PRIVILEGED & CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGED ATTORNEY WORK PRODUCT
MEMORANDUM
FROM: Howard Bellamy, Partner, and Elliot Nguyen, Associate Calderwood & Harkness LLP 425 Lexington Avenue New York, NY 10017
TO: Gavin Trask, Managing Partner & Chairman, and Diane Ochoa, Partner & Head of Financial Services Investments Harrowgate Capital Management LLC 1200 North Market Street, Suite 1400 Wilmington, DE 19801
DATE: August 14, 2024
RE: Second Request Compliance — Timeline and Cost Estimate FTC Transaction No. 2418-7603 C&H Matter No. 1003-00001
SUBJECT TRANSACTION: Proposed Acquisition by Harrowgate Private Equity Fund IV, L.P. of 100% of the Outstanding Membership Interests of Ridgemark Capital Advisors, LLC
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I. Purpose and Executive Summary
The purpose of this memorandum is to provide Harrowgate Capital Management LLC ("HCM") with a comprehensive estimate of the timeline, resources, and costs necessary to achieve substantial compliance with the Second Request issued by the Federal Trade Commission (the "FTC" or the "Commission") on July 16, 2024, in connection with the proposed acquisition by Harrowgate Private Equity Fund IV, L.P. ("HPE Fund IV") of 100% of the outstanding membership interests of Ridgemark Capital Advisors, LLC ("Ridgemark" or "RCA") (the "Transaction"). This memorandum also addresses certain emerging commercial considerations that may bear on HCM's decision whether to proceed with full compliance efforts or to pursue an alternative course of action.
Calderwood & Harkness LLP ("C&H" or "we") has conducted a preliminary assessment of the scope and burden of the Second Request and has reached the following key conclusions:
• Estimated Custodian Count: We anticipate that the FTC will require document production from approximately 12–15 individual custodians across three entities on the Acquiring Person's side: Harrowgate Capital Management LLC, Dunmore Asset Management LLC ("Dunmore"), and Greycastle Partners LLC ("Greycastle"). This estimate does not include custodians on the Acquired Person's side, which are the responsibility of Ridgemark and its counsel at Blackwell, Oakes & Hardin LLP.
• Estimated Document Universe: Based on a preliminary assessment of email volumes, shared drives, and document management systems across the three entities, we estimate a total collected document universe of approximately 350,000–500,000 documents. After de-duplication and application of negotiated search terms, the reviewable universe is estimated at approximately 100,000–175,000 documents.
• Projected Review Timeline: From commencement of full-scale document review, we estimate approximately 10–14 weeks to reach a position to certify substantial compliance. If collection and processing commence the week of August 19, 2024, we project a substantial compliance certification date in late October to late November 2024, followed by an additional 30-day statutory waiting period.
• Estimated Outside Counsel Fees for Second Request Compliance: We estimate that C&H's fees for full Second Request compliance — encompassing document review management, interrogatory and data request responses, FTC scope negotiations, privilege review and logging, potential deposition preparation, and overall project management — will range from $2.5 million to $3.8 million. These fees are separate from and in addition to the approximately $487,000 in fees billed to date on this matter.
• Estimated E-discovery Vendor Costs: We estimate e-discovery vendor costs of approximately $800,000–$1.2 million for collection, processing, hosting, TIFF conversion, and production.
• Total Estimated Compliance Cost (Counsel + Vendor): Approximately $3.3–$5.0 million in incremental costs, exclusive of any economic expert engagement.
• Calderwood & Harkness's Total Fees Billed to Date: Approximately $487,000, covering all work from engagement through August 14, 2024.
We note that the voluntary fee cap of $650,000 established in the engagement letter dated June 5, 2024 was automatically voided upon issuance of the Second Request on July 16, 2024, in accordance with the terms of that engagement letter. All work from July 16, 2024 forward is billed at C&H's standard hourly rates, which are as follows: Partners at $1,650 per hour; Counsel at $1,350 per hour; and Associates at $875 per hour.
In addition to these compliance-related matters, we wish to flag an emerging commercial concern for the Harrowgate Investment Committee's consideration. Based on updated financial data provided by the Harrowgate deal team, Ridgemark's revised annualized revenue run-rate has declined to approximately $52.6 million, down from $58.3 million on a trailing twelve-month basis as of Q1 2024. On a pro forma basis, the implied EBITDA multiple on the agreed $370 million enterprise value has increased to approximately 25.5x. This material change in Ridgemark's financial trajectory, coupled with the departure of two key portfolio managers from Ridgemark's alternative credit group, may compress the commercial rationale for completing the Transaction at the agreed enterprise value. We address this issue in greater detail in Section VII below and recommend that the Investment Committee convene promptly to evaluate these developments in conjunction with the compliance cost estimates presented herein.
II. Background and Procedural Posture
A. Transaction Overview
Harrowgate Private Equity Fund IV, L.P. ("HPE Fund IV"), a Delaware limited partnership managed by HCM in its capacity as general partner, proposes to acquire 100% of the outstanding membership interests of Ridgemark Capital Advisors, LLC ("Ridgemark" or "RCA"), a Delaware limited liability company and SEC-registered investment adviser (CRD No. 298174). As of March 31, 2024, Ridgemark reported approximately $4.7 billion in regulatory assets under management, consisting primarily of alternative credit, private credit, structured credit, and distressed debt strategies deployed through separately managed accounts for institutional investors and sub-advisory arrangements with mutual fund complexes.
