Regulatory changes and government antitrust scrutiny of merger and acquisition activity have led to increased attention to Hart-Scott-Rodino (HSR) Second Requests.
The past few years have been busy in the M&A space. In Fiscal Year 2022, merging parties filed 3,029 transactions eligible for Second Request with regulatory agencies—the second highest in almost 20 years, surpassed only by FY 2021.
On the regulatory front, several developments over the past year promise to impact Second Requests, potentially increasing the burden of responding to the requests for merging parties. These regulations, covered in more detail in our report, Emerging Trends in Second Requests, include:
The prospect of more stringent and frequent Second Requests is likely to have a tangible effect on corporate dealings, beginning as early as this year.
A view from the ground: Second Requests and their practical impact
Over the first quarter of 2024, our antitrust teams have handled nearly as many Second Request engagements as they had over the entirety of 2023—an indicator that, in addition to more stringent response requirements, regulators may also be issuing more Second Requests overall in the current regulatory environment.
In addition to more frequent Second Requests, leading antitrust attorneys indicate that regulators are asking for more in-depth and detailed information during the Second Request process and pushing for more concessions in exchange for modifications. This has led counsel to seek to avoid entering timing agreements with the agencies in order to comply quickly without typical modifications, which increases the Second Request eDiscovery burden.
Bryan Marra, Senior Attorney at Arnold & Porter, explained:
“Given the aggressive enforcement posture of the agencies, I have seen more of an emphasis on complying quickly without negotiating a timing agreement. This puts more pressure from an eDiscovery standpoint on producing quickly and oftentimes without the benefit of the modifications to the privilege log or refreshed collections that you might ordinarily receive.”
Harsha Kurpad, eDiscovery Case Attorney at Latham & Watkins, said:
“The FTC and DOJ have been significantly more aggressive in both data and document requests over the past two to three years. They are not only issuing Second Requests more frequently with increased depth and breadth, but they are also increasing their scrutiny on document retention policies, sources of relevant materials, any potential preservation issues, hyperlinked documents, and exacting more concessions in exchanges for timing agreements or modifications. Regulators are also increasing the threat of litigation (and following through with those threats in some instances). There is also a new level of unpredictability regarding which deals will receive a Second Request—where deals we would normally expect to receive a Second Request have been cleared without an issue, while others without ostensible antitrust issues receive one.”
Outlook for 2024 and beyond
With the upcoming U.S. presidential election, it remains to be seen whether the aggressive antitrust enforcement continues past 2024. However, regardless of political changes, the proposed and enacted regulatory changes will certainly impact how organizations respond to these requests. Parties to an HSR merger will need to produce more information than before, much earlier in the process, and with more aggressive deadlines. This is especially true of the proposed rule changes to "Item 4" documentation. There is concern that these changes will have a chilling effect on M&A activity.
According to Marra, “Expect continued aggressive enforcement by the agencies. Companies may also hold off on deal activity to see what the outcome of the 2024 presidential election will be.”
Similarly, Kurpad said the political landscape will predictably impact the M&A landscape over the next year:
“There is an emerging bipartisan consensus about antitrust enforcement generally so if the government changes it’s possible that we’ll see the same level of scrutiny. It’s also possible that the confirmation process for any changes to DOJ or FTC leadership leads agency staff to continue with the current status quo as far as aggressiveness and number of Second Requests issued. In any case, when the HSR rules change this year, companies will need to be prepared for more burdensome disclosure requirements on the front end of transactions.”
Prepare for the future of Second Requests
The regulatory trends, political uncertainty, and volume of Second Request engagements we’ve seen make preparation imperative for any legal team handling M&A activity in the near future.
We recommend antitrust counsel begin to explore and test AI capabilities to help expedite and streamline the Second Request process if they haven’t already done so. The short deadlines and documentation required when responding to HSR Item 4(c) and 4(d) and Second Request processes make efficiency and speed paramount. Predictive and generative AI options that leverage large language models (LLMs) can make a significant difference when faced with a Second Request due to their increased accuracy, speed, and ability to handle large data volumes.
Likewise, find the support of a law firm or eDiscovery vendor with experience handling Second Requests. That experience navigating the potential pitfalls of this process will prove invaluable.
“The main thing is preparing for the data volumes and costs associated with complying with a Second Request and having in-depth discussions with outside counsel so none of this is a surprise,” Kurpad said.
“Have a strategy in place to comply quickly without the modifications you might ordinarily receive, including on the privilege log,” Marra explained. “Make sure you have the right team in place both from an eDiscovery and review standpoint, but also in terms of client resources to collect documents quickly.”
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