CONNECTICUT: An Introduction to Corporate/M&A

At the state level, Connecticut is continuing to experience a current budget surplus, and is led by a pro-business governor who seeks to promote the growth and arrival of companies (especially in Fairfield County and the rest of the southwestern portion of the state).

Investment advisers and private investment funds continue to launch in the state.

At a practice area level, we believe that our business law clients – in Connecticut and nationally – are acutely aware of a variety of broad trends that have affected deal activity and overall operations.

Macro Market Conditions

We believe that the following trends are top of mind for clients.

• The unpredictable tariff environment presents challenges to business in certain industries, existing portfolio companies and potential acquisition targets, impairing supply chains and the ability to plan confidently.
• Uncertainty regarding the timing of the next Fed interest rate cuts during 2025 and their likely effect on (i) portfolio company cash flow and performance and (ii) buyout models.
• Inflation and its impact on inputs for companies (particularly the costs of imported goods) and customer behavior.
• Multiples in the M&A market may be adversely affected by the above and/or by turbulence in the equity capital markets.

Regulatory and Governmental Trends

While some recent regulatory developments have been favorable for clients in the investment space, other governmental and regulatory developments have led to some uncertainty.

Relaxed and/or other favorable developments

Revoked Private Fund Adviser Rules

Our clients were generally relieved by the recent revocation of the SEC’s prior proposed private fund adviser rules under the Investment Advisers Act, which would have applied in part to private equity funds. Those rule changes would have, among other things:

• prohibited certain indemnification and exculpation provisions and practices;
• required disclosure of and/or constraints on “preferential treatment” (including side letter provisions governing liquidity and fund portfolio information);
• imposed additional costs in the form of written compliance reviews, fairness opinion requirements for adviser-led secondary transactions and certain standardized disclosures and quarterly performance reports; and
• required prompt (within one day) disclosure of certain major fund events, including a general partner claw-back, a limited partner giveback, removal of the general partner, termination of the investment period and termination of the fund.

The rescission of this rulemaking has been viewed favorably. However, some clients have already been moving to adopt some or all of the proposed rule changes. As a result, practically speaking, the investment management industry may adopt some of these practices as a matter of practice.

Corporate Transparency Act

The Financial Crimes Enforcement Network (FinCEN), abureau within the United States Department of the Treasury, is charged with promulgating regulations to implement the Corporate Transparency Act (CTA). The CTA imposes beneficial ownership reporting to “discourage the use of shell corporations as a tool to disguise and move illicit funds…” Companies and clients had expended substantial resources to prepare to comply with the expansive CTA rules and filing requirements for their domestic entities.

However, in March 2025, FinCEN adopted a substantially narrowed interim final rule to limit the scope of beneficial ownership disclosure under the CTA to entities previously defined as “foreign reporting companies”. Under this interim final rule, entities previously defined as “domestic reporting companies” are exempted from the reporting requirements and do not have to report beneficial ownership information to FinCEN.

Bright-line test for general solicitations from accredited investors in capital raising

In March 2025, the SEC issued a no-action letter that may facilitate fundraising in private capital markets in reliance upon Regulation D Rule 506(c).

Rule 506(c) allows for private placements to accredited investors so long as, among other things, the issuer takes “reasonable steps to verify” the accredited investor status of each purchaser. Both issuers and their counsel, and investors, had experienced discomfort in determining how to take such reasonable steps without intruding into an investor’s personal affairs.

In order to dispel this uncertainty, in the recent no-action letter, counsel proposed a new, straightforward test: that an issuer will be deemed to have taken “reasonable steps to verify” if an investor would be deemed to be accredited based on the minimum investment amount - USD200,000 for natural persons and USD1 million for entities. The SEC staff indicated that the staff would not recommend enforcement if such minimum investment amounts applied and if the issuer also obtained certain other representations (and was not aware that the investor was not an accredited investor or had obtained financing from a third party).

The minimum investment amount test is a non-exclusive manner of satisfying the requirements of Rules 506(c). This guidance from the SEC staff could alleviate issuer and counsel concern about the otherwise vague and intrusive “reasonable steps to verify” requirement (and allow for more efficient enhanced private offering processes).

Antitrust

The Federal Trade Commission has indicated that it will return to granting early termination of the pre-merger waiting period under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976. This may allow for more expedited deal timelines, even with recent changes to the HSR pre-merger notification form that will require broader disclosure (but which we expect will be assimilated in short order by deal professionals).

Governmental and regulatory developments giving rise to uncertainty

Tax treatment of carried interest

The current favorable tax treatment of carried interest is once again the subject of congressional and presidential attention. While the President has advocated extensively – dating back to his first term – for closing the so-called “carried interest loophole”, the latest tax package proposed by Republicans in Congress does not address the treatment of carried interest. Clients focused on carried interest taxation are closely monitoring budget debates as they continue at the federal level.

Adoption of state “mini-HSR” regimes

Certain states have adopted statutes that could result in additional state-level regulatory filings and costs, including statutes that require filing of notices in the case of certain healthcare acquisitions or combinations. In April 2025, the State of Washington enacted a law that requires potential pre-merger notification filings with the Washington state attorney general for business combinations across all industries. Such a state level filing is triggered if an HSR filing has been made and any of the following three tests are satisfied:

1. a party has a principal place of business in the State of Washington;
2. a party has net sales in the State of Washington of at least 20% of the federal HSR threshold (currently USD126.4 million); or
3. a party is a health care provider or organization.

We anticipate that the potential adoption of multiple state-level filing requirements for business combinations will increase costs, introduce delay, and add to deal uncertainty.

CFIUS

The federal government has recently announced that it may introduce a “known investor” portal to allow for faster approval and processing of transactions involving certain foreign investors which would be subject to potential review by the Committee on Foreign Investment in the United States (CFIUS).

While this may be a welcome development, many clients are likely to adopt a “wait and see” approach to filing for business combinations where a CFIUS filing is optional and not mandatory.

From a strategic deal perspective, prospective parties involved in an “optional filing” deal with low national security risk factors may reasonably decide that they would rather close the transaction and run the arguably theoretical risk that the transaction might attract negative attention later, rather than filing and attracting upfront attention while the filing works its way through the various review offices within the CFIUS infrastructure.

Cross-border investment: Canada and Mexico

We have noted cooling interest in cross-border deals among our clients who have historically been interested in acquisition targets in Mexico and/or Canada. As relationships with Canada and Mexico undergo potentially dramatic changes, investor comfort level has dropped due to concerns about regulatory review (both in the United States and in Mexico and Canada), predictability of the tariff and tax environment and overall changed perceptions of our countries’ relationships with each other. We have also witnessed a slowing or cessation of certain inbound investment activity from our North American neighbors this spring.

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In sum, government’s overall current impact on our clients is greater than at any time in recent memory, with favorable regulatory changes offset by potentially adverse shifts (especially with respect to tariffs).