DAMITT 2016 Year in Review: Significant Antitrust Merger Investigations Longer Than Ever; Deal Agreements Reflect Expected Delays

Fast Facts

• Significant merger investigations lasted an average of 9.9 months in 2016, a new DAMITT record.
• The 33 significant investigations in 2016 were the second most in the past six years, but down from the record of 37 significant investigations set in 2015.
• The six complaints filed in 2016 to enjoin transactions were the second most in the past six years, just below the 2015 record of seven complaints.
• Merger cases filed in 2016 suggest that merger litigation takes about eight months—more than three months longer than litigated cases filed in 2015 and more than four months longer than litigated cases filed in 2011.
• Transaction agreements resulting in significant antirust merger investigations resolved in 2016 allotted 15.7 months for antitrust review, up 10% from 2015.

2016 Sets New Record for Duration of Significant Investigations

According to the Dechert Antitrust Merger Investigation Timing Tracker (DAMITT), significant merger investigations concluded by the Department of Justice (DOJ) and Federal Trade Commission (FTC) during 2016 lasted an average of 9.9 months—a new record for the six years during which DAMITT has tracked the data. Significant merger investigations include Hart-Scott-Rodino (HSR) Act reportable transactions resulting in a closing statement, consent order, complaint challenging a transaction, or transaction abandonment for which the agencies take credit.

The 2016 record of 9.9 months is up only slightly from the 2015 average of 9.7 months, but is nearly 40% longer than the 7.1 month average recorded by DAMITT in each of 2011, 2012, and 2013. During 2016, relatively few significant investigations (6 out of 33) were shorter than this previous 7.1 month average. Overall, the median significant investigation lasted 9.7 months in 2016, slightly below the 9.9 month median in 2015, indicating that a smaller number of disproportionately longer investigations were responsible for driving up the average.

DOJ handled both the longest (Halliburton/Baker Hughes – 16.9 months) and shortest (BBA Aviation/Landmark Aviation – 4.4 months) significant investigations in 2016.

Average Duration of Significant U.S. Antitrust Merger Investigations (2011 - 2016)

Number of Significant Investigations and Complaints Filed Down Slightly from 2015 Levels

The 33 significant investigations resolved during 2016 fell short of the DAMITT record of 37 significant investigations set in 2015. However, the 33 significant investigations represented the second most in the six full years during which DAMITT has tracked the data. In addition, the six federal court complaints filed by the agencies to enjoin transactions following significant investigations were the second most in DAMITT’s six years of data, slightly behind the DAMITT record of seven complaints in 2015.

One interesting new trend in 2016 is that the antitrust agencies increasingly agreed to settlements that did not require asset divestitures. During 2016, five significant investigations resulting in a consent order did not require the divestiture of assets to resolve competitive concerns—a result that occurred only four times in the prior five years combined. It appears that as the agencies have been more willing to pursue novel theories of competitive effects, they have also become more accepting of non-structural remedies.

For only the second time in the six years DAMITT has been tracking significant antitrust merger investigations, the agencies issued no closing statements in 2016, an unfortunate reduction in a form of transparency that has provided useful guidance in the past.

Significant U.S. Antitrust Merger Investigations (2011 - 2016)

Divestiture Consents Require Upfront Buyers

The agencies continued to make heavy use of upfront buyer requirements in divestiture consent orders in 2016. The percentage of divestiture consent orders requiring upfront buyers was 86% in 2016, essentially unchanged from 2014-15 but up sharply from 43% over the 2011-13 period, when the average significant merger investigation lasted 7.1 months.

When an upfront buyer is required, before the merging parties can consummate their transaction, they must find a willing and able buyer, negotiate a purchase agreement with that buyer for the divested assets, and present that purchase agreement, the buyer’s business plan, and other information to the agency as part of the approval process. This process can add significant time to the investigation. Over the past two years, consents requiring upfront buyers lasted 2.9 months longer than consents permitting the merging parties to find and negotiate with divestiture buyers after consummating their transaction.

Upfront vs. Post-Order Buyer Trend (2011 - 2016)

DAMITT: Antitrust Merger Litigation is Taking Longer, Too

In addition to investigations taking longer, antitrust merger litigation also took longer in 2016 than in previous years. The agencies filed six complaints in 2016, three of which have scheduling orders and have proceeded or are currently expected to proceed to trial. Data for these three cases suggest that merger litigation continues to lengthen the time to closing for antitrust-sensitive transactions. The average time between the complaint and the first day of trial for these three 2016 cases is 179 days, and the average trial length is 34 days. By comparison, cases filed in 2015 took an average of 100 days to get to trial and an average of 12 days to try the case, both figures representing sharp increases from the last batch of HSR-reportable, litigated merger cases, which were filed in 2011. The 2016 cases have added more than three months to the timeline for litigated merger cases as compared to cases brought in 2015 and more than four months as compared to cases brought in 2011. These statistics suggest that while the length of significant merger investigations may be stabilizing, merging parties contemplating litigation options need to also consider that the duration of merger litigation is increasing at a higher rate.

Time to Litigate Government Antitrust Merger Challenges (Complaints Filed: 2011, 2015 and 2016)

Companies Responded to Increased Investigation, Litigation Durations with Extended Termination Dates

DAMITT’s analysis of publicly available transaction agreements shows that merging parties are allotting more time for antitrust investigations. The average time period from deal announcement to the final termination date in transaction agreements among parties involved in significant merger investigations was 15.7 months in 2016, up from 14.3 months in 2015. As displayed in the charts below, the data also show a tighter distribution of termination date durations in 2016 compared to 2015, with fewer parties taking aggressive timelines. These trends suggest that companies are adjusting the termination periods in their transaction agreements in response to the increased duration of significant merger investigations and litigations.

Time from Announcement to Final Termination Date (Months)
Significant Antitrust Merger Investigations in 2015

Time from Announcement to Final Termination Date (Months)
Significant Antitrust Merger Investigations in 2016

Conclusion

Although merger enforcement was down slightly in 2016 compared to 2015, the duration of significant merger investigations and subsequent litigation continues to trend upward to record levels. While the circumstances of antitrust-sensitive transactions may lead to results above or below DAMITT averages, parties to the hypothetical average deal would have to plan on ten months for the agencies to investigate a transaction and another eight months if they want to preserve their right to litigate an adverse agency decision, and perhaps even longer if the current trends toward longer investigations and litigations continue. Publicly available transaction agreements show the merger market may be adjusting to this expected delay with termination dates further out in time. DAMITT will continue to track these trends in 2017 to measure the impact, if any, of antitrust agency changes under President Trump.