FTC, DOJ are now coming after M&A–and you thought they were tough before? New information disclosure requirements proposed by the US Federal Trade Commission (FTC) and the Department of Justice (DOJ) Antitrust Division for mergers and acquisitions that fall under the Hart-Scott-Rodino Act (HSR) may put a damper on an already stagnant business area. On Tuesday 27 June, FTC, notably taking the lead with the concurrence of DOJ, released multiple proposed changes to the premerger notification filing process, the most extensive since they were first published in 1978 after HSR was passed in 1976. HSR premerger notification is required for transactions that exceed the threshold currently set at $111.4 million.
These changes will be formally submitted for the standard 60-day public review and comment later this week in the Federal Register. Changes are typically made after that time before final rules are published, a process that may take months.
From FTC’s release, the proposed changes fall under these areas.
- Provision of details about transaction rationale and details surrounding investment vehicles or corporate relationships.
- Provision of information related to products or services in both horizontal products and services, and non-horizontal business relationships such as supply agreements.
- Provision of projected revenue streams, transactional analyses and internal documents describing market conditions, and structure of entities involved such as private equity investments.
- Provision of details regarding previous acquisitions.
- Disclosure of information that screens for labor market issues by classifying employees based on current Standard Occupational Classification system categories.
- These proposed changes also address Congressional concerns that subsidies from foreign entities of concern [North Korea, China, Russia, and Iran–Ed.] can distort the competitive process or otherwise change the business strategies of a subsidized firm in ways that undermine competition following an acquisition.
The National Law Review goes into far more detail on exactly what additional information will be required. This includes disclosure of what foreign jurisdictions are reviewing the deal. The rationale for the changes is that transactions have become far more complex since the original requirements were set and that the additional information will “more effectively and efficiently screen transactions for potential competition issues within the initial waiting period, which is typically 30 days.” According to FierceHealthcare, the FTC said it expects the proposed changes will take merging entities 144 hours per filing, up from the current 37-hour average. It’s clear that the mountain of information already needed to file a pre-merger notification and the time needed to gather such information will be much higher, perhaps to months and reveal far more than perhaps some companies want to disclose.
For those surprised that FTC is taking the lead on this, this once-sleepy agency woke up late last year in a heckuva bad humor and is now taking a far more activist role in corporate oversight in areas such as privacy. FTC woke up the dormant Health Breach Notification Rule, created in 2009, to charge GoodRx (settled for $1.5 million) and Teladoc’s great hope BetterHelp (settled for $7.8 million) on ad tracker data practices. Their rationale for action is protecting consumer privacy outside of HIPAA. Both companies definitely fractured consumer trust by misusing ad trackers like Meta Pixel for information gathering, sloppy handling, and monetizing customer health information with third parties. The signs are that FTC will stay aggressive in delving into areas such as consumer harm and how companies manage their data. Earlier this week, two senators in a letter forced Amazon to delay the national rollout of Amazon Clinic until data sharing information was provided by citing the FTC action with GoodRx as the stick. You don’t have to be a HIPAA-covered entity to fall under FTC’s purview–just capture consumer health data then share it with other business units, with third parties, or make deceptive representations to consumers. FTC also can take action without the time-consuming legal actions that DOJ must undertake. (Amazon, take note.)
This Editor believes that there will be two effects on healthcare M&A, large and small. The first could be a rush to file HSR-qualifying transactions (over the low $111.4 million and other requirements) under the existing, less restrictive requirements. (UnitedHealth, CVS Health better get their skates on given their aggressive acquisition strategies.) The second, after the new requirements go into effect, as is likely in 2024, is to overall further depress M&A and investor exits, especially in healthcare and with mid-size private and public companies–and perhaps funding beyond Series A/B. Only the largest companies have the legal bandwidth to comply, and they are not going to expend time and treasure on ‘snap-up’ acquisitions if they fall under HSR. VCs and equity investors may wonder if the cake–building up a company–is worth the candle. Or other interesting stratagems may be devised. Time will tell on this. FTC Lina Khan statement (PDF link), FTC Q&A, full 133-page document on changes to 16 CFR Parts 801 and 803
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