On December 21st, President Clinton signed into law long-anticipated legislation reforming the Hart-Scott-Rodino Antitrust Improvements Act. Although the legislation wasn’t intended to primarily benefit the venture capital community, the reforms were nevertheless a small "Christmas present" for venture capitalists since they make it easier in many cases to complete larger later stage investments, by reducing both transaction costs and the time it takes to complete investments. The reforms take effect on February 1st.
For venture capitalists and issuers, the most significant change to HSR is that the "size of the transaction" dollar threshold has been increased to $50 million, from the current threshold of $15 million. In addition, the 15% "size of the transaction" threshold has been eliminated. What this means is that the $50 million threshold will be an absolute floor. No transaction that results in the acquiring person holding less than $50 million of assets or voting securities of an acquired person will be reportable.
Historically, virtually all venture capital investments were less than $15 million and did not trigger an HSR filing. This began to change in the last few years, which saw a substantial increase in the number of $15 million to $50 million investments. Although investments under $15 million are still the "bread and butter" of venture capitalists, the larger transaction segment is likely to remain significant as more funds concentrate on mid- to late-stage investments, especially in Internet and telecommunications infrastructure, which tend to be especially capital-intensive. The new HSR reforms will eliminate the HSR filing requirement for all but the largest venture capital investments.
For transactions valued at between $50 million and $200 million, the "size of the person" test still will apply. This test generally requires one party to the transaction to have sales or assets in excess of $100 million and the other to have sales or assets in excess of $10 million. For transactions valued at greater than $200 million, which excludes virtually all venture capital investments, the transaction automatically will be reportable without regard to the size of the persons involved.
The filing fee to be paid by the acquiring person also has been revamped. Currently all reportable transactions carry a $45,000 filing fee. A new tiered fee structure is being implemented that is based on the value of the voting securities or assets to be held as a result of the transaction. If the transaction value is less than $100 million, the fee still will be $45,000. For transactions that are at least $100 million but less than $500 million, the filing fee will be $125,000. For larger transactions, the filing fee will be $280,000.
Beginning in 2005, both the dollar thresholds for transactions and the filing fees will be adjusted annually based on changes in GNP during the previous year.
Lastly, small changes have been made to the waiting periods under HSR. The length of the waiting period that follows substantial compliance with second requests will be 30 days for most transactions, instead of the 20 days under current law. In addition, any time period that ends on a Saturday, Sunday or legal public holiday will be bumped to the next regular business day.
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