What is an HSR Second Request and how do I respond to one?
What is the HSR Act?
An HSR Second Request is part of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) that requires parties to certain mergers or acquisitions to notify the Federal Trade Commission (FTC) and/or the Department of Justice (DOJ) of their intentions. Under the HSR Act, that notification triggers a review by those agencies to determine whether the proposed transaction is likely, in their opinion, to violate antitrust laws or regulations. This review process prior to such transactions closing helps avoid the conflict and cost of enforcing anti-competitive behavior after a merger or acquisition. In short, it seeks to stop antitrust violations before they start.
If the DOJ or FTC finds that the proposed merger or acquisition may threaten market competition or otherwise violate antitrust laws or regulations, the companies involved face two possibilities. The agencies may sue the parties to stop the transaction entirely, or they may negotiate with parties to alter the transaction to address the antitrust concerns. The latter course of action is more common and often involves reducing geographic reach or divesting assets, for example, to decrease the transaction’s impact on the market. This is also where an HSR Second Request might come into play.
How does the HSR process start?
The HSR process begins when involved parties file the Notification and Report Form for Certain Mergers and Acquisitions (“the Form”). Companies looking to complete a merger or acquisition that affects U.S. commerce must file the Form if they meet certain thresholds of transaction size and size of the parties, among other things.
Once the Form is filed with its supporting documentation, the waiting period starts. The initial waiting period is 30 days, although it can reduce to 15 days for cash tender offers and bankruptcies. During the waiting period, the FTC and DOJ will look over the information and determine whether they need to investigate further. They may review financial statements or conduct interviews with the parties’ executives during this phase as well.
Sometimes, the agencies may decide that the information on the form alone is sufficient and let the waiting period lapse. If the waiting period passes with no agency action, the parties may close on the merger or acquisition. Parties can request early termination of the waiting period if they wish to proceed promptly, and the agencies can grant that request if they find no competitive concerns. If on the other hand the information on the Form is not sufficient, the agencies may demand further documentation by issuing an HSR Second Request.
What is an HSR Second Request?
An HSR Second Request is how the FTC and/or DOJ extend their review process beyond what the merging parties initially submitted in the Notification and Report Form. Following their initial review of the Form, the agencies will issue a Second Request—or more formally, a Request for Additional Information and Documentary Materials. A Second Request is issued if either or both agencies have reason to believe that the proposed transaction is likely to:
- reduce competition and lead to higher prices;
- lower the quality of goods or services;
- lessen innovation; or
- otherwise violate antitrust laws.
A Second Request is similar in nature to a litigation discovery request, but vastly expedited. A Second Request process can take as little as 10 or 30 days under certain circumstances. In our experience, most parties seek to complete the document discovery phase of an HSR Second Request in 90 days or less.
That response time can be adjusted and will vary with the complexities involved in the given transaction. But usually, all parties involved are loath to extend the review process beyond what is absolutely required unless unavoidable. Unlike litigations, in a merger or acquisition environment, all parties want to complete the transaction, and thus the Second Request review process, as quickly as possible.
Imagine trying to complete the entire document discovery phase of a large, complex commercial litigation in a matter of a few months. Second Requests also have their own requirements and intricacies that differ from litigation. The entire process tends to be incredibly intense, and success requires a team of experienced and capable attorneys and vendors who can meet those heightened requirements and expectations.
What information does an HSR Second Request seek?
A Second Request may seek any information related to the merger or acquisition that the regulators believe appropriate to review. Commonly requested items include:
- Organizational charts
- Detailed product and service descriptions
- Product and marketing brochures
- Business and marketing plans including synergy analysis
- Documents regarding competition in the relevant product and geographic markets
- Documents regarding market entry and planned expansion
- Sales, pricing and other financial data
- Communications related to the proposed transaction, including letters, emails, texts, chats and other conversation or communication records
- Any other documents regarding the proposed transaction the regulators may deem necessary or appropriate
As with any litigation, the explosive growth in the amounts of electronically stored information (emails, financials, documents, spreadsheets, presentations, chats – the list goes on) make such requests ever more time-consuming and burdensome. And that’s before you consider any additional interviews the agencies may demand as well. A typical HSR Second Request takes several months to complete, and parties may have to wait up to ten months (sometimes more) to close the transaction.
Challenges in responding to HSR Second Requests
The good news: HSR Second Requests are relatively uncommon. Of the 2,111 merger transactions reported in 2018, only 2.2 percent resulted in Second Requests. Higher-valued and certain market mergers and acquisitions tend to be more closely scrutinized.
The less good news: Answering an HSR Second Request involves significant challenges, including:
- Tight deadlines & strict production requirements
- The need to quickly identify & collect the correct documents
- Vastly expedited, complex & often voluminous document review requirements, including heightened privilege review
These requirements can quickly become overwhelming. However, underestimating the capacity and specialized capabilities needed to meet these specialized demands can result in failure to provide essential information or missed deadlines entirely. Such missteps and mistakes are costly; they can result in monetary penalties due to extended deal timelines, or even require re-filing of the HSR Form, starting the timeline over again. Parties may face additional waiting periods and investigations, which could kill the merger or acquisition deal altogether.
How to comply with an HSR Second Request
An experienced team can help you ensure compliance and make the HSR Second Request process run more smoothly. You may even succeed at completing the Second Request process early and in your favor. To do so, it is essential that you:
- Get your entire legal team on board. Involve your legal department, outside counsel and your vendors in these merger activities as quickly as possible. Send any Second Request documents to all of them as soon as you receive them. The success or failure – and timeliness – of the entire process depends on planning and preparation. Don’t hamstring those who will have to help you through this daunting process by delaying their involvement. (This places you at a disadvantage from the outset as well.) The sooner everyone knows the scope and can plan together, the better off you will be.
- Communicate with agencies. If you need more time to find documents or consult with attorneys, let the agencies know. It is normal to extend deadlines and waiting periods if parties need additional time. Once you involve Legal, leave agency communications up to them.
- Contact your eDiscovery vendor (or select one) ASAP. Early in the Second Request phase, you will be required to submit voluminous documents. An experienced eDiscovery vendor can help you get through the entire process quickly, efficiently, and accurately. Often, just locating what you need while still attending to everyday business can present a huge challenge. Competent eDiscovery service providers can assist with document identification (mapping), collection, culling, review, production, management, and more. The sooner you get them involved, the more smoothly your entire process will go.
How BIA Helps
BIA works with companies, their legal departments, and their outside counsels to provide efficient, timely, and effective Second Request response services, including:
- Effective, fast, efficient identification and collection of both paper and electronically stored information, wherever it resides
- Vast and efficient data processing, culling, and analytics capabilities that can scale as needed and on demand to meet any size data set
- Online review platform hosting services with the latest analytics and technology-assisted review platforms to increase the speed and accuracy of the review, while lowering costs
- Experienced teams of full-time attorneys and the ability to scale additional resources as needed to accommodate expedited review timelines common in Second Requests
- Familiarity with document production to governmental agencies, including strict quality control processes to ensure all governmental production requirements are met
If you’ve received an HSR Second Request, don’t let it become an agonizing ordeal that ends in wasted resources, high fees, and a compromised acquisition or merger. Contact our experts today to learn how BIA’s Second Request Response services can make your entire HSR Second Request experience manageable and successful.