For some Sellers of privately held companies, complying with Hart-Scott-Rodino (“HSR”) requirements can be the key issue related to the timing of the closing.
Essentially HSR requires that transactions of a certain size give notification of a proposed transaction to the authorities (the FTC and the DOJ). The authorities can impose conditions for any proposed transaction, but my experience with mostly smaller transactions – those near the threshold limits – is that no governmental action is likely to result. Nevertheless, fines for failure to comply can be considerable – up to $16,000 per day – and interpretation of some of its provisions can be highly technical, so no one should treat compliance lightly.
The FTC is required to adjust those size standards annually to keep pace with inflation. The recent – January 24th – announcement concerning this year’s adjustment can be found here, and the actual Federal Register entry can be found here; the new standards are effective February 27th.
There are two prongs to the test, both of which must be satisfied:
- Size of Transaction Test: Notification required if of assets, securities, or other forms of equity of $68.2 Million (up from $66 Million) or more;
- Size of “Person” Test: One party must have $136.4 Million in assets or annual net sales, and the second party must have $13.6 Million in assets or annual net sales.
And the costs of compliance are not immaterial. The minimum fee to the government is $45,000, and that of course does not include the attorneys’ fees required to complete the required notification.
As I noted, the standards are adjusted yearly, so if you are “close,” make sure you are looking at the current standards.