The Transaction is governed by the Membership Interest Purchase Agreement dated June 4, 2024 (the "MIPA"), among HPE Fund IV, as purchaser, Ridgemark, as the company, and the following equity holders of Ridgemark: Jonathan Kessler (co-founder and Chief Investment Officer), Priya Narayanan (co-founder and President), other employee partners of Ridgemark, and Thornfield Growth Partners, LLC, a growth equity sponsor that holds an approximate 30% equity interest in Ridgemark.
The total enterprise value of the Transaction is $370 million. The equity purchase price is $328 million, reflecting the agreed enterprise value less approximately $42 million in net funded debt (consisting of outstanding amounts under Ridgemark's existing credit facility with Highpoint Commercial Bank, less unrestricted cash and cash equivalents on Ridgemark's balance sheet as of a customary working capital reference date).
Debt financing for the Transaction is to be provided by Meridian National Bank, N.A. pursuant to a commitment letter dated June 3, 2024, providing for a $280 million senior secured credit facility (consisting of a $240 million senior secured term loan and a $40 million revolving credit facility). The commitment letter is subject to customary conditions precedent, including the absence of a material adverse effect.
Under the terms of the MIPA, Jonathan Kessler and Priya Narayanan will each retain rollover equity of approximately 10% in the post-closing entity (NewCo), providing for management continuity and alignment of incentives. Thornfield Growth Partners, LLC, which holds approximately 30% of Ridgemark's equity, will receive a full cash exit at closing, with its pro rata share of the equity purchase price estimated at approximately $98.4 million. The remaining equity holders consist of approximately twelve employee partners, whose interests aggregate to approximately 20% of Ridgemark's equity; their proceeds will be paid in a combination of cash (approximately 80%) and rollover equity in NewCo (approximately 20%).
B. HSR Filing and Waiting Period
In connection with the Transaction, HSR Notification and Report Forms were filed on June 18, 2024 by both the Acquiring Person (HCM, as the ultimate parent entity of HPE Fund IV) and the Acquired Person (Ridgemark), pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, 15 U.S.C. § 18a, and the premerger notification rules promulgated thereunder at 16 C.F.R. Parts 801–803.
The Transaction value of $370 million exceeds the 2024 size-of-transaction threshold of $119.5 million established by the FTC's annual adjustment pursuant to Section 8(a)(1) of the Clayton Act. Because the Transaction falls within the $173.3 million–$536.4 million filing fee band (as established by the Merger Filing Fee Modernization Act of 2022 and adjusted for 2024), the applicable filing fee was $160,000, which was submitted with the Acquiring Person's Notification Form. The size-of-persons test is also satisfied: HCM's total assets exceed $23.9 billion across all managed funds and entities, and Ridgemark's total assets are approximately $87 million (excluding client assets under management, which are not assets of the adviser for HSR purposes).
The FTC acknowledged receipt of the Notification Forms on June 21, 2024. The Transaction was assigned to the FTC for review (rather than the Antitrust Division of the Department of Justice), consistent with the interagency clearance procedures and the FTC's traditional assertion of jurisdiction over transactions in the financial services and asset management sectors.
The initial 30-day waiting period was set to expire at 11:59 p.m. Eastern Time on July 18, 2024. We note that early termination of the waiting period was not requested. This decision was made deliberately in light of the competitive overlap between Ridgemark and Dunmore in the alternative credit separately managed account space, which we assessed at the time of filing as presenting a meaningful risk of a Second Request. By not requesting early termination, we avoided the negative signaling that can accompany a denied early termination request and preserved a more constructive posture with FTC staff.
C. FTC Voluntary Access Letter and Supplemental Production
On July 8, 2024, ten days before the expiration of the initial waiting period, the FTC Bureau of Competition, Mergers IV Division, transmitted a voluntary access letter to Calderwood & Harkness requesting supplemental production of Item 4(c) and Item 4(d) documents. The voluntary access letter requested documents and information beyond the categories included in the initial HSR filing, including certain strategic planning documents, board presentations, and communications with financial advisors relating to competitive dynamics in alternative credit strategies and the rationale for the Transaction.
Calderwood & Harkness, in coordination with the Harrowgate deal team, collected, reviewed, and produced 23 supplemental documents in response to the voluntary access letter on July 10, 2024. The production was made on a voluntary basis to facilitate the FTC's review and to demonstrate HCM's cooperative posture. While voluntary access letters do not carry the force of a compulsory process, failure to respond in a timely and complete manner is generally viewed unfavorably by FTC staff and can negatively influence the agency's assessment of whether to issue a Second Request.
Despite our prompt and cooperative response, the supplemental production did not resolve the FTC's competitive concerns, as discussed further below.
