April 30, 2019

Antitrust: Longer Investigations & Smaller Reverse Break Fees

According to Dechert’s latest report on antitrust merger investigations, the number of significant U.S. investigations declined almost 40% during the 12 months ending in Q1 2019 compared to the prior rolling 12 months.  That’s the good news for dealmakers.  The bad news is that notwithstanding regulators’ stated desire to speed up the pace of these investigations, their average duration increased by nearly a month, due in part to the 35-day U.S. government shutdown.

Dechert’s report also includes data on a number of other antitrust M&A issues, including the number & duration of EU antitrust investigations. This excerpt addresses what parties can expect when it comes to a potential investigation’s timeline:

Current statistics suggest that parties to the hypothetical average “significant” investigation subject to review only in the United States would have to plan on approximately 11 months for the agencies to investigate a transaction, and another five to seven months if they want to preserve their right to litigate an adverse agency decision.

Deal timetables for EU cases where the investigation is likely to proceed to Phase II need to allow for an average lapse of almost 13 months from announcement to clearance. If the investigation is likely to be resolved in Phase I with remedies, the deal timetable should allow for approximately 8 months from announcement to a decision.

One aspect of the report that caught my eye related to contractual termination rights & antitrust reverse breakup fees. Extended contractual “drop dead” dates to address antitrust issues & provisions calling for payment of reverse breakup fees are common when a seller anticipates that a deal may involve significant antitrust risk.  Here are some of the key takeaways on this topic:

– Analysis of publicly available transaction agreements for deals involved in significant U.S. merger investigations suggests that companies are agreeing to longer termination periods but smaller break fees.

– The average time from deal announcement to the final termination date in transaction agreements for significant U.S. merger investigations that concluded in 2018 was 16.9 months, up from an average of 14.6 months from 2015-2017.

– While termination periods have increased, antitrust-related reverse break fees have been trending downward since 2015. Significant U.S. investigations concluding in 2018 had an average reverse break fee of 3.2%, down from an average of 4.4% from 2015-2017.

John Jenkins