By Bryan Koenig

Law360 (April 23, 2020, 6:19 PM EDT) -- Dechert LLP's latest tally of U.S. merger reviews saw no impact from the earliest days of the COVID-19 pandemic, but the report's authors say the pace will likely slow down as enforcers struggle with challenges posed by working in the current environment.

In the Dechert Antitrust Merger Investigation Timing Tracker for the first quarter of 2020, the law firm tracked a slight decrease in the average length of "significant" U.S. antitrust merger probes compared with the period through the end of March 2019.

According to the DAMITT report, significant probes concluded in the first three months of this year lasted 11.1 months on average from the time the transaction was announced to the completion of a U.S. Department of Justice or Federal Trade Commission investigation. That's down from 14 months in Q1 2019 and 11.9 months in the 2019 calendar year.

Dechert defines significant U.S. investigations as those that yielded a challenge, merger clearance settlement, agency closing statement, or the abandonment of a deal accompanied by a press release from the responsible enforcer. Its analysis is based on the length of time from a deal's public announcement until the probe closes and cannot account for nonpublic conversations with enforcers.

The timing of those probes is likely to have taken a hit the next time Dechert runs the numbers, according to two of the report's authors.

"It is just harder to get everything done," Dechert partner Michael L. Weiner told Law360. Among the difficulties: talking to industry players to assess a deal's competitive impacts, players likely under severe strain by the pandemic.

Weiner noted in an interview Thursday that the U.S. economy only started shutting down — and government agencies like the FTC and DOJ started shifting to telework — in the last few weeks of March, the tail end of the period tracked.

The enforcers, Weiner said, are working hard to maintain their work routine. The agencies in late March even restored the possibility of granting transactions early terminations to the normal 30-day waiting period, having initially suspended early terminations earlier in the month.

"It does seem like they are continuing the work," said Dechert partner Rani A. Habash. Habash noted that the agencies wrapped up two major probes after shifting to telework, belying concerns of a potential "stalemate" in their work.

However, there likely are limits to how well the enforcers can correct for the pandemic's impacts on their probes.

"I'd be very surprised if there isn't a lengthening," Weiner said.

The DAMITT data has long tracked an ongoing growth in merger review times, increases that have drawn attempts at reform by DOJ and FTC leadership.

The latest quarter appears to continue that trend. While average times were down from last year, the Q1 numbers are still among the longest average review lengths. And according to Dechert, the rolling 12 months that ended in the most recent period showed a median review length of 9.8 months, up from 9.3 months for the 12-month period that ended Q1 2019.

"Thus, although the average duration fell due in part to having fewer outliers at the top end of the range, the duration of the typical significant investigation is trending upward," the report said.

The length of significant reviews also increased in the European Union, where Dechert defines significant probes as those resulting in remedies in Phase I — the initial investigation, where most merger reviews are resolved — or that sparked a more in-depth Phase II probe based on concerns of potential anti-competitive effects.

Looking at those reviews, the DAMITT report tracked an increase in the average length of Phase I remedy cases from 8 months for Q1 2019 to 9.4 months for the first three months of this year. For all of 2019, the average was 7.7 months.

"Phase I investigations resolved with remedies now require on average more than five times the theoretical duration of the fixed timetable under the EU Merger Regulation," the report said.

Unlike their U.S. peers, European enforcers have asked merging companies to hold off on submitting transaction notifications as the European Commission prioritizes the fast turnaround of approval for state aid regimes meant to combat the coronavirus pandemic.

The Dechert report anticipated that the crisis will contribute to even more lengthening of the average duration for "pre-filing talks" in Europe, tracked based on the amount of time from a deal's announcement to a Phase 1 remedy. Those timelines increased from 5.9 months on average for 2019 to 7.6 months in Q1 2020.

"Parties should expect longer periods of pre-filing consultation in view of the likely difficulties in conducting market testing once the formal timetable starts," the report said.

The latest DAMITT report also looked at the other side of merger reviews: the antitrust approval deadlines and "breakup" fees baked into publicly available merger agreements. It found that companies navigating U.S. merger reviews are allotting an increasing amount of time for their deal to clear antitrust approval, with an 18.2-month median timeframe from deal announcement to final termination for transactions that involved a significant U.S. merger review that wrapped up in Q1 2020. That was an increase from "the remarkably steady 15-month medians" seen in 2015 through 2019, and the 12-month medians seen in 2011 through 2014, according to the report.

"This stepwise increase observed since 2011 may reflect merging parties' response to the growing duration of significant investigations, as well as growing marketplace awareness of the actual duration of significant investigations," the report said.

The time cushion is usually enough at least for merger reviews, with significant U.S. probes wrapping up on average with 4.7 months to spare over the last nine years. Deals that don't have enough time are sometimes renegotiated, the report said, adding that the initial cushion is often not enough for litigation challenges. On the other side of the Atlantic, the report found that time cushions for deals subject to significant EU probes "fluctuated between 13.8 months and 21.4 months over the 2015-2020 period."

Even as parties have baked in more time to navigate reviews, the report tracked a downward trend in "antitrust-related reverse break fee amounts as a percentage of deal value," which Dechert called "surprising" since losses would be expected to be higher over the course of a longer probe than a shorter investigation.

--Editing by Marygrace Murphy.

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