Your second interpretation is correct – only include internal transfers for purposes of calculating the $10 million threshold but not for purposes of listing top 10 customers or suppliers.
Question
I am working on a sell-side transaction where the target’s top 10 customers for related sales may include other companies owned by the acquired ultimate parent entity. Likewise, for related purchases, the top 10 suppliers for the associated input product, service, or asset may include other companies owned by the acquired ultimate parent entity..
The HSR Form Acquired Person Instructions note that related sales should be listed:
“that the target has sold, licensed, or otherwise supplied, and which represented at least $10 million in revenue (including internal transfers) in the most recent year (1) to the acquiring person, or (2) to any other business that, to the acquired person’s knowledge or belief, uses the target’s product, service, or asset to compete with the acquiring person’s products or services, or as an input for a product or service that competes or is intended to compete with the acquiring person’s products or services.” (Emphasis added)
It further notes that related purchases should be listed:
“that that the target incorporates as an input into any product or service and that the target has purchased, licensed, or otherwise obtained and which represented at least $10 million in revenue (including internal transfers), in the most recent year (1) from the acquiring person or (2) from any other business that, to the acquired person’s knowledge or belief, competes with acquiring person to provide a substantially similar product, service, or asset.” (Emphasis added)
Both instructions direct us to include internal transfers in the revenue calculation. We believe this means we should include internal customers and suppliers (owned by the same UPE as the target) responsible for those same internal transfers in the lists of top 10 customers and top 10 suppliers. Can you please confirm our understanding is correct? If not, can you indicate whether this means that we should only include internal transfers for purposes of calculating the $10 million threshold but not for purposes of listing top 10 customers / suppliers, which should solely consist of third party customers / suppliers?