By Affiliate Colleen Pleasant Kline, Esq., Partner at Miles & Stockbridge
Most privately held businesses think very little of antitrust and pre-merger notification rules governing mergers or acquisitions. However, as it may be economical to grow your business by acquiring or merging with other similar businesses, it is important to know that even small to mid-market businesses may find such transactions subject to various antitrust rules.
Many larger companies are more familiar with the Hart-Scott-Rodino Act (“HSR Act”) which requires any transaction with a value in excess of $50 million as adjusted each year (currently $68.2 million) to complete a form and submit it to the Federal Trade Commission (“FTC”) or the Department of Justice (“DOJ”) (collectively, the “Agencies”) for their approval of the transaction at least thirty (30) days prior to consummating the transaction. The HSR Act is intended to review such transactions to make certain that the acquisition or merger of the target company and the buyer does not create an anti-competitive effect in the marketplace. The failure to report can result in significant fines and penalties to the parties, and the government can require the transaction be unwound or that assets be divested.
In addition to the HSR Act, in December 2010, the Agencies adopted revised and expanded horizontal merger guidelines pursuant to which smaller transactions (below the $50 million threshold), which are not reportable under the HSR Act, may become subject to Agency scrutiny and action. Under the merger guidelines, the government examines the potential anti-competitive effect a transaction may have within its industry and within identified geographic markets, irrespective of the transaction’s size.
As part of this horizontal merger review, the Agencies examine and balance the likelihood of market concentration and potential negative competitive impact against the pro-competitive efficiencies of a proposed transaction. In doing so, the government examines the market concentration and whether the acquisition will provide or otherwise enhance the ability of the combined entity to raise or maintain prices above a competitive level, restrict output, or limit entry into the market. In evaluating the potential impact, the Agencies examine relative market shares and concentration levels in the affected markets both before and after any proposed transaction. Those which significantly increase market concentration or result in a concentrated market are more likely to invite regulatory challenge. Both the HSR Act and compliance with the horizontal merger guidelines can increase the costs and expenses involved in doing a transaction, but the failure to be certain your transaction does not trigger reporting could result in significant fines, penalties and headaches if the agencies feel otherwise.
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