Jurisdictional Thresholds in M&A: Calculation Examples

Mergers and acquisitions (M&A) often require regulatory filings to comply with the Hart-Scott-Rodino (HSR) Act. For 2024, here are the key thresholds you need to consider:

• Transaction Size Threshold: $119.5 million. Filing is mandatory if the total deal value exceeds this amount.
• Size-of-Person Test: Applies if one party has at least $23.9 million in assets or sales, and the other has $239 million. This test is waived for deals over $478 million.
• Interlocking Directorates: Board overlaps are scrutinized if capital exceeds $48,559,000 and competitive sales exceed $4,855,900.
• Penalties for Non-Compliance: $46,517 per day for violations.

Quick Example:

• If Company A acquires Company B for $123 million, the deal exceeds the $119.5 million threshold, triggering an HSR filing.

Staying informed about these thresholds is critical to avoiding penalties and ensuring smooth transactions. Read on for detailed breakdowns and examples.

Components of Jurisdictional Thresholds

Understanding these thresholds is crucial for staying compliant and avoiding penalties during M&A transactions.

Transaction Size Threshold

In 2024, transactions worth $119.5 million or more must be filed under the Hart-Scott-Rodino (HSR) Act. This value includes:

• The purchase price of shares or assets
• Assumed liabilities
• Future payments or earnouts
• Fair market value of any non-cash consideration

Size-of-Person Threshold

This test measures the economic size of the parties involved. For 2024, the criteria are:

If the transaction value exceeds $478 million, the size-of-person test no longer applies, and an HSR filing is required no matter the size of the parties.

Interlocking Directorates

These thresholds address anti-competitive overlaps on corporate boards. For 2024, they apply if:

1. A corporation’s capital, surplus, and undivided profits exceed $48,559,000.
2. Competitive sales between the corporations exceed $4,855,900.

"The FTC adjusts these thresholds annually based on changes in the gross national product, making it essential for companies to regularly review their compliance obligations."

These rules form a structured guideline for determining when M&A transactions need regulatory review. Up next, we’ll explore how these thresholds play out in practical scenarios involving M&A filings.

Examples of Jurisdictional Threshold Calculations

Practical examples can make it easier to understand how jurisdictional thresholds work in M&A scenarios, helping companies meet their compliance requirements.

Example: Transaction Size Threshold

Take the 2024 HSR threshold of $119.5 million. Here's a breakdown of a hypothetical deal involving Company A acquiring Company B:

The total transaction value sums up the asset purchase price, assumed liabilities, and earnout provisions. Since the total exceeds the $119.5 million threshold, this deal would require an HSR filing.

Example: Size-of-Person Threshold

Now consider a proposed merger between two tech companies in 2024. The acquiring company, TechCorp, reports annual net sales of $250 million, while the target company, DataSys, has total assets worth $20 million.

Even though the transaction value is $150 million, the deal doesn’t trigger an HSR filing because the smaller party falls short of the $23.9 million threshold.

Example: Interlocking Directorates Threshold

This example highlights compliance with Section 8 of the Clayton Act:

Both companies surpass the capital threshold of $48,559,000 and the competitive sales threshold of $4,855,900, creating a violation of interlocking directorates rules.

These calculations are critical for regulatory compliance. Many companies rely on advisory services like Phoenix Strategy Group to navigate these rules effectively, ensuring they meet regulatory requirements while structuring their transactions efficiently.

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Strategies for Managing Jurisdictional Thresholds

Effectively managing jurisdictional thresholds involves a mix of legal expertise, detailed due diligence, and advanced financial tools.

Using Legal and Advisory Services

Navigating complex regulatory requirements demands expert legal and advisory support. These professionals help businesses assess compliance and address potential threshold concerns early in the process. Firms like Phoenix Strategy Group specialize in evaluating transaction structures against current thresholds, ensuring reporting obligations are met before deals move forward. Their approach blends financial analysis with regulatory insights to uncover potential issues early.

Alongside expert advice, conducting thorough due diligence is critical to ensure every transaction detail aligns with legal and regulatory standards.

Conducting Due Diligence

Due diligence plays a key role in managing jurisdictional thresholds by ensuring accurate calculations. Companies need to review various financial elements, such as:

For instance, changes in merger filing fee thresholds often prompt businesses to reassess their transaction structures and filing requirements, underscoring the importance of comprehensive due diligence.

Financial Services in M&A

Financial services are a cornerstone of managing jurisdictional thresholds. Modern M&A transactions rely on advanced financial modeling and real-time data analysis to stay compliant with changing regulations.

For example, when analyzing interlocking directorates under Section 8 of the Clayton Act, companies must account for the updated 2024 threshold of $48,559,000 for capital, surplus, and undivided profits. Financial advisors assist in monitoring these changes, optimizing deal structures, and preparing precise filings to meet regulatory standards.

Managing Jurisdictional Thresholds in M&A

Navigating jurisdictional thresholds is a crucial part of ensuring compliance in mergers and acquisitions (M&A). These thresholds set the stage for regulatory alignment and play a key role in transaction planning.

Key Thresholds for 2024

Understanding the various thresholds is essential. Here's a breakdown of the key values and considerations:

Staying Ahead with Compliance

Accurate calculations and professional guidance are essential for meeting regulatory requirements. As these thresholds are updated, it's important for companies to stay informed and adjust their strategies accordingly. By combining vigilance with expert advice, businesses can align with regulations while pursuing their M&A goals.

Integrating regular monitoring and precise calculation methods into your overall M&A strategy can help you navigate these regulatory challenges with confidence, ensuring your transactions remain compliant and well-executed.

FAQs

What is the turnover threshold for EU merger control?

Under EU merger control rules, notification is required if the combined worldwide turnover exceeds EUR 5 billion, and at least two companies involved have EU-wide turnover of EUR 250 million or more each.

How are jurisdictional thresholds calculated in the U.S.?

For 2024, U.S. jurisdictional thresholds include:

• A transaction size of $119.5 million
• A size-of-person test with thresholds of $23.9 million and $239 million
• An automatic trigger for transactions above $478 million

These thresholds help companies determine if an HSR filing is necessary and plan their transactions accordingly.

When do interlocking directorates thresholds apply?

For 2024, interlocking directorates thresholds come into play when a corporation's capital exceeds $48,559,000, and competitive sales are more than $4,855,900. This ensures compliance with Section 8 of the Clayton Act, which is designed to prevent anti-competitive board overlaps.

Knowing these thresholds is key to navigating M&A processes across jurisdictions while staying compliant.

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