Latest / The Acquisition Talk with Fexingo: Mergers, Buyouts, and Business Sales for Operators / The M&A HSR Wait That Cost a Buyer 60 Million
Transcript
- Lucas: Luna, let me tell you about a deal that should have been a home run but turned into a nine-month nightmare. In 2023, a private equity firm agreed to buy a specialty chemicals company for four hundred million dollars. They had financing lined up, management ready to roll, and a clear strategic rationale. Luna: Sounds straightforward. But I'm guessing the FTC had other ideas? Lucas: Exactly. The buyer assumed the hart scott rodino waiting period would clear in thirty days. That's the standard for deals that size. But the FTC issued a second request, demanding mountains of additional data. The deal dragged on for nine months. Luna: Nine months? That's brutal. What happened to the deal economics? Lucas: They got eaten alive. The financing commitment had a ticking clock—interest rates ticked up, the buyer had to pay extension fees, and the target's business softened in that window. By the time they closed, the buyer had lost an estimated sixty million dollars in projected value. That's the HSR second request trap. Luna: So the risk wasn't that the deal got blocked—it was that the delay itself destroyed the economics. Lucas: Right. And this happens more often than people think. The HSR threshold for filing is around one hundred million dollars, so any deal above that touches this. But most mid-market buyers treat regulatory clearance as a box-checking exercise. They don't model what happens if a second request lands. Luna: Give me the mechanics. What exactly is a second request, and why does it take so long? Lucas: A second request is essentially a subpoena from the FTC or DOJ asking for internal documents, data on market share, customer lists, pricing strategies—everything. It's a deep dive into competitive effects. And because the parties are required to comply fully before the waiting period starts over, it can take six to twelve months just to produce the documents, let alone negotiate a remedy. Luna: And once you're in that process, you can't just walk away without triggering break fees or litigation risk. Lucas: Exactly. In this case, the buyer had a standard representation that the HSR waiting period would be terminated or expire within sixty days. But there was no specific trigger for what happens if a second request is issued—no automatic right to terminate, no reverse termination fee tied to regulatory delay. So they were stuck. Luna: How could they have protected themselves? Let's talk about structures that actually work. Lucas: First, they could have included a reverse termination fee that flips on if the deal doesn't close due to a regulatory hold beyond a certain date. Usually that's set as a percentage of enterprise value. Second, they should have negotiated the right to seek early termination of the HSR waiting period—that's a formal request you can file if you believe there's no competitive overlap. Luna: Early termination is actually common in clean deals, right? But if you don't ask for it upfront, the agencies won't volunteer it. Lucas: Exactly. And third, they should have built a longer expected timeline into their financing commitments. Most acquisition loans are priced for a two-to-three-month close. If you're in a sector that tends to attract scrutiny—tech, healthcare, chemicals—you should ask for a six-to-nine-month commitment window. It costs a few basis points more, but it beats refinancing under duress. Luna: So what did the buyer in our story do? Did they eventually close? Lucas: They closed after nine months, but they had to renegotiate the price down by about thirty million. Plus they paid another fifteen million in fees and interest cost. And the seller's business had lost momentum, so the projected synergies never materialized. The total wealth destruction was around sixty million. And you know what's ironic? Luna: What? Lucas: The FTC eventually cleared the deal without requiring any divestitures. The second request was essentially a fishing expedition. The buyer could have gotten clearance in sixty days if they'd pushed harder on early termination or conceded a minor remedy upfront. Luna: So the trap is asymmetrical: the buyer bears all the cost of delay, while the regulator has no incentive to move quickly. Lucas: Yes. And that's why your deal documents need to treat regulatory delay as a concrete risk, not a footnote. If these conversations have moved your work forward in some small way—helped you think about a structure or a clause you wouldn't have considered—that's exactly why we keep this show ad-free and focused on real substance. Luna: Honestly, the best way to ensure we can keep digging into these cases is listener support. People who value that can find us at buy me a coffee dot com slash fexingo. Lucas: That's right. Every contribution, no matter how small, lets us stay independent and keep bringing you stories that actually help you in practice. So let's get back to the deal. Luna: So beyond the legal structure, what about the strategy? Could the buyer have avoided scrutiny altogether? Lucas: Sometimes you can, with a so-called HSR avoidance strategy. If you structure the deal as an asset purchase that falls below the threshold, or use a series of smaller acquisitions, you can stay under the radar. But that only works if your target's revenue is fragmented across unrelated businesses. In this case, the two companies overlapped directly in a niche chemical market—the FTC was always going to look. Luna: So the real lesson is: don't assume your deal will be routine. Prepare for a worst-case timeline, build exit options, and negotiate those reverse termination fees early. Lucas: Exactly. And for sellers, there's a lesson too. If you're selling to a buyer that might face antitrust issues, you should push for a ticking fee—a per-day payment if the closing drags beyond a certain date—so you're not left waiting indefinitely while your business deteriorates. Luna: That's a great point. In our story, the seller lost a lot too—the uncertainty hurt their customer relationships and employee morale. Lucas: Yes. The seller ended up with a lower price and a damaged business. So both sides need to model regulatory risk as a real variable, not a rounding error. Luna: Let's talk about numbers. What's a typical reverse termination fee for regulatory risk? Lucas: In the middle market, you'll see two to four percent of enterprise value. For a four hundred million dollar deal, that's eight to sixteen million. It gives the buyer a realistic out if the regulator becomes unreasonable. But it also aligns incentives: the seller knows the buyer can walk, so they're more willing to help with the regulatory process. Luna: One more thing: what about the trend under the current administration? It's July 2026, and we've seen aggressive enforcement. Lucas: Very aggressive. The FTC is issuing second requests more frequently, especially in tech, healthcare, and energy. The average clearance time for deals that get a second request is now over eight months. So if you're doing any deal above the HSR threshold, you need to assume you'll get a second request unless you can prove a clear lack of overlap. Luna: And if you're buying a competitor, you'd better have a divestiture plan ready. Lucas: Exactly. Some buyers now include a 'divestiture option' in their deal docs—a commitment to sell off a small overlapping line if needed. That can short-circuit a second request and get you cleared in forty-five days. Luna: The key is to treat regulatory risk with the same rigor as financial due diligence. Lucas: Absolutely. The sixty million dollar lesson is that a week of legal work upfront can save you six months of agony later.