D. Issuance of the Second Request
On July 16, 2024, two days before the expiration of the initial waiting period, the FTC issued a Second Request — formally, a "Request for Additional Information and Documentary Material" pursuant to 15 U.S.C. § 18a(e)(1)(A) — to both the Acquiring Person (HCM) and the Acquired Person (Ridgemark). The issuance of the Second Request had the following procedural consequences:
First, the Second Request tolled the initial waiting period. The July 18, 2024 expiration date of the initial waiting period is now moot, and the parties may not consummate the Transaction during the pendency of the Second Request.
Second, the waiting period will not recommence until both the Acquiring Person and the Acquired Person have certified their respective substantial compliance with the Second Request. Upon dual certification, a new 30-day waiting period will commence, during which the FTC retains the authority to seek a preliminary injunction in federal court to enjoin the Transaction under Section 13(b) of the FTC Act, 15 U.S.C. § 53(b).
Third, the Transaction may not lawfully close until the new waiting period has expired or has been terminated by the FTC.
The primary competitive concern identified by FTC staff, as communicated during subsequent discussions, is the horizontal overlap between Ridgemark and Dunmore Asset Management LLC in the provision of alternative credit separately managed account ("SMA") services to U.S. institutional investors. Ridgemark manages approximately $1.4 billion in alternative credit SMAs, while Dunmore — an existing portfolio company of HPE Fund IV, headquartered at 227 West Monroe Street, Suite 4100, Chicago, Illinois 60606, and led by Chief Executive Officer Franklin Broussard — manages approximately $2.1 billion in alternative credit SMAs out of a total AUM of approximately $3.9 billion. FTC staff has estimated that the combined share of the "alternative credit SMA market for U.S. institutional clients" at approximately 14%–18% under a narrow market definition. We note that market definition is a contested issue, and the appropriate market definition is one of the central analytical questions in this investigation.
The FTC has also identified a secondary competitive concern regarding the provision of sub-advisory services for alternative credit mutual funds. Both Ridgemark and Dunmore serve as sub-advisers to third-party mutual fund complexes, and the FTC is investigating whether the combination of these sub-advisory businesses would materially reduce competition in that segment.
E. Meeting with FTC Staff
On July 22, 2024, Calderwood & Harkness (Howard Bellamy and Elliot Nguyen), together with Diane Ochoa of HCM and Rajesh Subramaniam of Blackwell, Oakes & Hardin LLP (lead antitrust partner, serving as counsel for Ridgemark), met with FTC Mergers IV Division staff at the FTC's offices at 600 Pennsylvania Avenue, N.W., Washington, D.C. The purpose of the meeting was to discuss the scope and specifications of the Second Request, including custodian identification, the relevant time period for document production, search term negotiation, and the FTC's substantive competitive concerns.
During the meeting, some preliminary narrowing of the document specifications was discussed. FTC staff acknowledged that certain categories of documents — for example, documents relating solely to Dunmore's real estate debt strategies, which do not overlap with any Ridgemark business line — might be amenable to exclusion from the production scope. However, FTC staff declined to formally limit the custodian list or narrow the relevant date range at this stage, indicating that they wished to see an initial production before committing to scope reductions. FTC staff did indicate a willingness to continue scope discussions as compliance progresses and expressed openness to rolling productions.
We regard the July 22 meeting as constructive in tone, and we intend to pursue further scope negotiations as an integral part of our compliance strategy. The success of these negotiations will materially affect both the timeline and cost of compliance.
III. Scope of the Second Request — Key Specifications
The Second Request issued by the FTC is substantial in scope, as is typical for transactions in which the Commission identifies a meaningful competitive overlap. We summarize below the principal categories of the Second Request's specifications.
A. Document Specifications
The Second Request requires the production of all documents and communications relating to a broad range of subject matter areas, including but not limited to the following:
• Competition in alternative credit, private credit, structured credit, and distressed debt strategies, including any analyses, assessments, or evaluations of competitive conditions, market trends, or strategic positioning in these sectors;
• Separately managed accounts for institutional investors, including the marketing, pricing, negotiation, and servicing of SMA mandates;
• Sub-advisory arrangements with mutual fund complexes, including the terms, economics, and competitive dynamics of sub-advisory relationships;
• Market share analyses, competitor assessments, and industry benchmarking studies, whether prepared internally or by third-party consultants, research firms, or financial advisors;
• Pricing of advisory fees, including management fee schedules, performance or incentive fee arrangements, fee concessions, most-favored-nation provisions, and any analyses of fee competitiveness;
• Client wins and losses, including pitch materials, RFP responses, finalist presentations, and post-mortem analyses of lost mandates;
• Strategic plans, business plans, annual budgets, and long-range planning documents;
• Communications with or about competitors, including any discussions of competitive positioning, head-to-head comparisons, or assessments of competitors' capabilities, products, or strategies; and
• Documents and communications relating to the Transaction itself, including the strategic rationale, due diligence materials, financial analyses, integration plans, and any assessments of the competitive effects of the proposed combination.
The relevant time period specified in the Second Request extends from January 1, 2019 through the date of substantial compliance — a span of approximately 5.5 years. This is a standard time frame for FTC Second Requests and encompasses a period during which both Ridgemark and Dunmore experienced significant growth in their alternative credit platforms.
