HSR Deals in July 2024: What GDP Growth and Economic Trends Mean for eDiscovery | EDRM – Electronic Discovery Reference Model

(EDRM Editor’s Note: This article was first published here August 29, 2024 and EDRM is grateful to Rob Robinson, Editor and Managing Director of Trusted Partner Comprehensive discoveryfor permission to republish.)

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ComplexDiscovery Editor’s Note: This article provides a detailed analysis of July 2024 HSR transaction data and key economic indicators, highlighting their impact on the eDiscovery sector. It examines the implications of GDP growth, personal income trends, and inflationary pressures on legal budgets and strategic spending across industries. These insights are particularly valuable to attorneys navigating the complex landscape of mergers and acquisitions (M&A) and regulatory compliance.

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Background: The Hart Scott Rodino Act (HSR Act), a key federal statute, requires companies to notify the Federal Trade Commission (FTC) and the Department of Justice (DOJ) before consummating a merger or acquisition involving certain assets or voting securities. This notification is part of the FTC and DOJ Premerger Notification Program, which is designed to enable thorough review of proposed transactions for potential antitrust issues. For cybersecurity, information management, and legal disclosure professionals operating in the eDiscovery ecosystem, tracking monthly HSR transaction data, which is enhanced in this update with key economic metrics such as GDP growth and corporate profits, offers key insights. This expanded perspective helps you understand the broader economic implications of M&A activity and its potential impact on the eDiscovery landscape.

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HSR Deals in July 2024: What GDP Growth and Economic Trends Mean for eDiscovery

In the rapidly evolving mergers and acquisitions (M&A) landscape, Hart-Scott-Rodino (HSR) Act transactions and key economic trends are critical to eDiscovery professionals. This brief examines the latest HSR transaction data alongside economic indicators such as GDP and personal income reports, highlighting their direct and indirect impact on the eDiscovery sector. By understanding these interconnected factors, attorneys can better navigate economic pressures, manage risks, and capitalize on opportunities for their organizations and clients.

HSR Transaction Overview

The latest data from the Premerger Notification Office provides insight into trends in HSR transactions over the past few months, shedding light on the changing nature of M&A activity and its impact on eDiscovery spending and legal strategies.

In July 2024, the number of HSR deals reached 201, a significant increase from 163 deals in June and 179 deals in May. This upward trend contrasts with declines seen earlier in the year, such as the 136 deals recorded in March. November’s peak of 204 deals in 2023 continues to be a significant indicator of M&A activity over the past year. These fluctuations in deal volumes reflect broader economic conditions and the regulatory environment, underscoring the need for eDiscovery professionals to remain agile and responsive to changing requirements.

Economic Trends and Their Implications

The U.S. Bureau of Economic Analysis (BEA) Economic Indicators provide a comprehensive picture of the current situation and offer valuable information for the eDiscovery sector.

Real GDP growth was solid in the second quarter of 2024, rising at an annual rate of 3.0%, up from 1.4% in the first quarter. This acceleration was driven by gains in consumer spending, private inventory investment, and nonresidential fixed investment. However, a decline in residential fixed investment slightly offset these gains. Current-dollar GDP rose 5.5% to $28.65 trillion, an upward revision to reflect more complete data. Corporate profits rose $57.6 billion, contrasting with a $47.1 billion decline in the first quarter, particularly among domestic nonfinancial corporations.

Growth in GDP and corporate profits suggests a more favorable economic environment for M&A activity, potentially leading to increased demand for eDiscovery services. However, this also presents a challenge of managing costs as inflationary pressures remain evident.

The interplay of economic growth, personal income, and inflation directly impacts eDiscovery spending. Higher consumer spending typically leads to higher corporate revenues, which can increase legal budgets and, in turn, eDiscovery investment.

Rob Robinson, editor and managing director, ComplexDiscovery.

Personal Income and Expense Report

BEA’s June 2024 Personal Income and Outlays report (the latest available report, published in July) highlights continued growth in personal income and consumer spending. Personal income increased by $50.4 billion (0.2%), while disposable personal income (DPI) and consumer spending (PCE) also showed moderate growth of 0.2% and 0.3%, respectively.

The PCE Price Index, a key indicator of inflation, rose 2.5% year over year, signaling ongoing inflationary pressures that could weigh on legal budgets. Modest growth in consumer spending suggests cautious optimism among consumers, which could translate into continued but cautious investment in eDiscovery services by businesses.

Impact on eDiscovery Spending

The interplay of economic growth, personal income, and inflation directly impacts eDiscovery spending. Higher consumer spending typically leads to higher corporate revenues, which can increase legal budgets and, in turn, eDiscovery investment. On the other hand, an economic slowdown or inflationary pressures can cause firms to tighten their belts, prioritizing core legal services while cutting discretionary spending, including eDiscovery.

Legal departments may need to adopt more cost-effective strategies, such as optimizing workflows and negotiating better terms with vendors, to manage rising costs. This is especially important in sectors that face increased regulatory scrutiny or are undergoing significant M&A activity, where demand for eDiscovery services remains strong despite economic pressures.

Sector-specific challenges

Different industries are experiencing different impacts of economic changes. For example, the retail sector may reduce legal spending during periods of declining consumer confidence, which will impact their ability to manage compliance and litigation. Meanwhile, sectors such as healthcare and financial services may see increased legal requirements due to regulatory changes or changes in consumer behavior, which will drive up eDiscovery spending.

Strategic spending in areas such as risk management, compliance and core litigation remains critical across all sectors, regardless of the economic environment. Firms engaged in significant M&A activity or facing increased regulatory requirements will continue to invest in these areas to mitigate legal risk, potentially offsetting broader trends of reduced discretionary legal budgets.

Outlook for eDiscovery Professionals

The outlook for eDiscovery professionals is shaped by continued M&A activity, cautious economic growth, and sector challenges. The current trend in HSR deals indicates a moderate increase in M&A activity, supporting demand for eDiscovery services. However, with economic growth still facing potential headwinds and corporate profits under pressure, firms are likely to prioritize core services and compliance while limiting discretionary eDiscovery investments.

Inflationary pressures and budget constraints will require legal departments to implement strategies to effectively manage rising costs. eDiscovery vendors should focus on delivering efficient, cost-effective solutions tailored to the specific needs of different sectors. Strategic legal spending is expected to continue, especially in industries with significant M&A activity or facing increased regulatory requirements.

Looking ahead, several key trends will shape the strategies and actions of eDiscovery professionals. Adopting technological advances such as artificial intelligence (AI) and advanced analytics will be critical to managing costs and improving efficiency. Staying abreast of regulatory changes, particularly in antitrust, data privacy, and cross-border data transfer regulations, will be essential to navigating the evolving landscape of M&A and eDiscovery.

By focusing on these areas, eDiscovery professionals can better prepare and adapt to the changing economic and regulatory environment, ensuring their organizations remain compliant, efficient, and strategically aligned with broader business goals.

Transaction Charts

Taken from the most recent published monthly Hart-Scott-Rodino (HSR) Premerger Notification transactions made available by the Federal Trade Commission (FTC) and supplemented by published annual reports, the following transaction charts may be useful to law firms, legal departments, and legal service providers who wish to understand the real-time pulse rate of transaction reviews required by the Hart-Scott-Rodino Act. Because these reviews may lead to second requests, the charts may also be useful as a starting point for considering vendor statements regarding the depth, breadth, and volume of their support for second requests for this unique type of eDiscovery over a specified time frame.

*Monthly real-time reports – first report in October 2019 (monthly current report)
**Based on annual accounts presented in HSR’s final annual transaction reports.

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