The M&A environment in the United States is undergoing a noteworthy transformation. While macroeconomic factors such as easing interest rates and abundant private-equity “dry powder” (i.e. the uncalled capital that a fund has available to invest) have sparked optimism, dealmakers must also grapple with an evolving regulatory, governance and antitrust backdrop.

At the federal level, under the Clayton Act (15 U.S.C. §§ 12-27) and the Hart-Scott-Rodino Antitrust Improvements Act (15 U.S.C. §§ 18a-18i), merging parties must file notifications with the Federal Trade Commission and the Department of Justice Antitrust Division when certain thresholds are met. Moreover, at the state and local level, regulators are also introducing enhanced pre-merger notification regimes. To that end, several states have adopted or are considering legislation based on the Uniform Law Commission’s 2024 Model Antitrust Pre-Merger Notification Act that would grant state attorneys access to HSR materials under new rules. In addition, board oversight, fiduciary duties and governance protocols are all becoming even more front-and-center in deal execution and integration. Therefore, companies must consider representations, warranties, indemnities, material adverse effect (“MAE”) clauses, and interim covenants with renewed rigor.  Ultimately, M&A participants must conduct early assessments of whether the transaction triggers HSR reporting and state pre-merger review regimes in addition to industry-specific regulatory consent requirements.

Given the current environment of somewhat heightened regulatory risk, buyers, sellers and merging entities should consider structuring deal terms with enhanced protections including the use of MAE triggers that account for regulatory delays or divestiture risk. In addition, parties involved in M&A transactions should consider using (i) interim covenants that mandate closing conditions tied to regulator clearance, (ii) representations and warranties that address regulatory compliance carve-outs, and (iii) indemnities for delayed or unsuccessful regulatory approvals. Also, compliance teams should be involved early in integration planning.  Among other things, parties should establish governance frameworks to manage synergies and regulatory obligations post-closing; map data flows, systems, and vendor contracts that may be subject to new regulatory review; and ensure board and audit committees receive periodic updates on deal risks, integration milestones and regulatory review status.

As always, the interplay between federal and state review regimes demands careful navigation. If state pre-merger notification laws apply, additional timelines and disclosure requirements should be accounted for. In addition, if state regulators may intervene even after clearance at the federal level, then the increased cost of complying with parallel federal and state regimes should be analyzed and folded into deal terms. As a matter of practice, players on all sides of M&A transactions should consider creating a matrix of regulatory triggers including federal HSR thresholds, state pre-merger laws, and industry-specific rules. Today’s federal and state regulatory environments demand thoughtful governance frameworks, creative deal structures, and when it comes to transaction documents comprehensive reps and warranties, clear indemnity language, well-defined closing conditions, and audit rights all in anticipation of robust multi-level regulatory review. Developing integration playbooks that include regulatory milestones, governance dashboards and board-level oversight mechanisms can save time and money for all parties involved.

Although the current M&A market may present significant opportunities for strategics and private equity, the “new normal” is one in which regulatory vigilance, governance discipline and structural flexibility must coexist. Deal teams must be proactive and self-aware when it comes to regulatory compliance, and they must align strategy with regulatory realities as part of every major transaction.

This publication is published by the law firm of Ervin Cohen & Jessup LLP. The publication is intended to present an overview of current legal trends; no article should be construed as representing advice on specific, individual legal matters. Articles may be reprinted with permission and acknowledgment. ECJ is a registered service mark of Ervin Cohen & Jessup LLP. All rights reserved.