The Second Request covers all entities within the Acquiring Person's structure, as that term is defined under the HSR Act and the premerger notification rules. This includes HCM (as the ultimate parent entity), HPE Fund IV (as the acquiring entity), and all entities that HCM controls within the meaning of 16 C.F.R. § 801.1(b). Critically, this encompasses all controlled portfolio companies operating in NAICS codes that overlap with Ridgemark's business, specifically NAICS 523920 (Portfolio Management) and NAICS 523910 (Miscellaneous Intermediation). Because Dunmore Asset Management LLC is a portfolio company of HPE Fund IV and operates in both of these NAICS codes, Dunmore is squarely within the scope of the Second Request. This is the single largest driver of the compliance burden, as Dunmore's document universe is substantial and its personnel constitute a significant portion of the anticipated custodian list.
The Second Request also extends to documents in the possession of third-party advisors who acted in connection with the Transaction. Greycastle Partners LLC, the financial advisor retained by HCM to advise on the Transaction, is subject to the Second Request's document specifications insofar as its personnel created, received, or maintained documents relating to the competitive analysis, market positioning, or strategic rationale for the Transaction. Mitchell Avery, Managing Director at Greycastle (300 Atlantic Street, Stamford, CT 06901), served as the lead banker on the engagement and prepared the confidential information memorandum and related competitive analyses.
B. Interrogatories and Data Requests
In addition to the document production requirements, the Second Request includes a series of detailed interrogatories requiring narrative responses. These interrogatories address, among other topics, the following subjects:
• Market definition, including the appropriate product market and geographic market for the evaluation of competitive effects;
• Competitive conditions in the alternative credit SMA space, including the identity and market positions of principal competitors, barriers to entry and expansion, and the extent of customer switching;
• Identification of competitors, including a comprehensive list of entities that compete with Ridgemark and/or Dunmore in any of the overlapping strategy areas;
• Client overlap analysis, requiring identification of any clients that have advisory relationships with both Ridgemark and Dunmore, and any instances in which Ridgemark and Dunmore competed for the same mandate;
• Revenue and fee schedules by strategy, including a detailed breakdown of advisory fee rates and structures across the Acquiring Person's alternative credit, private credit, structured credit, and distressed debt platforms; and
• Post-acquisition integration plans, including any plans to consolidate operations, rationalize product offerings, adjust fee schedules, or reduce headcount following consummation of the Transaction.
The Second Request also includes a series of data requests requiring the compilation and production of structured datasets. These data requests cover the following categories:
• Historical AUM by strategy and client type (e.g., public pension, corporate pension, endowment/foundation, insurance company, sovereign wealth fund, fund of funds), on a quarterly basis, for the full relevant time period;
• Management fee and performance/incentive fee breakdowns by strategy and account;
• Client-by-client account information, including the identity of each institutional SMA client, the strategy or strategies deployed, the inception date, the account size, the fee arrangement, and any changes in the relationship during the relevant period;
• Employee compensation data, including total compensation for portfolio managers and senior investment professionals in the overlapping strategy areas; and
• Portfolio manager retention, including data on personnel departures and hires in the overlapping strategy areas during the relevant time period.
The interrogatory and data request responses will require significant coordination with Dunmore management and with Ridgemark's counsel at Blackwell, Oakes & Hardin LLP, particularly with respect to client overlap analysis and joint or overlapping data elements.
C. Depositions (Anticipated)
The Second Request, consistent with standard FTC practice, reserves the Commission's right to request investigational hearings (commonly referred to as depositions, though technically conducted under the authority of 15 U.S.C. § 57b-1) of key custodians and witnesses following the completion of the document production. While the FTC has not yet identified specific deposition witnesses, we anticipate that the following individuals may be subject to deposition requests:
• Gavin Trask, Managing Partner & Chairman, HCM — as the senior decision-maker on the buy-side and the individual with ultimate authority over HPE Fund IV's investment decisions;
• Diane Ochoa, Partner & Head of Financial Services Investments, HCM — as the deal sponsor and the individual responsible for originating and evaluating the Ridgemark transaction;
• Franklin Broussard, CEO, Dunmore Asset Management LLC — as the chief executive of the portfolio company that generates the competitive overlap at the center of the FTC's investigation;
• Jonathan Kessler, Co-Founder and CIO, Ridgemark — as the senior investment professional on the sell-side, whose testimony regarding competitive conditions, client relationships, and market dynamics would be of central interest to FTC staff; and
• Priya Narayanan, Co-Founder and President, Ridgemark — as the individual responsible for Ridgemark's business development, client relationships, and operational management.
Preparation and attendance for depositions of Kessler and Narayanan would be coordinated through Blackwell, Oakes & Hardin LLP and Rajesh Subramaniam, as counsel for Ridgemark. Deposition preparation for Trask, Ochoa, and Broussard would be conducted by Calderwood & Harkness.
Investigational hearings, if requested, typically occur after the document production is substantially complete and before the FTC makes a final enforcement decision. Each hearing typically lasts one full day and requires several days of preparation with the witness, including review of key documents likely to be used as exhibits.
