Highlights:
On Friday, organizations representing a diverse set of U.S. firms and employers filed a lawsuit challenging the Federal Trade Commission (FTC) and Department of Justice (DoJ) final changes to the Hart-Scott-Rodino (HSR) premerger notification rules. The new rule, finalized by the FTC in October, and affirmed by the DoJ, upended over 45 years of pre-merger filing practice, and imposed onerous new costs and regulatory burdens on U.S. firms. This new tax on merger activity can only serve to suppress the dynamism of the U.S. economy and weaken the nation at a time of intense international competition.
In addition to the legal challenge, the new administration and Congressional majority will have an opportunity to undo these costly new burdens. Reversing these regulatory burdens will improve the investment climate in the U.S., enhancing economic growth, and encourage greater investment in the U.S., consistent with the incoming president’s policy goals.
New Rules Are a Tax on Small Business
In 1967, Congress enacted the Hart-Scott-Rodino Act (HSR), which established a premerger notification process for firms in the U.S. Under HSR, firms planning a merger or acquisition over a certain threshold are required to provide U.S. antitrust regulators, specifically the DoJ and the FTC, with details on the size and scope of the transaction. As part of this process, merging parties must wait 30 days after filing for FTC and DoJ to review the transaction for antitrust concerns. Historically, merging firms have been able to request what is known as “early termination” as part of this process. If early termination is granted, firms are allowed to complete mergers or acquisitions within the 30-day review window if regulators determine the relevant transaction will be competitively benign. Consistent with the antipathy to M&A that characterized the FTC during the Biden administration, this regulatory offramp was suspended in 2021.
M&A transactions are essential for fostering a dynamic and competitive economy. Research has shown that M&A more efficiently allocate capital across the economy, leading to stronger economic growth and improved productivity. These transactions enable large corporations to innovate and scale. As research by Fred Ashton of the American Action Forum observes, smaller businesses rely on acquisitions to secure funding, grow their operations, and create viable exits for entrepreneurs. These deals serve as lifelines for startups, supporting innovation and sustaining the entrepreneurial ecosystem.
The revised HSR rules significantly increase the reporting burden on firms seeking to file premerger notifications. According to the FTC, the current filing takes an average of 37 hours to complete, though outside experts have estimated that the process takes twice as long. Under the new rule this burden will expand significantly. Indeed, for half of all transactions, the process was estimated to require 158 hours—a staggering 427 percent increase. This additional burden translates into higher costs and delays, which are especially challenging for small and mid-sized businesses that lack extensive legal and compliance resources.
It is important to recognize that this process applies to any merger valued over a certain threshold, which the FTC just announced would be increasing from $119.5 million to $126.4 million. Thus, any merging parties considering a transaction over this threshold must undertake the same costly filing process.
A Change in Search of a Problem
If the HSR premerger process was proven to be failing to adequately screen transactions for antitrust concerns, then perhaps regulators could justify the new costly process. But the FTC has not demonstrated a clear justification for its expanded requirements. As noted in the lawsuit, as recently as 2024, the agency described the existing HSR premerger notification process as a “success” that minimized the need for post-merger enforcement actions. The FTC rather conveniently deleted this description shortly before issuing the new rule. By introducing significant new reporting obligations, the FTC risks adding unnecessary complexity and cost without any demonstrated benefit to enforcement outcomes.
The new rules are likely to deter M&A activity, particularly among smaller firms. This is troubling, given that most transactions present no competitive concerns. Historical data shows that only 3.1 percent of transactions received a “Second Request” for additional review, while less than 15.3 percent triggered any further scrutiny at all. Under the new HSR rule, the vast majority of mergers – critical to innovation and competition – are now at greater risk of being delayed or abandoned due to heightened regulatory burdens.
The expansive new rule departs from Congress’ original intent when enacting the HSR Act. Lawmakers anticipated that the requirements would apply only to the largest 150 annual mergers out of thousands. However, inflation and market growth have extended the filing requirements to thousands of transactions annually, creating a compliance burden far beyond what was envisioned. Instead of alleviating this misalignment, the new rules exacerbate it.
Restoring America’s Investment Climate
The FTC’s new HSR rules represent an administrative overreach that risks undermining the broader economic benefits of M&A activity. To safeguard the economy, policymakers should revisit these changes and ensure that the regulatory framework supports, rather than hinders, U.S. economic dynamism. There are multiple avenues through all three branches of government for undoing this latest act of activism that has characterized the FTC under Chair Lina Khan. This lawsuit is an important appeal to the federal courts to overturn a rulemaking that may be unlawful. A revitalized FTC under the new administration could rescind these new burdens, though this proves could be prolonged.
Congress could also invoke the Congressional Review Act to nullify the rulemaking. Reducing the explosion in regulatory burdens that proliferated under the Biden administration will be at the center of the Trump administration’s policy agenda. Reversing this new tax on business dynamism should be a key feature of that agenda.