WASHINGTON – After a legislative extension, Hart-Scott-Rodino (HSR) reform passed Congress on Dec. 15 as part of a larger Commerce-Justice-State appropriations bill that was signed into law by President Clinton on Dec. 21, according to Paul Brownell, director of federal policy and political advocacy for the National Venture Capital Association.
The reform bill will raise the minimum filing requirements on mergers and acquisitions to $50 million from $15 million.
HSR reform was included in a bill that was originally vetoed by President Clinton, although the part of the bill regarding HSR was never in dispute. Last minute negotiations on the revised bill involved both Congressional and presidential representatives.
Originally passed in 1976, HSR legislation dictates antitrust filing procedures for mergers and acquisitions. The legislation can effect venture capitalists both at the time of their original acquisition of a portfolio company and when a portfolio company exits through merger. The original act provided a filing exemption for transactions under $15 million.
“This has been an area where clearly legitimate, venture-type transactions that had no antitrust dimension whatsoever were being slowed down, and significant additional costs and burdens were being imposed with no regulatory purposes,” said Alan Austin, chief operating officer of Accel Partners.
The Federal Trade Commission and Justice Department can effectively stop any transaction if either agency suspects an antitrust violation, but HSR created a filing procedure and forced parties involved in large transactions to file.
However, the definition of a large transaction has changed in a quarter century. At the time it originally became law, the threshold did not often effect VCs. However, with larger disbursements and mergers, VCs are more likely to cross the $15 million line.
“Hart-Scott-Rodino was never intended to target venture investments, let alone the small M&A transactions that are no threat to competition in the marketplace,” wrote Mark Heeson, president of the NVCA, in a prepared statement.
Before the reform, a party acquiring $15 million of the target’s assets or securities would have to file a pre-merger notification form. The form requires a $45,000 filing fee and begins a 30-day waiting period before the transaction can continue.
On top of the statutory costs of filing, information provided by the NVCA estimated the preparation of the filing information might cost $7,000 to $10,000 and take up to three weeks. Brownell said the involved companies also had to worry about the deal getting delayed. Firms involved in transactions less than $50 million no longer have to file the forms or pay the fee.
“We must make sure that federal laws support and are updated for the nation’s expanded high-tech economy,” said Sen. Orrin Hatch in a prepared statement following the Senate’s passage of its version of the HSR text.
Brownell said the agencies involved in the filing had been using the fees for their operating budgets, and as a result pushed for an amended fee structure. Transactions from $50 million to $100 million still carry the $45,000 fee. However, transactions between $100 million and $500 million now carry a $125,000 fee, and deals over $500 million carry a $280,000 fee.
Several advocacy groups joined the NVCA in supporting the reform. The reform also benefited companies involved in larger mergers, because it increased their protection against “second requests,” which begin the lengthy contest from the agencies.