IV. Custodian Identification and Document Universe Estimate
A. Proposed Custodian List
Based on our review of the Second Request specifications, our understanding of the relevant organizational structures, and our preliminary assessment of which individuals are likely to possess responsive documents, we estimate that the FTC will require document production from approximately 12–15 individual custodians across three entities on the Acquiring Person's side. Our proposed custodian list, which remains subject to negotiation with FTC staff, is as follows:
Harrowgate Capital Management LLC (5–6 custodians):
• Gavin Trask, Managing Partner & Chairman — As the most senior executive at HCM and the chairman of the Investment Committee that approved the Transaction, Mr. Trask is certain to be a custodian. His documents will include Investment Committee materials, strategic planning documents, and communications with Diane Ochoa and other deal team members regarding the competitive dynamics of the alternative credit space and the rationale for the Transaction.
• Diane Ochoa, Partner, Head of Financial Services Investments — Ms. Ochoa is the deal sponsor and led the origination, evaluation, and negotiation of the Ridgemark transaction. Her document files will include due diligence materials, financial models, competitive analyses, communications with Greycastle Partners and Ridgemark management, and internal presentations to the Investment Committee. Her custodial file is likely to be among the largest and most substantively significant.
• Marcus Hale, Vice President, Deal Execution — Mr. Hale served as the principal member of the deal execution team, supporting Ms. Ochoa in due diligence, financial modeling, and transaction structuring. His documents will overlap significantly with Ms. Ochoa's but will also include working-level analyses, data room materials, and communications with advisors.
• Additional investment professionals involved in financial services portfolio management and deal origination — we anticipate that 1–2 additional HCM professionals who participated in the evaluation of the Ridgemark opportunity or who are responsible for overseeing Dunmore as a portfolio company will be included on the custodian list. The identities of these individuals will be confirmed during scope negotiations.
• Investor relations/marketing personnel — at least one HCM investor relations or marketing professional who was involved in preparing materials for HPE Fund IV's limited partners regarding the Ridgemark transaction or the broader financial services investment thesis may be included, depending on the FTC's assessment of the relevance of such materials.
Dunmore Asset Management LLC (4–5 custodians):
• Franklin Broussard, CEO — As the chief executive of the portfolio company that generates the principal competitive overlap, Mr. Broussard is a critical custodian. His documents will include strategic plans, competitive assessments, client win/loss analyses, and communications with HCM regarding Dunmore's competitive position in the alternative credit SMA market.
• Head of alternative credit strategies — The senior investment professional responsible for managing Dunmore's alternative credit platform, including portfolio construction, risk management, and strategy development. This individual's documents will be central to the FTC's assessment of the competitive overlap.
• Head of SMA/institutional sales — The senior business development or distribution professional responsible for marketing Dunmore's alternative credit SMA products to institutional investors. This individual's documents will include pitch materials, RFP responses, fee proposals, and client correspondence — all of which are directly responsive to the Second Request's specifications regarding client wins and losses, pricing, and competition.
• Portfolio managers covering overlapping strategies — One to two portfolio managers in Dunmore's alternative credit group whose documents may contain responsive communications regarding competitive dynamics, client relationships, and market conditions.
• Compliance officer — Dunmore's chief compliance officer, whose files may contain regulatory filings, compliance reviews, and communications with regulators that are responsive to the Second Request's specifications.
Greycastle Partners LLC (2–3 custodians):
• Mitchell Avery, Managing Director, lead banker — Mr. Avery served as the lead financial advisor on the Transaction and prepared the confidential information memorandum, buyer outreach materials, and competitive analyses that informed HCM's evaluation of the opportunity. His documents are likely to include market maps, competitive landscape analyses, and communications with HCM regarding the strategic rationale for the Transaction.
• Deal team members — One to two junior professionals on the Greycastle deal team who assisted in the preparation of the confidential information memorandum, financial models, and competitive analyses. Their documents will supplement Mr. Avery's custodial file.
We note that additional custodians may be required depending on FTC staff feedback during the scope negotiation process. In our experience, the FTC frequently requests the addition of custodians after reviewing initial productions, particularly if the initial production reveals the involvement of individuals not originally identified. We will work to contain the custodian list to the extent possible while maintaining a cooperative posture with FTC staff.
We further note that custodians on the Acquired Person's side — Ridgemark — are the responsibility of Ridgemark and its counsel at Blackwell, Oakes & Hardin LLP, led by antitrust partner Rajesh Subramaniam. All custodian counts and document volume estimates in this memorandum are limited to the Acquiring Person's side of the compliance effort. We will coordinate with Mr. Subramaniam on timeline alignment and any joint or overlapping data requests.
B. Estimated Document Universe
Based on our preliminary assessment of email volumes, shared network drives, document management systems, and other data repositories across the three entities, we estimate the following document volumes:
Total Documents for Collection: Approximately 350,000–500,000 documents across all custodians and entities, broken down as follows:
Dunmore's disproportionately large document volume reflects the breadth of its alternative credit operations, the number of custodians anticipated, and the 5.5-year time span of the relevant period. As an operating asset management company with approximately $3.9 billion in AUM and a substantial institutional sales and client service infrastructure, Dunmore generates a significantly higher volume of client-facing and competitive documents than does HCM (a private equity firm) or Greycastle (a financial advisory firm engaged for a discrete transaction).
