The Hart-Scott-Rodino Act does not prohibit large mergers, it only requires a waiting period before the deal can close.
The Federal Trade Commission and the Department of Justice share jurisdiction over antitrust enforcement in the United States. When two companies propose a merger, they must determine if the transaction meets the filing thresholds set by the Hart-Scott-Rodino Antitrust Improvements Act of 1976. If the transaction size exceeds approximately $119.5 million and the parties meet minimum size-of-person tests, a filing is mandatory. The agencies do not vote on the deal immediately. Instead, they run a calculation to see if the combined entity would hold too much power in a specific market. This calculation is not a subjective judgment of fairness, but a measurement of market concentration using the Herfindahl-Hirschman Index.
The process is a funnel. Most filings clear quickly. A small fraction trigger a Second Request for additional information. A tiny fraction result in litigation or a required divestiture. The shape of the review depends entirely on the numbers submitted in the initial filing.
The math, briefly
The HHI is the primary metric used to screen mergers. It is calculated by summing the squares of the market shares of all firms in a relevant market. A market with one firm has an HHI of 10,000 (100 squared). A market with ten equal firms has an HHI of 1,000 (10 times 10 squared). The agencies publish thresholds that determine the level of scrutiny. Under the 2023 Merger Guidelines issued jointly by the FTC and DOJ, markets with an HHI below 1,800 are considered unconcentrated. Markets between 1,800 and 3,000 are moderately concentrated. Markets above 3,000 are highly concentrated.
The critical number is not the final score, but the change. If a merger increases the HHI by more than 100 points in a highly concentrated market, the deal is presumed to be unlawful. This creates a clear map of risk. A transaction between small players in a fragmented industry looks different on paper than a consolidation of the two largest national providers.
The review funnel, by scenario
The following table compares three hypothetical merger scenarios. All involve a $500 million transaction meeting the HSR filing threshold. The difference lies in the market structure and the resulting HHI impact.
| Scenario | Market Structure | Pre-Merger HHI | HHI Increase | Post-Merger HHI | Likely Review Outcome |
|---|---|---|---|---|---|
| A | Fragmented (20+ firms) | 800 | +15 | 815 | Clearance (No further action) |
| B | Moderate (5-10 firms) | 2,000 | +120 | 2,120 | Investigation (Potential Second Request) |
| C | Oligopoly (Top 3 firms) | 3,200 | +350 | 3,550 | Litigation Risk (High probability of Suit) |
In Scenario A, the market is unconcentrated. The addition of two firms does not shift the balance of power. The FTC or DOJ will let the standard 30-day waiting period expire without issuing a Second Request — or grant early termination — and the deal closes. In Scenario B, the market is moderately concentrated. The increase of 120 points exceeds the 100-point threshold for concern. This triggers a deeper look. In Scenario C, the market is already highly concentrated. A 350-point increase moves the deal into the zone where the agencies presume anti-competitive effects.
The Second Request
When the agencies issue a Second Request, the 30-day waiting period stops. The clock resets. The merging parties must produce terabytes of internal documents, emails, and financial data. This process typically takes six months to a year to complete. The cost is not just in legal fees, which can exceed $5 million for a complex transaction, but in certainty. Executives cannot close the deal while the Second Request is active. They cannot realize the cost synergies. They operate in a state of suspension.
The 2023 Merger Guidelines expanded the definition of relevant market to include potential competition. This means the agencies may look at markets where the merging firms are not currently direct competitors but are likely to enter each other’s space. A Second Request in a technology merger often focuses on data sets and user behavior rather than just revenue. The agencies will ask for data on how many customers switch between the two services if prices rise. This is the “shape” of the proof they are looking for: evidence that customers would leave for a competitor, keeping prices in check.
The synthesis
The table reveals that the risk of a merger is not a function of deal size, but of market density. A $1 billion merger in a fragmented industry carries less regulatory risk than a $100 million merger in a tight oligopoly. The agencies do not review every dollar of the transaction equally. They review the concentration of the market where the revenue is generated.
This distinction explains why some large deals close in weeks while others stall for years. The difference is the HHI delta. If the combined market share remains below the 3,000-point threshold, the agencies have little leverage to stop the deal. If the score jumps above 3,000, the burden of proof shifts to the companies to show that efficiency gains outweigh the loss of competition. Most companies cannot prove this mathematically. The data required to prove efficiency gains is often proprietary, while the data required to prove market concentration is public.
The agencies also consider vertical effects. A merger between a supplier and a buyer is scrutinized differently than a horizontal merger between two competitors. The 2023 Guidelines explicitly state that vertical mergers that foreclose competitors from access to customers or inputs may be challenged. This adds a second layer of calculation. The horizontal HHI is not the only number that matters. The vertical integration score, measured by input foreclosure, is now part of the same review.
The closer
Every 100-point increase in HHI above the 3,000 threshold adds roughly six months to the review timeline. For a $500 million deal, that delay costs the acquiring firm approximately $25 million in lost opportunity and legal fees. The math says a deal in a concentrated market is risky. The behavior says the risk is worth it only if the strategic value exceeds the cost of the delay. Most acquirers calculate that if the HHI delta exceeds 200 points, the deal is likely dead unless a divestiture is offered upfront. That is the line where the regulatory cost becomes the deal price.