Companies engaging in large M&A transactions across a variety of industries may soon need to factor higher fees into their M&A decisions.
The House on Sept. 29 passed the bipartisan-sponsored Merger Filing Fee Modernization Act, which would raise fees for associated filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 for the largest M&A transactions while lowering them for some smaller deals. Its next step is the Senate, where a different version of the bill passed last year.
Private equity funds, hedge funds and technology companies are expected to be most impacted by the legislation, lawyers said.
TMT, private equity, hedge funds to feel it most
If passed, the bill would raise the filing fees for the nation's largest M&A deals. For deals with a value above $5 billion, the fee would increase to $2.25 million from $280,000, while deals with a value between $92 million and $161.5 million would pay $15,000 less to file.
"In some sense that's a tax on doing big deals and not much of a change for deals that are smaller," said Gregory Heltzer, a partner at McDermott Will & Emery focused on M&A and antitrust.
Although the legislation applies to all industries, members of Congress might have had the technology industry in mind when they introduced the bill.
"While the bill is sector-agnostic, its origins and positioning around several other tech-focused legislative proposals suggest that it's at least [in] part focused on dealmaking in the digital economy," Vishal Mehta, a partner at Morrison & Foerster LLP, said in an interview.
Technology, media and telecommunications companies have struck the most deals valued above $5 billion in recent years, according to an analysis by S&P Global Market Intelligence. Among the top 10 largest M&A deals announced in the U.S. since 2017, half involved TMT targets.
Further, the TMT sector has announced the most deals with a value over $5 billion each year since 2019.
The higher filing fees may also hit private equity funds and hedge funds harder than others, experts said.
"I think it's going to impact the most frequent filers the most, which would be your [private equity] funds [or] your hedge funds that do investments sometimes in companies with large capitalizations. So even if it's a minority investment, it may trigger higher filing fees," Haidee Schwartz, a partner at Akin Gump Strauss Hauer & Feld LLP and a former acting deputy director of the Federal Trade Commission's Bureau of Competition, said in an interview.
However, Heltzer emphasized that the bill is not industry specific, and "industries with larger valuations are more likely to have transactions that are impacted by this legislation," he said.
Banks less impacted
Some sectors may be less impacted than others, such as the banking industry, lawyers said. In many cases, bank regulators have the main responsibility for making determinations related to antitrust issues in bank deals.
The higher fees would generally only apply to certain bank deals if they involve holding companies that have substantial nonbank activities and need to file applications with the Federal Trade Commission, said Chip MacDonald, managing director of MacDonald & Partners LLC.
"It's only going to affect those that are doing holding company mergers, generally ... where the target holding company has nonbanking activities," MacDonald said in an interview. "It could affect some of the bigger bank mergers, holding company mergers, if, for example, the holding company had an asset manager, or they had a broker/dealer, or they had an insurance agency business, for example, and those would trigger, if they were of sufficient size, the Hart-Scott-Rodino Act and a filing with the FTC."
John Gorman, a partner at Luse Gorman PC whose focus areas include M&A, agreed that bank holding company deals involving a holding company with a nonbank business could be affected by this bill. Few community bank mergers require filings under the Hart-Scott-Rodino Act, so banks do not file with the U.S. Department of Justice or the FTC, though there are exceptions, he added.
Impact on deal decisions
Given the smaller impact, the changes in the bill are unlikely to impact banks' decisions about whether to engage in M&A.
"Nonbank acquisitions by [bank holding companies] are not typically of the size to encounter the larger fees, and relative to the size of the transactions, the fees still are not significant enough," Gorman added.
MacDonald agreed, saying he does not think the filing fee increases would "have any material effect" on bank deal decisions.
But for companies in other sectors looking to strike large deals that would require Hart-Scott-Rodino Act filings, they may soon have to weigh the higher fees in decision-making.
"It's something that the parties and their counsel think about, even now, when they're negotiating an agreement, and that illustrates that it's not just a nominal cost for the parties," Mehta said.
But generally, the strategic merits of a deal will outweigh the potential higher filing fees, said Amy Matsuo, national leader of KPMG's U.S. Regulatory Risk Practice.
"M&A activity comes down to company-specific risk and reward decisions," Matsuo said in a statement to S&P Global Market Intelligence. "The fundamental question for institutions seeking to engage in relevant M&A activity is: To what degree do these filing fees disincentivize activity relative to overall reward for the transaction? That's a question to be answered on a case-by-case basis but broadly speaking, the financial value to M&A decisions will well exceed any fee modernization changes."