HSR Pre-Merger Notification: When Your Deal Requires Federal Approval

What HSR is and who it applies to

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 requires parties to certain acquisitions to notify the Federal Trade Commission and the Department of Justice before closing and to observe a mandatory waiting period before completing the transaction. The purpose is to allow the agencies to review mergers for potential anticompetitive effects before they occur, rather than attempting to unwind them afterward.

In the lower middle market, HSR is rarely encountered — most deals fall below the filing threshold. But the threshold adjusts annually for inflation, and in a market where deal values regularly approach or exceed $100M, founders and their advisors need to confirm applicability before setting a close date. A founder who builds a 90-day close timeline without accounting for a 30-day HSR waiting period will breach the purchase agreement when closing cannot happen on schedule.

HSR applies when the "size of transaction" test and, in most cases, the "size of person" test are both met. The size of transaction test is met when the deal value exceeds the applicable threshold. The size of person test requires at least one party to have at least $239M in annual revenues or total assets, and the other party to have at least $23.9M. Transactions involving a very small seller — a founder-owned business with limited assets and revenues — may be exempt from the size of person test even when the deal value exceeds the transaction threshold. Transaction counsel should make an affirmative HSR determination at the LOI stage, not leave it as an assumption.

The 30-day waiting period and what happens during it

Once both parties file their HSR notifications, the 30-calendar-day waiting period begins. During this period the transaction cannot close. The parties can continue negotiating ancillary documents, arranging financing, and preparing for integration — but the deal cannot be consummated until the waiting period expires or is terminated early.

At the end of the 30-day period, if the agencies have taken no action, the parties may proceed to close. In practice, most transactions that file and do not raise antitrust concerns receive clearance before 30 days expire, either through explicit early termination or the agencies' passive non-objection.

The FTC and DOJ divide review responsibility by industry. The FTC typically reviews healthcare, pharmaceuticals, consumer goods, and technology. The DOJ typically reviews media, financial services, defense, and industrials. Both agencies can make referrals to each other and the allocation can change.

Second Requests: what they are and when they happen

A Second Request is a formal demand from the reviewing agency for extensive additional documents and information. When issued, a new waiting period begins: the parties must fully comply, then a second 30-day period runs from the date of compliance. Full compliance with a Second Request for a large transaction can take 6–18 months and cost millions in legal and e-discovery expenses.

Second Requests are uncommon for financial buyer acquisitions of lower-middle-market businesses. They are more frequent when the buyer or its portfolio has significant existing market share in the seller's industry, when the deal is a direct horizontal merger between competitors, or when the combination creates concentration in a specific market. Private equity acquisitions of lower-middle-market service businesses rarely trigger Second Requests. Strategic acquisitions in concentrated markets carry the highest risk.

Gun jumping: the compliance risk during the waiting period

Gun jumping is coordinating operations, sharing competitively sensitive information, or effectively transferring control between buyer and seller before the HSR waiting period expires. It is a civil antitrust violation subject to the same per-day fines as a failure to file.

Information sharing during diligence is standard practice. The question is what type and how it is used. Sharing historical financial statements and operational data for valuation is generally permissible. Sharing real-time pricing data, coordinating sales strategies, or allowing the buyer to exercise operational control before closing is gun jumping.

Clean team protocols — where competitively sensitive information is shared only with designated buyer representatives not involved in competitive decisions — are the standard mitigation. Any deal with HSR exposure should establish a clean team agreement before sharing real-time competitive data.

How HSR affects deal timing and what founders should do

For founders whose deals are in the HSR range, the practical implication is simple: build the 30-day waiting period into every timeline from the LOI forward. LOIs should acknowledge any required regulatory filings and their waiting periods. Purchase agreements should make HSR clearance an explicit closing condition with an outside date that accounts for the full waiting period plus a reasonable cushion for Second Request risk.

Preparing the HSR filing is a specialized task. Transaction counsel with HSR experience will need to collect specific financial data, execute internal document collection (to assess gun jumping exposure), and prepare the formal notification packages. Budget 2–4 weeks from deal signing to filing readiness.