Reviewable Universe After Processing: After de-duplication and the application of negotiated search terms, we estimate that the reviewable document universe will be reduced to approximately 100,000–175,000 documents. The magnitude of this reduction will depend critically on the breadth or narrowness of the search terms agreed upon with FTC staff. We intend to propose a targeted set of search terms designed to capture responsive documents while excluding clearly non-responsive materials (e.g., administrative communications, purely personal emails, and documents relating solely to non-overlapping business lines). However, the FTC typically insists on a broad set of search terms, and the final negotiated terms may result in a larger reviewable universe than our current estimate.
Document Types: The collected documents will include, among other categories:
• Emails and email attachments (the single largest category by volume);
• Board of managers and investment committee materials;
• Investment committee presentations and memoranda;
• Marketing and business development materials, including pitch books, RFP responses, and DDQ (due diligence questionnaire) responses;
• Strategic plans, annual business plans, and long-range planning documents;
• Financial models, including fee projections, AUM projections, and profitability analyses;
• Fee proposals and fee negotiation correspondence;
• Client correspondence, including relationship management communications and performance reporting;
• Deal-related analyses, including the confidential information memorandum, buyer presentations, and transaction-specific competitive analyses; and
• Regulatory filings and compliance documentation.
V. Projected Compliance Timeline
A. Phases of Compliance
We propose to organize the compliance effort into six overlapping phases, as described below. The timeline estimates assume that full-scale collection commences the week of August 19, 2024 and that scope negotiations with FTC staff proceed on a parallel track without material delays.
Phase 1 — Custodian Confirmation and Collection (Weeks 1–2)
During the first two weeks of the compliance effort, we will take the following steps: (i) finalize the custodian list through further discussions with FTC Mergers IV staff, incorporating any modifications required by the staff; (ii) issue litigation hold and preservation notices to all identified custodians across HCM, Dunmore, and Greycastle, instructing them to preserve all potentially responsive documents and to refrain from deleting, modifying, or relocating any documents within the scope of the Second Request; (iii) engage the e-discovery vendor selected from C&H's approved vendor panel (vendor selection is currently underway; see Section VI.B below); (iv) commence collection of electronic data from email servers (including Strathmore Data Systems/Ashbury Software environments), shared network drives, document management systems, and local devices (laptops and mobile devices) of all identified custodians; and (v) identify and collect any hard-copy documents or files maintained by custodians in physical offices. We anticipate that the collection process will require coordination with the information technology departments of all three entities, and we will issue detailed collection protocols to each entity's IT personnel.
Phase 2 — Processing, De-Duplication, and Search Term Application (Weeks 2–4)
Upon receipt of the collected data, the e-discovery vendor will process the data in accordance with industry-standard protocols, including the following steps: extraction of emails and attachments from email archives; extraction of files from shared drives and document management systems; de-duplication using MD5 hash values at the custodian level and cross-custodian level; expansion of compressed files (ZIP, RAR, etc.); extraction of embedded files from container documents; optical character recognition (OCR) processing for image-based documents; and application of the agreed-upon search terms to the full corpus of collected data. Documents that are responsive to at least one search term will be promoted to the review platform for first-level review. Documents that do not hit on any search term will be set aside but preserved in the event that FTC staff requests additional search term iterations or a broader review.
Concurrently with processing, C&H will continue scope negotiations with FTC staff regarding search terms, date restrictions, and potential exclusions of non-overlapping business lines. The search term list is a critical variable: an overly broad set of terms will inflate the reviewable universe and increase review costs, while an overly narrow set risks under-production and the need for supplemental review. We will aim to negotiate a balanced set of terms that is defensible in the event of a compliance challenge while minimizing unnecessary review burden.
Processed documents will be loaded into a hosted review platform (such as Relativity) with full metadata, text extraction, and TIFF images for reviewer use.
Phase 3 — Document Review (Weeks 4–12)
The document review phase is the most labor-intensive and costly component of Second Request compliance. We anticipate a two-tier review protocol:
First-level review: A team of 8–15 contract review attorneys, supervised by C&H associates, will conduct first-level review of all documents in the reviewable universe. Each document will be reviewed for responsiveness to the Second Request's specifications, and responsive documents will be coded for production. Documents will also be reviewed for privilege (attorney-client privilege and attorney work product), and potentially privileged documents will be flagged for second-level review. Given the technical and specialized nature of alternative credit investment materials — including structured credit analyses, CLO documentation, loan-level data, and complex fee arrangements — we anticipate an average first-level review rate of approximately 50–70 documents per reviewer per day. This rate is somewhat lower than the review rate for less specialized subject matter and reflects the need for reviewers to understand the substantive content of the documents in order to make accurate responsiveness and privilege determinations.
Second-level review: C&H associates (Elliot Nguyen and Aaron Liu, supplemented by additional associates as needed) will conduct second-level quality control review, focusing on: (i) documents flagged as potentially privileged, to confirm or override the privilege designation and prepare privilege log entries; (ii) documents coded as non-responsive at the first level, to verify the accuracy of the non-responsiveness determination on a sample basis; (iii) "hot" documents — i.e., documents that are substantively significant to the FTC's competitive analysis — which will be escalated for partner review and used to inform our advocacy strategy; and (iv) documents that present close calls on responsiveness or privilege, requiring the exercise of professional judgment.
