Notable trends in merger review: inside the HSR Annual Report

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Today the FTC and DOJ released the FY 2014 Hart-Scott-Rodino Annual Report, which details the agencies’ merger review and enforcement program for October 1, 2013 through September 30, 2014. As the only complete source of data on federal merger enforcement, the HSR Report is worth a close read, but here’s a little preview of our top four most interesting observations, trends, and takeaways from this year’s report.

Merger filings are UP…. and are approaching pre-recession levels. In FY 2014,the agencies received premerger notification for 1663 transactions, the highest level since FY 2008. That jump represents an increase of more than 25% from the previous year. (See Appendix A)

Mega-mergers are on the rise – Over the past three years, the percentage of reportable merger transactions valued at more than $500 million has steadily increased. By comparing similar figures in Table II for the last couple of years, we see that large transactions are making up an increasing percentage of mergers notified to the agencies. For example, in FY 2012, 74% of adjusted transactions had a transaction value less than $500 million. In FY 2013, that percentage dropped to 69.4%, and in FY 2014, the number fell to 67.6%, meaning that roughly one-third of HSR-reportable mergers in FY 2014 were valued at over $500 million. (See Table II of each report)

Second Request levels are remarkably consistent – Despite fluctuations in the number of adjusted transactions reported in the last 10 years, the percentage of transactions resulting in a request for additional information (a Second Request) remained consistent, ranging from a low of 2.5% to a high of 4.5% for both agencies combined. These numbers confirm that the vast majority of reportable transactions do not raise competitive concerns that merit in-depth review, and the agencies focus their investigative resources on the few that do. (see Appendix A)

Focus on markets where consumer spending is high – As seen in Figure 3, nearly one third of notified transactions involved the purchase of a company in the Consumer Goods and Services sector of the economy. Not surprisingly, many FTC enforcement actions also fall in this category, and aim at maintaining competition for products consumers buy every day, from groceries and funeral services to class rings. Another area of focus for the FTC is pharmaceuticals: in FY 2014, the FTC preserved competition for 20 different prescription drugs, as well as over-the-counter treatments for motion-sickness. The FTC also continues to challenge mergers between health care providers such as hospitals, because competition helps keep health care costs down while providing incentives to improve care.

Premerger notification under the HSR Act has been instrumental in alerting the agencies to transactions that may pose a threat to competition, and the HSR Annual Report is a good source of information about U.S. merger review. For some insight on what merger enforcement was like without premerger notification, take a look at Milestones in FTC history: HSR Act launches effective premerger review.

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