10 Key Takeaways on Addressing Antitrust Risk in M&A Transactions

1. Assess Antitrust Risk Early and Continuously

The earlier a company assesses antitrust risk, the better positioned it will be to address regulatory concerns. According to Kara, “You want to do it as early as possible…but understanding that the earlier you are in the deal process, the less information you likely have. It’s an ongoing analysis that you continue to update and refine as more information becomes available.” A preliminary review may highlight red flags, but deeper analysis will be necessary as the deal progresses. Companies should integrate antitrust counsel early to assess risk and develop a strategy for making any required filings and securing antitrust clearance.

2. Understand Market Dynamics and Competitive Landscape

Understanding how parties to the deal operate in their markets is crucial. For both buyers and sellers, antitrust counsel should conduct an analysis of competitive positioning and of any overlaps including in products, services, and geographic areas. It is important to understand the business rationale for the transaction and assess whether the transaction may increase market concentration, reduce competition, or create new barriers to entry for other players.

3. Analyze the Facts under the Merger Guidelines and Consider Past Enforcement Actions

Merging companies and their counsel should anticipate how antitrust enforcers will perceive the transaction, and the best information about how the antitrust agencies evaluate transactions is in the Merger Guidelines and past enforcement actions. According to Kara, they need to ask themselves, “What is the agency going to think?” The agencies often talk to customers, competitors, and other stakeholders, so companies and their counsel should also consider how the views of these stakeholders will influence the views of the reviewing agency.

4. Be Cautious with Deal Documentation

Documents submitted as part of a merger control filing often will form the first impression of a deal, and even beyond the initial filing, can heavily influence the entire regulatory review. Companies should avoid language that may unnecessarily attract scrutiny. Internal communications, marketing materials, and executive presentations should accurately reflect the deal’s business rationale and should avoid exaggerations or statements that could be misconstrued by regulators. For example, a statement about a “dominant position” or “increasing leverage” often does not reflect reality. But according to Hill, “That kind of statement is certainly going to get questions from the agency.”

5. Prepare for Regulatory Scrutiny in a Short Window

When parties make a merger control filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) in the United States, this triggers a 30-day waiting period (in most cases). Outside the United States, waiting periods vary but regulators typically have a limited time to review deals. Given this limited time frame, it is crucial for the parties involved in a merger to present a clear and compelling case from the outset. The first two weeks of the review period are critical, and companies should be ready with key supporting materials, economic impact assessments, and legal arguments to address potential concerns. “You have to put yourself in their shoes…they have to decide to move towards doing an investigation within about two weeks,” said Hill.

6. Carefully Negotiate Antitrust Covenants in Agreements

Transaction agreements should clearly allocate risk and specify conditions related to regulatory approvals, including possible divestitures and litigation commitments. Buyers and sellers should agree in advance on obligations related to regulatory delays, and contingency plans should be in place in case the deal faces unexpected challenges.

7. New HSR Rules Require More Extensive Filings

New requirements under the HSR Act significantly expand the information that must be disclosed in HSR filings, including additional ownership details, transaction rationale, and competitive overlaps and supplier relationship descriptions and data. The increased burden on filers means companies must invest more time and resources into preparing thorough, compliant submissions to avoid delays or rejections. While it’s not clear if the latest rule changes, enacted under the Biden administration, will survive legal challenges, the firm’s lawyers are closely watching the situation.

8. Avoid Gun Jumping

Gun jumping—exercising control over a target company before obtaining antitrust clearance—can lead to severe penalties. Information sharing during diligence and integration planning should be handled carefully to ensure the parties maintain competition and do not prematurely integrate. Companies must ensure that operational decisions remain independent until all necessary approvals are obtained.  “Pre-closing control is an absolute bright line rule…for example, if you establish new employment reporting obligations or the buyer closes down any of the seller’s operations pre-closing,” according to Kara, “the agencies are likely to investigate.”

9. Use Clean Teams to Mitigate Information-Sharing Risks

Clean teams help manage the flow of competitively sensitive information by limiting access to designated individuals who do not have pricing, sales, or other sensitive responsibilities. By ensuring that only select individuals have access to sensitive data and keeping that circle small, companies can reduce the risk of regulatory scrutiny while still making informed decisions about integration planning.

10. Be Proactive with Advocacy to the Antitrust Agencies

Where companies believe an investigation is likely, they should consider a voluntary “day one presentation” to preemptively address potential regulatory concerns rather than waiting for agencies to issue inquiries. Establishing an open line of communication with regulators can help streamline the approval process and demonstrate a commitment to compliance. Proactive engagement can help the agencies put the deal in context and narrow down any concerns more quickly.

By keeping these ten points in mind, companies can significantly reduce their antitrust risk and streamline regulatory approval processes for their transactions. As regulatory scrutiny continues to evolve, organizations that adopt a thoughtful, strategic and well-documented approach will be better positioned for successful deal execution.