New FTC Rules Could Slow Tech M&A Deals

The Federal Trade Commission (FTC) is proposing changes to the Hart-Scott-Rodino Act (HSR) that would increase transactional data requirements and potentially add months to the filing process for mergers and acquisitions. The proposed rules would impact deals worth $111.4 million or more.

The FTC is working with the Justice Department to revamp the rules and crack down on illegal mergers — it’s part of the first overhaul of 1976 law in 45 years. The proposal is part of changes required by the Merger Filing Fee Modernization Act of 2022.

The proposed new rules, released Tuesday, would require details about acquisitions during the previous 10 years, including information about company officers, directors, and board observers, as well as data on the firms’ workforces. The FTC will take comments on the proposed changes for 60 days and the new rules won’t go into effect until the FTC and Justice Department file a final version of the revised act, which is expected to take several months to complete.

Chris Wilson, a partner with Washington, D.C. law firm Gibson Dunn & Crutcher and member of the firm’s Antitrust and Competition Practice Group, says companies are keeping a close eye on the HSR developments. “The FTC is looking to have companies provide quite a lot more information and documentation up front. For companies getting ready to prepare the HSR filing — that’s going to be a significant consideration if these rules are adopted.”

Wilson said the HSR filings will require a narrative answer and companies will have to be mindful about wording and perceptions going forward. And the number of documents that will be required could raise red flags — warranted or not. “The more information you’re sharing with agencies and the more documents you’re providing, that’s more opportunities for them to ask questions and poke around, even if there’s nothing there,” Wilson says.

He adds, “Companies are going to have to be really thoughtful about what kinds of documents are being generated around the deal — they’re going to have to be even more thoughtful and cautious about what they’re saying and how it can be perceived and how it can be misperceived. It only takes a few words to perhaps draw unwanted interest in a deal.”

In a statement on the proposed changes, FTC Chair Lina M. Khan and other commissioners outlined reasons for the action, saying the 45-year-old HSR forms needed to be changed to address the growing volume of filings. When first enacted, the commission was fielding about 150 filings annually. Companies now file that many in a typical month.

“Transactions are increasingly complex, in both deal structure and potential competitive impact. Investment vehicles have also changed, alongside major transformations in how firms do business,” the statement reads.

Tech Deals Could Feel Impact

While technology M&A deals slumped in 2022 and 2023, a recent PwC report shows momentum slowly building as generative AI hype is spurring investments across the board. “Large corporates, armed with balance sheets healthier than those seen in previous recessionary periods, continue to contemplate strategic acquisitions in the back half of 2023, pending macroeconomic conditions,” the report says.

Tech deals reached a high of $173 billion in the first quarter of 2022 but dropped to $7.5 billion in the second quarter of 2023.

For future filings, major deals could get a lot trickier and more time consuming.

“It’s a lot of extra work up front,” Wilson says of the HSR proposed rules. “And it’s going to take place for a lot of deals. There will be a comment period. And I can assure you that a lot of people are going to weigh in with whether these rules are worthwhile or if they think they go too far.”

Comments about the proposed rules can be filed online.