In their eagerness to close a transaction and capture deal synergies, merging parties would often like to start acting a combined company as soon as possible. Many today know that doing so prior to the necessary regulatory clearances and closing carries a significant risk. This post recaptures the main risk areas and lays out a brief compliance playbook.
We have blogged on so-called “gun-jumping” several times (e.g., here, here and here). In recent years, antitrust regulators globally have levied hefty fines against companies who allegedly crossed the line during the interim period between signing and closing. Understanding the boundary between legitimate pre-merger planning and illegal gun-jumping is not optional, it is a core M&A capability.
What is gun-jumping and why does it matter?
Under the merger control and foreign investment control regimes in most countries, merging parties are subject to a strict standstill obligation. Until formal regulatory approval is granted (or applicable waiting periods expire), the acquirer and target must remain entirely independent competitors.
Failing to comply with the standstill obligation constitutes “gun-jumping”. Fines for non-compliance are severe: In the EU, most regulators can impose fines of up to 10% of global annual turnover on the parties. That fines can be significant is evidenced by a EUR 125 million fine on Altice and a EUR 28 million fine on Canon, both imposed by the European Commission – or a EUR 70 million fine on REWE in Austria. Under foreign investment control regimes such as the one in Germany, gun-jumping can even be a criminal offence punishable by prison.
In the US, we have seen a record USD 5.6 million fine on oil companies for gun-jumping just last year.
The two forms of gun-jumping
Gun-jumping is generally categorised into two distinct legal violations:
- Procedural gun-jumping (premature implementation): Closing the deal, transferring legal title, or exercising “decisive influence” over the target’s strategic business operations prior to clearance.
- Substantive gun-jumping (unlawful information sharing and coordination): Exchanging competitively sensitive information or coordinating commercial activity (like pricing, customer allocation, or marketing strategy) while still being legally separate entities.
Three major danger zones between signing and closing
Gun-jumping violations do not necessarily happen with intent to break the law, but rather during deal workflows that take things too far, sometimes inadvertently. Here are three major risk areas in this regard:
| Danger zone | Common pitfall | Regulatory assessment |
| Interim operating covenants | Granting the acquirer veto rights over routine operational decisions (e.g., ordinary customer contracts, hiring mid-level managers, minor CAPEX). | Gives the acquirer premature “decisive influence” over day-to-day operations. Such covenants should be strictly limited to protecting against actions clearly outside the scope of the target’s ordinary course of business between signing and closing. |
| Pre-closing information exchange | Sharing granular, customer-specific pricing data, margin analysis, or forward-looking product roadmaps without safeguards. | Exchanging competitively sensitive information breaches antitrust rules in most countries. |
| Premature joint commercial activity | Conducting joint sales calls, aligning bidding strategies, or telling customers “we are now one company.” | Can constitute market allocation and illegal gun-jumping prior to legal ownership transfer. |
The compliance playbook: How to stay compliant
To accelerate the creation of deal value without inviting regulatory scrutiny, deal teams and legal advisors should implement at least the following five rules:
1. Enforce “planning vs. execution”
- Permitted: Creating organizational charts, designing post-closing workflows, and modelling combined supply chain structures.
- Prohibited without case-by-case assessment: Implementing those changes, shifting operational control, or terminating overlapping personnel before closing (unless in the ordinary course of business).
2. Mandate “Clean Teams” for sensitive data
- Use a third-party advisor or an isolated “Clean Team” of non-operational personnel to handle competitively sensitive information required for synergy validation or integration planning.
- Clean Team members must adhere to strict confidentially rules and be barred from commercial pricing or sales decisions during the interim period.
3. Tailor interim operating covenants narrowly
- The target must remain able to conduct business in the ordinary course.
- Veto rights must be limited to extraordinary events (e.g., major asset sales, structural refinancing, key executive changes) that threaten the target’s core value.
4. Maintain independent customer relations
- Do not combine commercial teams or hold joint sales meetings unless assessed by antitrust experts.
- Ensure the target continues to bid independently, set its own prices, and pursue its own pipeline.
5. Log interim consent requests
- Establish a clear, documented protocol for any consent requests under the sale and purchase agreement.
- Requests should be reviewed by antitrust experts to verify they do not cross the line to gun-jumping.
The bottom line
Antitrust regulators expect merging parties to act as independent companies until the precise second a transaction receives regulatory clearance and legally closes. By embedding clean teams, limiting interim covenants, and keeping integration planning focused purely on strategy rather than execution, companies can reach the finish line safely without handing regulators a multi-million enforcement case.
Antitrustpolitics.com 