The increased complexity could add up to 121 additional hours of preparation for complex deals, impacting how firms structure transactions.

The author notes that private equity firms will face greater scrutiny, particularly around ownership structures and interlocking directorates—situations where individuals serve on multiple boards within the same industry. This practice can raise antitrust concerns, such as potential collusion, and is subject to stricter reporting under the new rules. While interlocking directorates can create synergies and enhance efficiency, they also pose risks by potentially undermining competition, a focus of enforcement under Section 8 of the Clayton Act.

The revamped rules highlight the importance of transparent corporate governance, compelling firms to ensure their internal documentation aligns with regulatory expectations. Often used in private equity deals, board observers may also be scrutinized. Labor unions and employee groups could also gain more influence in the M&A process, as the FTC may request additional labor-related data in specific investigations. 

With increased regulatory oversight and the potential for lengthy reviews, the author suggests that private equity firms must adopt cautious strategies and thoroughly evaluate deals for antitrust risks. Legal teams must proactively navigate these challenges to ensure compliance and complete transactions.