Why Use a Hammer When You Can Use a Swiss Army Knife?: Considerations for HSR Second Requests

In our first post in this series, we discussed how eDiscovery technology and workflows are being applied to several different use cases today. According to eDiscovery Today’s 2023 State of the Industry Report, seven use cases are being applied by at least 40% of 410 survey respondents.

One of those use cases is Hart–Scott–Rodino (HSR) second requests, for which eDiscovery is used by more than 40% (42.9%) of respondents – the sixth highest percentage of respondents overall. In this post, we’ll discuss what HSR second requests are, how eDiscovery for HSR second requests differs from eDiscovery for litigation, and six considerations for conducting HSR second requests effectively.

Understanding HSR Second Requests

The HSR Act is a set of amendments to the antitrust laws of the US and has been in place since 1976. The HSR Act requires that parties wait to complete certain mergers, acquisitions or transfers of securities or assets, including grants of executive compensation, until they have made a detailed filing with the FTC and DOJ and waited for those government agencies to determine that the transaction will not adversely affect US commerce under antitrust laws. If the FTC or DOJ seeks additional information through what is known as a “second request,” the law forbids merging firms from consummating a transaction until the companies have substantially complied with the additional investigatory request.

Once a second request is issued, the FTC and/or DOJ negotiates with the parties involved to discuss the scope of information needed to satisfy the government’s information needs to approve the merger or acquisition and the time frame for the information to be provided (among other things).

According to Statista, there have been 104,745 merger and acquisition (M&A) transactions in the US in the past five years, with 2021 having a record number of transactions, with 24,899 (after a dip the previous year because of the COVID 19 pandemic). Typically, a small percentage of transactions (about 3 percent on average) result in second requests.

There are three possible outcomes that stem from the Second Request process. They are:

• Expiration or Termination: Expiration of the waiting period or agreement for early termination without action from the FTC or DOJ enables the parties to complete the transaction.
• Parties Negotiate Consent Agreement: The FTC and/or DOJ may identify issues with the filing, which the parties then may negotiate remedies via a consent agreement to address the issues and enable the transaction to still be completed.
• FTC or DOJ Sues to Block the Transaction: Then, the HSR second request evolves into litigation and a lot of the documentation that the parties compile to respond to the Second Request can become evidence in the subsequent litigation.

How eDiscovery for HSR Second Requests Differs from eDiscovery for Litigation

There are several differences between eDiscovery for HSR Second Requests when compared to litigation, so they require unique workflows and considerations. Here are three of the considerations for HSR second requests:

• Data Volumes: The typical scope of information requested to support most second requests are quite voluminous (compared to the typical discovery request to support litigation) as they often involve discovery of a wide range of documents within the organization to address the antitrust determination.
• Uni-Directional Discovery: Unlike litigation, where both sides of a case conduct and produce discovery (bi-directional), discovery for HSR second requests are one-directional to the FTC and/or DOJ from the filing company.
• Timing: The HSR Act and various rules associated with it require parties involved in mergers and acquisitions to submit premerger notification filings, then wait before completing the transaction. After announcing the transaction, the parties involved file an HSR notification with the FTC and DOJ (for 801.30 transactions, only the buyer’s filing must be received). Once the filing is complete, the clock begins ticking with up to two waiting periods, depending on how the process unfolds. Regardless, the entire time frame to respond to HSR second requests is typically a fraction of the time to respond to discovery requests in litigation – as soon as 30 days!

Six Considerations for Conducting HSR Second Requests Effectively

As we discussed in our HSR second request blog post series last year (here and here), there are at least six considerations for conducting HSR second requests effectively. They are:

1. Early Call with Counsel: Once you’ve received an HSR Second Request, one of the first steps that should be undertaken is an early call with an outside counsel firm experienced in antitrust matters and the Second Request process to review the specifications. Experienced counsel will understand what the agencies are looking for and how best to respond to each component of the Second Request and the type of personnel needed for each response, so this is an important first step.
2. Roles & Responsibilities: After that call with counsel, it’s important to identify roles and create a responsibility workflow with clearly defined paths for each of the roles. That not only sets expectations up front, but it also enables you to quickly follow-up with the appropriate person to address deficiencies or mistakes. Examples of roles and responsibilities include data and document specs, and narrative responses from in-house and/or outside counsel.
3. Obtaining the Data and Documents: Like any discovery effort, you need to find out which custodians have relevant data and documents, what do they have and when and how you can obtain it. Given the accelerated time frame, the ease of doing so may depend on how robust your information governance program is and whether your organization has a current data map.
4. Data Ingestion through Data Production: Obtaining the data and documents is just the beginning. As is the case with any discovery process, the data and documents must be ingested into a platform for analysis and review, then analyzed and reviewed to determine which are responsive to the Second Request, then produced. It’s important to build in enough time not only for document review but also for physical production of the information in response to the Second Request, in a manner that it can be easily understood by the requesting agencies.
5. Timing Agreement: Another consideration is whether to pursue a timing agreement with the agencies. The timing agreement can benefit the parties involved in the transaction as well as the agencies, who often are constrained to review all the information and documents received in response to a Second Request within the normal second waiting period time frame. The benefit to the parties is that the agencies often commit to a smaller number of custodians or other modifications if a timing agreement is reached.
6. TAR or No TAR?: Potential benefits to using Technology Assisted Review (TAR) to assist with your Second Request review include the potential ability to conduct review faster, more accurately at a reduced cost. However, TAR is typically not good with spreadsheets and other documents that are number-intensive (like financial documents), may struggle with responsiveness determinations that are more nuanced, and the use of it may need to be disclosed, so it’s important to work with an expert that understands the HSR Second Request process, the capabilities of TAR and how to manage TAR workflows, as well as how to apply the parameters of your situation to make the decision about TAR.

Conclusion

M&A transactions are happening at a faster rate than ever, which means a greater potential for your organization to be hit with an HSR Second Request in your own M&A transactions. It’s important to understand the considerations and unique characteristics of HSR second requests to leverage technology and expertise to meet the unique eDiscovery workflows associated with them!

For more regarding Cimplifi corporate transactions & antitrust services, click here.

In case you missed the other blogs in this series, Why Use a Hammer When You Can Use a Swiss Army Knife?: Use Cases for eDiscovery Today,  you can find them here:

Why Use a Hammer When You Can Use a Swiss Army Knife?: Use Cases for eDiscovery Today

Why Use a Hammer When You Can Use a Swiss Army Knife?: Considerations for Arbitration

Why Use a Hammer When You Can Use a Swiss Army Knife?: Considerations for Investigations

Why Use a Hammer When You Can Use a Swiss Army Knife?: Considerations for Incident Response

Why Use a Hammer When You Can Use a Swiss Army Knife?: Considerations for Privacy Requests

Why Use a Hammer When You Can Use a Swiss Army Knife?: Considerations for Government Information Requests

Why Use a Hammer When You Can Use a Swiss Army Knife?: Considerations for HSR Second
Requests

Why Use a Hammer When You Can Use a Swiss Army Knife?: Considerations for Information Governance

Why Use a Hammer When You Can Use a Swiss Army Knife?: Considerations for Litigation

To learn more about Cimplifi or to speak to an expert about our expertise across the EDRM, you can visit our website or reach out here.