Private Equity Firms Could Suffer Under New Merger Rules

New U.S. rules governing mergers could hit private equity firms harder than most companies.

That’s according to a report Saturday (July 1) by the Financial Times, citing interviews with antitrust experts.

These experts argue that proposed changes to the Hart-Scott-Rodino (HSR) form, which companies use to notify the regulators about deals that certain amounts, would force buyout firms to disclose substantially more information early in the deal and could lead to more mergers being blocked.

“This is breathtaking and astonishing in its reach and potential impact to deals,” James Langston, a partner at Cleary Gottlieb in New York, told the FT. “There’s nothing about the existing process that was broken.”

The new rules – the first update in more than 40 years – would require companies to submit more detailed information to the Federal Trade Commission and the Department of Justice about the players involved, their respective markets and how the companies operate before an initial 30-day assessment.

Lina Khan, FTC chair, said in a statement that “much has changed” since the HSR was first introduced, including the increasing complexity and volume of mergers.

“The information currently collected by the HSR form is insufficient for our teams to determine, in the initial 30 days, whether a proposed deal may violate the antitrust laws,” she said.

The changes come at a time when deals are becoming harder and harder to fund. As noted here in late March, worldwide global mergers and acquisitions (M&A) volumes were by 48% year over year in the first quarter of the year, slowing to the lowest level in more than a decade.

That drop was due to a number of factors, including rising interest rates, high inflation, global geopolitical tensions, recession fears and banking turmoil.

The upheaval around the Silicon Valley Bank/Signature Bank collapses in the U.S. and the Credit Suisse crisis in Europe caused many companies to put the brakes on in-progress deals, out of concerns about wide-spread uncertainty as they hunted for financing.

PYMNTS spoke in May with David Metz, CEO of Prizeout, about how companies can navigate this difficult funding landscape.

“In recent years, money was flowing freely, funding was never-ending for ideas that sometimes never came to fruition, and companies without products saw unexpected valuations,” said Metz. “We’re seeing this end, and that’s not necessarily a bad thing.”

He contended the situation will bring about “a lot more intentionality, focus, and direction” on how firms make and spend funds, and argued the “culture of ‘disrupt’” has been put on pause while the “culture of necessity” is on the rise.

“I predict that the companies left standing in 2023 will be those creating products that are not just ‘cool,’ but rather essential and solving real and tangible problems for all walks of life,” Metz said.