Successfully navigating M&A under the new HSR rules: PwC

In February, new Hart-Scott-Rodino (HSR) Act filing requirements that will have an important impact on M&A reporting officially took effect. Among other things, the rules could demand enhanced documentation, broader disclosures and detailed narratives for transactions, imposing a more rigorous framework for dealmakers.

The rules will have significant impacts on many private equity firms and other serial acquirers that frequently engage in M&A activity and have many subsidiaries. International firms with geographically diverse supply chains should also take heed. Here’s a look at the requirements, their key impacts and how dealmakers can adjust.

68 - 121

Additional hours of preparation expected, per company

New expected impacts to companies

Filings under the updated HSR rules are estimated to require an additional 68-121 hours of preparation. This can disproportionately affect larger organizations with complex structures and private equity firms, which face unique challenges due to investment committee and document retention requirements. Supply chain disclosures and historical data collection can further complicate compliance.

The new rules could bring greater attention to competitive overlaps (e.g., products, services or assets), transaction rationales and overlapping directorates (i.e., individuals serving as directors of competing firms). Draft documentation requirements expose firms to additional risks, as inconsistencies or incomplete data could delay or derail transactions. Foreign subsidy disclosures and cross-border transactions can also invite increased regulatory oversight.

Many industries with significant supply chain dependencies face unique challenges, requiring careful planning to avoid delays. The new HSR rules require firms to disclose supplier and purchasing relationships, including top ten customers and descriptions of each relationship as well as revenue information. These stipulations can pose a heavy burden for large organizations and those with many portfolio companies.

A closer look at the new rules

The FTC’s new HSR rules include the following requirements.

Expanded document collection and production requirements

Firms should be prepared to collect a broader range of documents, which include:

Competitive documents, detailed sales data, customer contact information
Disclosure of all acquisitions made in the last ten years, regardless of size, made by either the buyer or seller (doubling the length of the applicable period and removing a minimum threshold of transaction size)
Translation of documents into English and disclosure of foreign antitrust notifications
The identification of all products made in a country that is a covered nation

Supply chain relationship disclosures

Transaction filings should have detailed narratives describing competitive overlaps and supply chain relationships, including:

Holistic rationales for the transaction
Identification of overlaps in products, services or governance structures
Disclosures of Occupational Health and Safety Administration (OSHA), National Labor Relations Board (NLRB) or Wage and Hour Division findings from the past five years
Acquisitions made by prior owners if overlaps exist, adding a historical dimension to compliance

Ownership and structural disclosures

Firms will have to disclose 5% or greater minority shareholders and identify any board or officer positions that can create interlocking directorates, even if these ties occurred up to three months before filing. Additionally, firms have to identify the top ten customers for overlapping goods or services, even when overlaps are minimal.

Specific deal scenarios and additional complexities

Transactions involving foreign subsidies, defense contracts over $10 million or interlocking governance structures face heightened scrutiny. Firms also have to disclose subsidies from "entities of concern" and active defense contracts, adding new layers of compliance for multinational deals.

Preparing for the new rules: Actionable steps for teams

Being proactive is essential to help navigate the complexities of the new HSR rules. The sooner preparation starts, the better.

Here are four key steps dealmakers can take to help streamline the requirements and reduce regulatory delays

Firms should begin gathering documents and coordinating teams well before deal signing, where possible. This includes identifying areas of overlap in competitive products and services, mapping overlapping board of directors and business interests, and compiling historical data for three months prior to deal sign.

A thorough understanding of your supply chain and customer relationships is critical. Identify key dependencies, map top customers and prepare reliable overlap disclosures. To help streamline this process, consider leveraging AI technology to analyze documents quickly — helping you save time and reduce errors.

Conduct periodic reviews of ownership structures, product overlaps and board ties to facilitate readiness for future filings. Train deal teams on the updated compliance requirements to avoid errors or inconsistencies in narratives. Establish clear processes for drafting and evolving transaction rationales, making sure they align with regulatory filings.

Prepare to adapt moving forward

The FTC's HSR rules demand meticulous preparation and transparency from dealmakers. While these changes could present significant challenges, a structured approach as outlined above could help mitigate risks and establish compliance. Executives can work closely with antitrust counsel and regulatory advisors to navigate complex filings and stay informed about updates from the FTC and adopt industry leading practices to help streamline compliance efforts.