Throughout the review phase, C&H will prepare a detailed privilege log identifying each document withheld on the basis of attorney-client privilege or attorney work product protection, including the date, author, recipients, subject matter, and the specific privilege asserted. Privilege log preparation is a significant compliance obligation and will require careful attention, as the FTC routinely scrutinizes privilege logs and may challenge overbroad privilege assertions.
We will endeavor to make rolling productions to the FTC as review of discrete custodian files or document categories is completed, rather than waiting to produce all documents in a single batch at the conclusion of the review. Rolling productions are generally viewed favorably by FTC staff and can accelerate the agency's substantive review of the produced materials, potentially leading to earlier resolution.
Phase 4 — Interrogatory Responses and Data Compilation (Weeks 4–10, Concurrent with Document Review)
The preparation of narrative interrogatory responses and the compilation of structured datasets will proceed concurrently with the document review phase. This work will be led by Elliot Nguyen and Aaron Liu, with partner oversight from Howard Bellamy, and will require extensive coordination with personnel at HCM, Dunmore, and Ridgemark (through Blackwell, Oakes & Hardin LLP).
Narrative interrogatory responses will address the topics described in Section III.B above, including market definition, competitive conditions, competitor identification, client overlap, fee structures, and post-acquisition integration plans. These responses must be carefully drafted, as they constitute formal submissions to the FTC and may be relied upon by the agency in its competitive analysis or, in the event of a challenge, cited in legal proceedings. Each interrogatory response will be reviewed by Howard Bellamy before submission.
Data compilation will require the extraction and organization of structured data from Dunmore's and Ridgemark's portfolio management systems, client relationship management systems, billing systems, and human resources databases. We anticipate that this process will require the cooperation of senior operations personnel at each entity and may necessitate the engagement of a data analytics consultant to assist with data extraction, normalization, and quality assurance. To the extent possible, we will coordinate data request responses with Ridgemark's counsel to avoid duplication of effort and to ensure consistency in the data produced by the Acquiring and Acquired Persons.
Phase 5 — Privilege Log Finalization and Production (Weeks 10–13)
During this phase, we will finalize the privilege log, resolving any outstanding privilege determinations and ensuring that all withheld documents are properly logged. We will also prepare and deliver the final production sets in the format specified by the FTC, which typically requires production in TIFF image format with extracted text, metadata load files (in concordance or Relativity format), and Bates-stamped page images. Each production will be accompanied by a transmittal letter identifying the custodians and document sources covered by the production.
To the extent that rolling productions have been made during the review phase, the Phase 5 production will consist of the remaining un-produced documents, together with a comprehensive privilege log covering all productions.
Phase 6 — Certification of Substantial Compliance (Weeks 13–14)
Upon completion of the document production, interrogatory responses, and data compilation, C&H will prepare a certification of substantial compliance for execution by HCM, certifying that the Acquiring Person has substantially complied with the Second Request in accordance with 15 U.S.C. § 18a(e)(2). The certification must be truthful and accurate, and C&H will not recommend certification until we are confident that the production is materially complete and that all reasonable steps have been taken to identify, collect, review, and produce responsive non-privileged documents.
Upon certification by both the Acquiring Person and the Acquired Person (Ridgemark's certification will be coordinated by Blackwell, Oakes & Hardin LLP), a new 30-day waiting period will commence. During this waiting period, the FTC retains the authority to seek a preliminary injunction or to negotiate a consent order. If the waiting period expires without FTC action, the parties may proceed to close the Transaction.
B. Overall Timeline Estimate
Based on the phased compliance plan described above, we estimate the following overall timeline:
• Commencement of full-scale collection: Week of August 19, 2024
• Estimated substantial compliance certification: Late October to late November 2024 (approximately 10–14 weeks from commencement)
• Additional 30-day waiting period following certification: Late November to late December 2024
• Potential earliest closing date (assuming no FTC challenge or consent order negotiation): Late November to late December 2024
We emphasize that this timeline is subject to significant variables, including the outcome of search term negotiations, the final size of the reviewable document universe, whether the FTC requires additional custodians or supplemental productions, and whether the FTC requests investigational hearings of key witnesses. Any of these factors could extend the timeline by several weeks or more.
We also note that the MIPA's outside date for regulatory clearance should be reviewed in light of this timeline. If the MIPA's regulatory clearance condition has an outside date that falls before late December 2024, there is a risk that the parties will not obtain clearance before the outside date, potentially giving rise to termination rights under the MIPA. We recommend that HCM review the relevant provisions of the MIPA with its corporate counsel and assess whether an extension of the outside date should be negotiated with Ridgemark and the other MIPA parties.
VI. Cost Estimates
A. Outside Counsel Fees — Calderwood & Harkness LLP
1. Fee Cap Status
The engagement letter between Calderwood & Harkness LLP and Harrowgate Capital Management LLC, dated June 5, 2024, established a voluntary fee cap of $650,000 for all legal services rendered through initial clearance of the Transaction under the HSR Act. The fee cap was designed to cover the preparation and filing of the HSR Notification and Report Forms, the Item 4(c) and 4(d) document collection and review, the antitrust risk assessment, and any interactions with the FTC or DOJ during the initial 30-day waiting period.
