The Federal Trade Commission has overhauled the Hart-Scott-Rodino Act filing process, introducing stricter rules that will hit private equity firms hard in the mergers and acquisitions space. These new requirements, issued in collaboration with the Department of Justice and set to take effect in January 2025, mean more detailed filings and lengthier preparation times for dealmakers, fundamentally changing how deals are structured.
The revamped HSR rules demand more transparency from companies. Filers must now include internal records such as board meeting minutes, strategic planning documents, and detailed information about board members and officers involved in overlapping industries. For complex deals, the FTC estimates the new form could take up to 121 additional hours to complete—an enormous leap from the current process.
Under the Microscope
Private equity firms face heightened scrutiny, particularly around ownership structures and board ties. The FTC’s new rules shine a spotlight on interlocking directorates, where the same individuals serve on multiple boards in the same industry.
Private equity firms who leverage interlocking directorates across various portfolio companies, are now subject to greater oversight. Typically, these firms appoint directors to multiple boards within the same industry, which can raise concerns about potential anti-competitive behavior.
Under the new HSR regulations, private equity firms are required to disclose more extensive details regarding such board connections. This increased transparency compels firms to reassess how these overlapping roles might be perceived by regulatory authorities, especially in light of antitrust enforcement efforts aimed at preventing market collusion and concentration.
Competition and Governance
Interlocking directorates carry both potential benefits and risks. On the negative side, they can raise serious antitrust concerns by enabling collusion or coordinating strategies that undermine competition. When directors serve on multiple boards within the same industry, there’s a risk of price-fixing, reduced innovation, and other anti-competitive behaviors, which is why they often attract regulatory scrutiny under laws like Section 8 of the Clayton Act.
On the positive side, these interlocking relationships can boost shareholder value by creating synergies between companies, improving efficiency, and reducing costs. Directors with overlapping board seats can align business strategies, encourage collaboration, and eliminate redundancies, leading to better financial performance.
Additionally, such directors often bring industry-specific expertise, helping companies navigate regulatory challenges and competitive markets.
While interlocking directorates can improve governance and efficiency, they need careful management to prevent anti-competitive risks and ensure compliance with antitrust regulations.
The FTC’s increased emphasis on internal documentation means corporate governance must be rock-solid. Firms will need to ensure their board minutes, reports, and strategic plans align with regulatory expectations.
This also touches on the role of board observers. Board observers are non-voting participants who have become common in private equity and venture capital deals. While their influence is more subtle, the new rules may require closer scrutiny of their involvement.
The New Terrain
Legal teams must now take a proactive approach, scrutinizing every acquisition for potential antitrust red flags. Smaller deals and portfolio company structures are no longer safe from oversight. Private equity firms will need to adopt more cautious strategies, allowing extra time for regulatory review and building stronger cases to justify transactions.
Additionally, the new HSR rules empower labor unions and employee groups. While the new HSR rules don’t mandate detailed labor or employee-related information in initial filings, the FTC has noted that such data may still be requested during more comprehensive investigations.
Labor groups can raise concerns about how a merger could lead to job losses or suppression of wages, giving them more leverage to influence decisions about the deal. Labor’s enhanced ability to scrutinize corporate moves that affect workers increases their power to challenge or negotiate conditions in M&A. Therefore, parties should consider how their transactions impact employees, even if these details aren’t required in the initial HSR submission.
Enforcement
The FTC is taking a tougher stance on antitrust, especially in industries dominated by private equity and market consolidation. Private equity firms will need to adapt to this new reality—but with the right legal strategies and careful planning, they can still get deals done.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Anat Alon-Beck is associate professor of law at Case Western Reserve University School of Law.
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