- How General Counsel Can Navigate Merger Scrutiny and Protect Deals
How General Counsel Can Navigate Merger Scrutiny and Protect Deals
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mai 23, 2024
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Few things can incite more stress and urgency for general counsel and compliance teams than a Hart-Scott-Rodino (“HSR”) second request. Notorious for their tight deadlines and high stakes,1 second requests are comparable to a crisis event, spurring the need for transacting parties to process, review and produce large quantities of documents to regulators in a matter of only weeks or months. The timing, costs and overall success of a deal can hinge on an organization’s ability to properly comply with related merger clearance investigations across jurisdictions.
Numerous moves by the Federal Trade Commission (“FTC”) and other regulators over the past several years have contributed to a steadily tightening M&A enforcement environment2 with a strong focus on a wide range of data sources and documents. For example, in January 2024, the FTC and the U.S. Department of Justice issued updated guidance that underscored obligations relating to the preservation of information from collaboration tools and ephemeral messaging.3 In short, the agencies expect that organizations will be prepared to produce messages and documents from these sources in the event of an inquiry.
Additional changes have been enacted, with more proposed for the second request process. Last year, the FTC proposed a redesign of HSR notification, significantly broadening the type of information required for filing and introducing new reporting requirements to the U.S. merger clearance process.4 These amendments were proposed on the heels of an earlier set of sweeping reforms implemented in 2021 to make the second request process more streamlined and “comprehensive and analytically rigorous”5 to crack down on merger requests with potentially anticompetitive implications.
Collectively, these amendments, coupled with an ever-growing data universe, are driving a significant increase in the cost, time and complexity of responding to second requests. More data and documents will need to be reviewed and turned over to authorities. Foundational information regarding IT frameworks and data preservation practices may be required. E-discovery tools used and document productions will be highly scrutinized. However, the already compressed standard second request timeline will not be extended.
In light of increasing volumes of information, a wider range of data types and strict deadlines, transacting parties will need to involve technology experts early on in the deal-making process to ensure compliance with extensive data identification, retention and discovery obligations.
Mitigating Risk
GCs should expect additional challenges when pursuing M&A in this environment. Below is an overview of some of these challenges:
Organizations must fulfill regulatory requirements to provide documentation about and seek approval for how data potentially responsive to a second request is maintained, and to explain and defend the e-discovery processes, analytics and other tools that will be used throughout the process.
Identifying, collecting, reviewing and producing information from emerging data sources (e.g., chat, cloud tools and ephemeral messaging applications) will be more time intensive. These sources are often highly complex to preserve, collect, review and produce, and will require significant resources from the legal team. Increased attention to this information will inevitably result in more difficult merger clearance review exercises, so preparing for this workload in advance will be critical to a timely review.
Enhanced information governance and preservation obligations — including the FTC’s guidance that organizations take adequate steps to preserve transaction-related documents and information — will also require a proactive approach.
Organizations will need digital forensic approaches to preserve relevant metadata for certain draft documents that may be required, such as strategic plans, foreign language materials and other transaction-related records.
Organizations must implement workflows and tools that enable rapid fact-finding to establish narrative responses that cover relevant information about business plans that may impact labor markets or competition. In addition to supporting the narrative reporting that regulators may require, analytics-driven fact-finding can help organizations spot potential risks relating to their documents or deals in general and address issues early in the process.
In the event of cross-jurisdiction cooperation, wherein global competition authorities may share intelligence and reporting, subsequent merger clearance investigations in any countries impacted by a transaction could be triggered.
In sum, parties engaged in M&A should expect increased rigor in filing processes, intensified data-related challenges and an increase in formal merger control investigations. In this environment, it will be critical for legal teams to defensibly and efficiently conduct document collection, review and production across extraordinarily large and complex datasets in order to support compliance with merger clearance investigations and reach timely approval for transactions.
Footnotes:
1: Andrew Goodman, “Best Practices in Second Request Document Review,” American Bar Association (February 2022).
2: Alan Condon, “FTC merger enforcement hits highest level in 20 years,” Becker’s Hospital Review (December 21, 2023).
3: “FTC and DOJ Update Guidance That Reinforces Parties’ Preservation Obligations for Collaboration Tools and Ephemeral Messaging,” Federal Trade Commission (January 26, 2024).
4: “FTC and DOJ Propose Changes to HSR Form for More Effective, Efficient Merger Review,” Federal Trade Commission (June 27, 2023).
5: Holly Vedova, “Making the Second Request Process Both More Streamlined and More Rigorous During this Unprecedented Merger Wave,” Federal Trade Commission (September 28, 2021).
Date
mai 23, 2024
Contacts
Senior Managing Director