USHBC Coalition: Hart-Scott-Rodino Act Reform Procedural Concerns
to: Lina M. Khan
Chairwoman
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, DC 20580
cc: Anisha Dasgupta
General Counsel
Office of the General Council - FTC
600 Pennsylvania Avenue, NW
Washington, DC 20580
Dear Chairwoman Khan,
I write to you in my capacity as the President & CEO of the United States Hispanic Business Council (USHBC). We are the leading advocate for America’s 4.5 million Hispanic-owned firms, that collectively contribute over $800 billion to our economy every year. The purpose of this letter is to express my concern over the omission of a necessary step in the Federal Trade Commission’s (FTC’s or Commission’s) rulemaking process for the proposed amendments to reporting requirements under the Hart-Scott-Rodino (HSR) Act.
The FTC’s proposed changes, which require parties of certain acquisitions to file a costly premerger notification, carry widespread implications for my constituents and the millions of other small businesses throughout the nation that may go through an acquisition process. Yet, once again, the small business community’s counsel was never sought.
In the Notice of Proposed Rulemaking issued by the FTC in July 2023, the Commission certified that the proposed changes will not have a significant economic impact on a substantial number of small entities. The report cites a $111 million threshold for triggering the new rules that will “rarely, if ever, affect small entities.”
I believe this to be inaccurate, and a mistake that could’ve been avoided had the FTC genuinely examined the definition of, and potential impacts to, small businesses.
The Small Business Administration (SBA) defines a small business based on the entity’s revenue and/or number of employees. The perceived value of an entity in an acquisition plays no part in the discernment of a small business. This means that an entity can be both a small business and simultaneously valued at $111 million during the acquisition process, triggering the new requirements. Despite the FTC’s report to the SBA, acquisitions matching this description happen frequently. In fact, being acquired for such a sum is often the goal of a startup or small business.
For example, the SBA standard for several types of construction companies, including home builders and remodelers, designates them as small businesses with annual revenues of up to $45 million. A similar point holds for many areas of retail, including supermarkets ($40 million), as well as services ranging from general freight trucking ($43 million) to waste collection ($47 million) and linen supply ($47 million).
A valuation of less than 3x these revenues would make the acquisition of such companies notifiable under the changes to the HSR Act. The current notification form is estimated to require an average of 37 hours to complete, even for deals that ultimately raise no competitive concerns. In a likely underestimate, the FTC says the new form would nearly quadruple that to 144 hours, with a cost of more than $66,000 for compliance.
In erroneously certifying that the rulemaking would not significantly impact a substantial number of small businesses, the FTC failed to meet its obligations under the Regulatory Flexibility Act, which would have required the agency to conduct an Initial Regulatory Flexibility Assessment (IFRA) that would put small businesses and their representatives on notice of the rule’s impact and invite their participation in the rulemaking process.
In the absence of such an assessment, the small business community has yet again been elbowed out of the decision-making process and a federal regulatory action that would grossly impact their future business decisions, taking away their opportunity to provide critical feedback on the proposed changes and limiting their ability to participate in the rulemaking process.
The USHBC and its constituents call on the FTC to vacate its current rulemaking process. Recognizing that Congress has required some changes to the HSR form, we realize that the FTC must pursue some form of this rulemaking, though not necessarily one that would be unduly burdensome for small business.
We ask that any rulemaking comply with all regulatory and statutory requirements, and that the FTC conduct a comprehensive IRFA to accurately assess the impact of the proposed amendments on small businesses. Thank you for your consideration of our concerns.
Sincerely,
Javier Palomarez
President & CEO | United States Hispanic Business Council
javier@ushbc.com | (202) 787-8369