Hart Scott Rodino (HSR) Act

Largest Ever Annual Adjustment to the HSR Premerger Notification Thresholds Announced

Takeaways

  • The new minimum HSR “Size of Transaction” threshold is increasing from $92 million to $101 million.
  • New thresholds apply to transactions closing on or after February 23, 2022.
  • This $9 million increase is the largest ever annual adjustment to the minimum HSR “Size of Transaction” threshold.
  • Failure to file may result in a fine of up to $46,517 per day of non-compliance.
  • The HSR Act casts a wide net, catching mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

The Federal Trade Commission announced revised Hart-Scott-Rodino (“HSR”) filing thresholds on January 24, 2022, as required by the HSR Act, based on the change in the US gross national product. The new minimum HSR “Size of Transaction” threshold is increasing to $101 million from the prior threshold of $92 million. The increase of $9 million, or 9.8%, is the largest annual adjustment to the minimum HSR filing threshold since the adjustments began in 2005. The new threshold will apply to transactions closing on or after February 23, 2022. The HSR Act and Rules require that parties to certain transactions submit an HSR filing and wait up to 30 days (or more, if additional information is formally requested) before closing, which gives the government time to review the transaction for potential antitrust concerns. The HSR Act applies to a wide variety of transactions, including those outside the usual M&A context. Potentially reportable transactions include mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

Determining HSR reportability: Does the transaction meet the Size of Transaction test?

An HSR filing may be required when, as a result of the transaction, the acquiring person will hold an aggregate amount of voting securities, non-corporate interests, and/or assets valued in excess of the HSR “Size of Transaction” threshold in place at the time of closing. Calculating the Size of Transaction may require aggregating voting securities, non-corporate interests, and assets previously acquired, with what will be acquired in the contemplated transaction. The Size of Transaction may also include contingent payments, earnouts, liabilities, and certain debt retired as consideration for the transaction. Talk to HSR counsel to determine your Size of Transaction.

Size of Transaction Test
2021 Threshold

Closing before February 23, 2022

2022 Threshold

Closing on or after February 23, 2022

>$92 million >$101 million

 

If the transaction will close before February 23, 2022, the $92 million threshold still applies; closings on or after February 23, 2022 will be subject to the higher $101 million threshold.

Determining HSR reportability: Do the parties to the transaction meet the Size of Person test?

Certain transactions that satisfy the Size of Transaction threshold must also satisfy the “Size of Person” thresholds to be HSR-reportable. These adjusted thresholds are also effective for all closings on or after February 23, 2022. While the general Size of Person test is set out below, an alternative test may apply to transactions where the Acquired Person is not engaged in manufacturing. Talk to HSR counsel to determine which entity’s sales and assets must be evaluated and which test applies.

Size of Person Test
Size of Transaction >$101 million, but ≤$403.9 million One party (or its Ultimate Parent Entity) has ≥$202 million in total assets or annual net sales, and
The other party (or its Ultimate Parent Entity) has ≥$20.2 million in total assets or annual net sales
Size of Transaction >$403.9 million Reportable regardless of the Size of Person test

 

Filing Fee

For all HSR filings, one filing fee is required per acquisition. The amount of the filing fee is based on the Size of Transaction. Below are the adjusted fee ranges for 2022.

Size of Transaction Filing Fee
More than $101 million, but less than $202 million $45,000
$202 million or greater, but less than $1.0098 billion $125,000
$1.0098 billion or greater $280,000

 

Failure to File Penalty

Failing to submit an HSR filing can carry a significant financial penalty for each day of non-compliance. The maximum civil penalty for HSR violations also adjusts annually and the adjusted maximum civil penalty as of January 10, 2022 is set out below.

Failure to File Penalty
Up to $46,517 per day in violation

 

Always consult HSR counsel to determine whether your transaction is HSR-reportable, especially before concluding that a filing is not required. Even if the Size of Transaction and Size of Person tests are met, the transaction may be exempt from the filing requirements. If you have any questions regarding HSR Act reporting requirements or the new thresholds, please contact the authors listed above or your usual Orrick contact.

DECREASING HSR Premerger Notification Thresholds in 2021

Takeaways

  • The new minimum HSR threshold is DECREASING from $94 million to $92 million.
  • New thresholds apply to any transaction closing on or after March 4, 2021.
  • Failure to file may result in a fine of up to $43,792 per day of non-compliance.
  • The HSR Act casts a wide net, catching mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

The Federal Trade Commission has announced new HSR thresholds for 2021, which are lower than the existing thresholds. The thresholds typically increase year-over-year, but are decreasing in 2021 from $94 million to $92 million, potentially requiring HSR premerger notification filings to the U.S. antitrust agencies for smaller transactions. The new threshold will begin to apply to transactions closing on March 4, 2021. The HSR Act and Rules require that parties to certain transactions submit an HSR filing and wait up to 30 days (or more, if additional information is formally requested) before closing, which gives the government time to review the transaction for potential antitrust concerns. The HSR Act applies to a wide variety of transactions, including those outside the usual M&A context. Potentially reportable transactions include mergers and acquisitions, minority stock positions (including compensation equity and financing rounds), asset acquisitions, joint venture formations, and grants of exclusive licenses, among others.

Determining reportability: Does the transaction meet the Size of Transaction test?

The potential need for an HSR filing requires determining whether the acquiring person will hold an aggregate amount of voting securities, non-corporate interests, and/or assets valued in excess of the HSR “Size of Transaction” threshold that is in place at the time of closing. Calculating the Size of Transaction may require aggregating voting securities, non-corporate interests, and assets previously acquired, with what will be acquired in the contemplated transaction. It may also include more than the purchase price, such as earnouts and liabilities. Talk to your HSR counsel to determine what must be included in determining your Size of Transaction.

If the transaction will close before March 4, 2021, the $94 million threshold still applies; closings as of March 4, 2021 will be subject to the lower $92 million threshold.

Determining reportability: Do the parties to the transaction have to meet the Size of Person test?

Transactions that satisfy the Size of Transaction threshold may also have to satisfy the “Size of Person” thresholds to be HSR-reportable. These new thresholds are also effective for all closings on or after March 4, 2021. Talk to your HSR counsel to determine which entity’s sales and assets must be evaluated.

Filing Fee

For all HSR filings, one filing fee is required per transaction. The amount of the filing fee is based on the Size of Transaction.

Failure to File Penalty

Failing to submit an HSR filing can carry a significant financial penalty for each day of non-compliance.

Always consult with HSR counsel to determine if your transaction is HSR-reportable, especially before concluding that a filing is not required. Even if the Size of Transaction and Size of Person tests are met, the transaction may be exempt from the filing requirements.

Getting in Sync with HSR Timing Considerations

Word 'M&A' of the yellow square pixels on a black matrix background. Mergers and acquisitions concept. Getting in Sync with HSR Timing Considerations

A common question for companies contemplating mergers or acquisitions is how the Hart-Scott-Rodino process works and how long it takes for different kinds of transactions to be reviewed and cleared. The FTC posted a helpful article here today which provides practitioners with guidance regarding timing parameters under the HSR Act, including a helpful HSR timeline graph which can be accessed here.

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