This week, the FTC announced a proposed consent agreement to alter another completed transaction that was too small to be reported under the Hart-Scott-Rodino Act (“HSR Act”).
The FTC’s complaint alleged that Solera Holdings Inc. and Actual Systems of America, Inc., through their subsidiaries, were competing providers of yard management systems software (“YMS”) used by automotive recycling yards. On May 29, 2012, Solera acquired Actual Systems and its subsidiaries through stock and asset purchase agreements for a collective value of approximately $8.7 million. FTC also alleged that the YMS market is highly concentrated, with Solera and Actual Systems having been two of only three meaningful providers of YMS. The FTC contended that the acquisition has substantially lessened competition for YMS in the U.S. and Canada. In a proposed settlement, Solera agrees to sell certain assets related to Actual Systems to a third party formed by former Actual Systems managers.
The FTC’s challenge is notable because the transaction, at $8.9 million, was below the HSR Act’s 2012 reporting threshold of about $68 million. Challenges of non-reportable transactions are rare, especially when the transaction is well below the threshold. Two dozen or so non-reportable transactions have been investigated over the past 10 years, as we previously noted, but only a few of those challenges involved transactions in amounts far less than the reporting threshold at the time.
The FTC’s challenge and settlement also is notable for altering a completed transaction. It is uncommon for competed transactions to be undone. On occasion, however, antitrust enforcement agencies will seek to alter a completed transaction, including transactions below the reporting threshold. Last year, for example, a buyer in a $15 million transaction challenged by the FTC agreed to sell technology and know-how to a third party. Similarly, in 2010, the DOJ required a buyer in a transaction valued at $5 million to divest equipment and other assets it had purchased the previous year and to license certain software at no charge.
The FTC’s action against Solara once again illustrates how transactions in values below the HSR Act reporting threshold may be reviewed, challenged, and altered by antitrust enforcement agencies, particularly if the transaction concerns a highly concentrated market. Parties may bring such non-reportable transactions to the attention of the agencies prior to closing. However, before doing so, the parties should balance possible greater certainty against many factors, including: The transaction might have otherwise gained no notice; the act of bringing the transaction to the attention of the agencies might initiate an investigation; the existence of “hot documents;” and unpredictable delay because, unlike reviews under the HSR Act, there is no time limit for the agencies to complete their review.