Per the express terms of the engagement letter, the voluntary fee cap was automatically voided upon the issuance of a Second Request by either the FTC or the DOJ. The Second Request was issued by the FTC on July 16, 2024, and accordingly, the fee cap is no longer in effect. All work performed from July 16, 2024 forward is billed at Calderwood & Harkness's standard hourly rates, which are as follows:
Contract review attorneys, who will constitute the majority of the review team for first-level document review, are billed at rates agreed upon at the time of engagement, typically in the range of $200–$350 per hour depending on experience level and the staffing agency utilized. These costs are reflected in our overall fee estimate below.
2. Fees Billed to Date
Calderwood & Harkness's total fees billed through August 14, 2024 are approximately $487,000. This amount covers all legal services rendered from the commencement of the engagement through the present date, including the following:
• Antitrust risk assessment and strategic counseling regarding the competitive implications of the Transaction;
• Preparation and filing of the HSR Notification and Report Forms for the Acquiring Person;
• Review and collection of Item 4(c) and 4(d) documents for the initial HSR filing;
• Communications with the FTC regarding the filing and waiting period;
• Response to the FTC's voluntary access letter of July 8, 2024, including collection, review, and production of 23 supplemental documents;
• Analysis of the Second Request upon issuance on July 16, 2024;
• Preparation for and attendance at the July 22, 2024 meeting with FTC Mergers IV staff;
• Initial scope analysis and custodian identification; and
• Preparation of this memorandum.
In addition to fees, disbursements billed to date include the HSR filing fee of $160,000, which was passed through to the client at cost, plus minor incidental expenses (copying, courier, and travel costs).
3. Estimated Second Request Compliance Fees
We estimate that Calderwood & Harkness's fees for full Second Request compliance will range from $2.5 million to $3.8 million. This estimate encompasses the following categories of work:
• Document review management and supervision: Oversight of the contract review team, including reviewer training, quality control, issue escalation, and review protocol development;
• Interrogatory and data request drafting: Preparation of narrative interrogatory responses and coordination of structured data compilation;
• FTC scope negotiations: Ongoing discussions with FTC Mergers IV staff regarding custodians, search terms, date restrictions, and document specifications;
• Privilege review and logging: Second-level privilege review of flagged documents and preparation of a comprehensive privilege log;
• Deposition preparation: If the FTC requests investigational hearings, preparation of HCM and Dunmore witnesses, including document review sessions, mock examinations, and attendance at the hearings;
• Substantive advocacy: Analysis of "hot" documents and competitive evidence, development of advocacy positions, and communication of the parties' competitive arguments to FTC staff;
• Overall project management: Coordination across HCM, Dunmore, and Greycastle; coordination with Ridgemark's counsel; management of the e-discovery vendor; and internal C&H project management.
The range of the estimate reflects the following key variables:
• Final custodian count: Each additional custodian adds incremental collection, processing, and review costs. If the FTC requires more than 15 custodians, costs will trend toward the upper end of the range.
• Volume of reviewable documents after search term application: The size of the reviewable universe after de-duplication and search term application is the single most significant cost driver. If the reviewable universe exceeds 175,000 documents, costs will increase commensurately.
• Number and complexity of interrogatory responses: Some interrogatories may require extensive narrative drafting and coordination with multiple entities, while others may be more straightforward. The complexity of the data requests — particularly the client-by-client account information — will also affect costs.
• Whether the FTC requires investigational hearings: Deposition preparation and attendance are costly. Each deposition typically requires 30–50 hours of partner and associate time for preparation and an additional 8–12 hours for attendance at the hearing itself.
• Extent to which scope negotiations reduce the compliance burden: Successful scope negotiations can materially reduce both the document volume and the breadth of interrogatory responses, with corresponding cost savings.
The anticipated staffing model for the Second Request compliance effort is as follows:
B. E-discovery Vendor Costs
We estimate that e-discovery vendor costs for the full compliance effort — encompassing data collection, processing, de-duplication, TIFF conversion, hosting on a review platform, and production — will range from $800,000 to $1.2 million.
Calderwood & Harkness is currently in the process of soliciting proposals from vendors on our approved vendor panel. We expect to have vendor proposals in hand by the end of the week of August 19, 2024 and to make a vendor selection promptly thereafter. We will present the vendor proposals to HCM for review and approval before engagement.
The key cost drivers for e-discovery vendor services are as follows:
• Volume of collected data: We estimate the total collected data volume at approximately 500 GB to 1 TB across all custodians and entities. Processing costs are generally proportional to data volume.
• Hosting duration: Review platform hosting is typically billed on a per-GB-per-month basis. A 10–14 week review period, with potential extension if supplemental productions are required, will generate hosting costs for a period of 3–5 months.
• Number of production sets: The FTC may require multiple production sets (e.g., rolling productions organized by custodian or entity), each of which incurs incremental production costs.
• Complexity of processing: The presence of complex file types (e.g., encrypted files, database exports, non-standard file formats) can increase processing costs.
C. Other Potential Costs
In addition to C&H fees and e-discovery vendor costs, the following additional cost categories may arise during the compliance process: