As if there were not enough uncertainty in the markets, a partial U.S. government shutdown (that today shows little sign of speedy resolution) is affecting deals—in particular, those with substantive elements before U.S. regulators and agencies.
Here is what you need to know about how the shutdown is impacting the U.S. federal agencies most relevant to M&A transactions:
- SEC. The SEC remains open with a limited number of staff members available.
- The EDGAR filing system will continue to operate and accept registration statements, periodic reports and other filings.
- SEC staff will only respond to questions regarding emergency situations involving investor protection or market integrity and questions regarding calculation of filing fees. Staff will not declare registration statements effective and will not review registration statements.
- The shutdown will prevent IPOs from proceeding and presents complications for many other companies in accessing the public capital markets.
- Antitrust. Both the FTC and the Antitrust Division of the DOJ remain open but are operating with only limited staff deemed necessary to conduct essential law enforcement activities.
- Agencies will continue to accept new HSR filings and waiting periods will continue to run, but early termination of the HSR waiting period will not be granted.
- Agencies also will continue to review premerger filings, conduct merger investigations and, as warranted, seek preliminary injunctions.
- The DOJ and FTC will continue to issue Second Requests, as warranted, to preserve the agencies’ ability to conduct material investigation at a later date. In some instances, parties may decide to pull and re-file HSR notifications to allow the agencies more time to review transactions prior to the issuance of a Second Request given the limited number of agency staff.
- CFIUS. While some CFIUS member agencies, including the U.S. Department of Defense, are open, CFIUS reviews have been suspended pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).
- Treasury has informed transacting parties that all deadlines for declarations and transactions under review or investigation are tolled.
- Even after all CFIUS member agencies fully reopen, parties should expect longer pre-notification periods as CFIUS, including delays in reviewing and providing comments on drafts or accepting formal filings.
Parties contemplating transactions requiring U.S. regulatory review and parties with deals currently pending approvals should consider how suspension of regular activities noted above may disrupt deal timelines and cause delays that need to be addressed in deal documentation:
- “Longstop dates” may need to be lengthened to account for a protracted shutdown (and even after agencies fully reopen, certain agencies, such as CFIUS, will experience significant backlogs).
- Consider how a covenant to make a filing with a closed—or partially shut down—agency will be deemed performed (i.e. does the covenant toll until the agency is fully operational).
- Private equity sponsors will want to review commitment letters and fee letters carefully to consider what a significant regulatory clearance delay would mean for financing costs and certainty, and be prepared to pay a ticking fee.
For more information about the U.S. government shutdown and how it may impact any pending, or potential, transaction, please contact one of our U.S. practitioners.