Cornerstone Research Report: Merger Transactions in FY 2016 at Highest Level Since FY 2007

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17 Percent of Agency Challenges Result in Court Proceedings

The number of reported merger transactions continued to trend higher in FY 2016. According to Cornerstone Research’s third annual edition of Trends in Merger Investigations and Enforcement at the U.S. Antitrust Agencies, there were 1,772 reported merger transactions in FY 2016, the highest total since FY 2007.

This study analyzes data from the most recent Hart-Scott-Rodino Report, released jointly by the Federal Trade Commission and the U.S. Department of Justice on October 4, 2017. The FY 2016 report covers October 1, 2015, through September 30, 2016.

While the number of reported transactions increased, the number of clearances - transactions cleared for further agency investigation -decreased in FY 2016. In fact, the FTC or DOJ received clearance to proceed with additional regulatory reviews in only 13 percent of reported merger transactions - the lowest level in the previous 10 fiscal years.

“What stands out in the latest HSR Report is that even though clearances decreased, overall agency enforcement did not. On the contrary, the FTC and the DOJ issued more second requests and challenged more deals in FY 2016 than in FY 2015,” said Çagatay Koç, coauthor of the report and a principal at Cornerstone Research. “Of the 47 mergers that the agencies challenged, eight of these, or 17 percent, resulted in court proceedings, more than double the historical average of three between FY 2007 and FY 2015.”

After the merging parties report a proposed transaction, the FTC or DOJ has 30 days to decide whether to issue a second request for additional information. In FY 2016, the FTC had the majority of clearances - 176 versus the DOJ’s 62. However, in line with historical tendencies, the DOJ converted a larger share of its clearances into second requests (47 percent) than did the FTC (14 percent).

In FY 2016, second requests skewed toward larger transactions. Of the second requests issued in FY 2016, 66 percent were for transactions larger than $500 million.

Key Trends

  • Reported merger transactions rise: The increase in the number of reported transactions observed since FY 2013 continued. There were 1,772 reported transactions in FY 2016 compared to 1,754 in FY 2015.
  • Clearances as a share of transactions continue to decline: Clearances as a share of transactions decreased from 14.7 percent in FY 2015 to 13.4 percent in FY 2016, the lowest point in the last 10 fiscal years.
  • Second requests as a share of clearances reverse a three-year downward trend: In FY 2016, 22.7 percent of cleared transactions received second requests, an increase from 18.2 percent in FY 2015.
  • Pharmaceuticals has the highest enforcement focus: Pharmaceuticals is the only sector to maintain a positive enforcement focus each year since FY 2007. The Information and Manufacturing sectors followed Pharmaceuticals in enforcement focus in FY 2016.
  • Agency challenges rise for the second consecutive year: The FTC and DOJ challenged 47 mergers in FY 2016, compared to the FY 2007–FY 2015 average of 37.
  • More challenges result in court proceedings: In FY 2016, 17 percent of the agencies’ challenges resulted in court proceedings, the second-highest percentage over the past 10 fiscal years.

About the Hart-Scott-Rodino Annual Report
On October 4, 2017, the FTC and DOJ released the Hart-Scott-Rodino (HSR) Annual Report for FY 2016. The Report covers data obtained through the agencies’ premerger notification program under the HSR Antitrust Improvements Act of 1976, and includes data on all stages of merger investigations. The federal government’s fiscal year runs from October 1 of the prior year through September 30 of the current year.

About the Cornerstone Research Report
Trends in Merger Investigations and Enforcement at the U.S. Antitrust Agencies is the third in a series of annual Cornerstone Research reports that describe merger investigations and enforcement activity at the Bureau of Competition at the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice.

The report examines current activity levels and historical trends at all stages of merger investigations - filings, clearances, second requests, and challenges - and analyzes merger enforcement by size, industry, and agency. These findings are based on data from the past 10 joint FTC/DOJ annual reports to Congress, covering the period October 1, 2006, through September 30, 2016.

About Cornerstone Research
Cornerstone Research provides economic and financial consulting and expert testimony in all phases of complex litigation and regulatory proceedings. The firm works with an extensive network of prominent faculty and industry practitioners to identify the best-qualified expert for each assignment. Cornerstone Research has earned a reputation for consistent high quality and effectiveness by delivering rigorous, state-of-the-art analysis for over 25 years. The firm has 700 staff and offices in Boston, Chicago, London, Los Angeles, New York, San Francisco, Silicon Valley, and Washington.

Please visit Cornerstone Research’s website for more information about the firm’s capabilities in economic and financial consulting and expert testimony.
Twitter: @Cornerstone_Res

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