September 30, 2020

Investment Firms Be on Alert: Antitrust Agencies Propose Changes that Would Increase HSR Filings

The Federal Trade Commission and the Antitrust Division of the Department of Justice (the “Agencies”) recently proposed two changes to the Hart-Scott-Rodino (“HSR”) rules that, if implemented, will materially impact private equity, venture capital, and other investment firms. One proposed rule will exempt from the HSR filing requirements certain acquisitions of 10% or less of an issuer, and the other will require certain entities to aggregate their holdings in an issuer to determine whether the HSR thresholds are met. While the former may decrease the number of HSR filings that are required, the latter will have the opposite effect, and the net result of the two proposed changes likely will be more HSR filings for investment firms.


The HSR Act requires parties to submit notifications to the Agencies and observe waiting periods prior to closing a transaction if certain thresholds are met and no exemption applies. This notification system is designed to give the Agencies a chance to investigate and potentially block deals that present competitive issues. Under the HSR rules, determining which entities are subject to the requirements, whether thresholds are met, and what exemptions apply can be quite complicated. The Agencies have proposed certain rule changes and are considering additional rule changes in the near future that, if implemented, will have a material impact on HSR filing obligations. Two new proposed changes will have a material effect on investment firms.

New Exemption for Acquisitions of 10% or Less of an Issuer

One proposed rule change seeks to exempt acquisitions of 10% or less of an issuer if the investor does not have a significant competitive relationship to the issuer. The vast majority of notified transactions are allowed to proceed with no intervention by the Agencies, and the Agencies have stated that acquisitions of 10% or less almost never result in competitive issues. While a 10% exemption for acquisitions made “solely for the purpose of investment” (commonly referred to as the “passive investment” exemption) exists already, this exemption is quite narrow (and investment firms often cannot rely upon it). This new proposal relies less on subjective intent (as the passive investment exemption does) and instead uses different factors – whether the investor is a competitor (or a shareholder of a competitor) to the issuer, whether a representative of the investor is an officer or director of the issuer (or a competitor of an issuer), and whether the investor has a vendor-vendee relationship with the issuer (with sales between the parties of more than $10 million in the last completed year).

Broader Definition of “Person”

While the new 10% rule could decrease the number of required filings, another proposed rule will increase the number of filings, particularly for investment firms. Because of the current definitions under the current HSR rules, individual investment funds are usually considered separate persons for HSR purposes, even if they are under common management (for example, sharing the same general partner that manages the investments of the fund). Thus, to determine whether the size-of-transaction threshold (currently at $94 million, the thresholds change annually) is met, the holdings of multiple funds usually are not aggregated; each fund could acquire $94 million without triggering an HSR filing obligation.

The new proposed rule changes the definition of “person” under the HSR rules and now will combine entities under common investment management (note that the Agencies in the past have viewed operational management as distinct from investment management). The term “person” will now include “associates” and the “managing entity.” These terms are complicated and can be quite technical, but the result for investment firms is that funds that share a general partner (or whose general partners are themselves under common management) will now be aggregated for HSR purposes, and certain additional information regarding the funds will be required in the HSR forms. This will have an effect on the calculation of the size-of-transaction threshold, the size-of-person threshold, and percentage holdings of an entity.

  • Size of transaction: Firms often invest in companies through multiple funds and investment vehicles. While the current size-of-transaction threshold is $94 million, firms could invest more than that amount and still not be subject to filing requirements if the total investment was allocated amongst different funds or acquisition vehicles that the HSR rules currently consider their own separate persons. Under the aggregation requirements of the proposed rule, it will be easier to exceed the $94 million threshold (and each of the subsequent HSR thresholds).
  • Size of person: New funds with little or no investments often did not meet the size-of-person thresholds, which look to total assets and sales. Such funds often could acquire more than $94 million in shares in an issuer yet not file HSR. Under the proposed rule, the total assets and sales of related funds could factor into the calculation of this threshold. 
  • Exemptions: Some acquisitions of 10% or less of an issuer are exempt. Under the proposed rule, funds that hold less than this amount will no longer qualify for these exemptions if related funds also hold shares of the issuer such that their combined holdings exceed 10%.  In addition, it will be easier to exceed the 50% control threshold, which is especially important for acquisitions of non-corporate entities, which are not reportable unless control is acquired.


The Agencies are actively considering these as well as other rule changes, and they will materially affect the HSR filing requirements for investment firms. We will keep our clients updated as to when and if these rules come into effect. If you have any questions regarding the HSR rules or would like to submit comments to the Agencies regarding these proposed changes, please reach out to the authors or a member of the Goodwin Antitrust + Competition team. Comments are due within 60 days of publication of the proposed rule in the Federal Register.