Antitrust regulators turn to private equity

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While private equity was not a priority for antitrust law enforcement agencies – the Federal Trade Commission and the Department of Justice – in the Trump administration, under President Biden, executives of the agency say the change is coming.

The FTC has already started reviewing all mergers more thoroughly, upsetting some private equity buyers who had become accustomed to an easier review process, people who work with buyout companies say.

For some, attention is late. Antitrust authorities are “really starting to appreciate the competitive consequences of certain private equity tactics. Particularly in markets where there are competition concerns, they exacerbate those problems, ”said Laura Alexander, vice president of policy at the American Antitrust Institute.

FTC Chairman Lina Khan said she would investigate whether the private equity investment model encourages unfair business practices. And antitrust experts are seeing growing concern from the FTC over roll-up deals, a common private equity strategy of buying and consolidating small businesses.

The agency proposed, but not finalized, a rule requiring buyers to disclose information about their parent companies and subsidiaries, which lawyers say would subject more private equity to antitrust scrutiny.

“There is no doubt that the enforcement regime is now more aggressive. Overall, there are more questions about deals that we didn’t expect to arise in the past, ”said Andrew Lacy, partner in the antitrust and competition group at the firm of attorneys Goodwin Procter LLP.

The regulators’ new assertion comes as President Biden seeks to place fair competition and tackling monopolies at the center of his economic agenda. In a July executive order, he called on federal agencies to resist corporate consolidation and anti-competitive practices. He has appointed two Big Tech critics as his main antitrust watchdogs: Ms Khan to head the FTC and antitrust attorney Jonathan Kanter to head the Department of Justice’s antitrust division. Mr Kanter has yet to be confirmed by the Senate.

Ms Khan is considering taking a more stringent approach to private equity. In a September 22 memo on her priorities as FTC chairwoman, Ms Khan said she would investigate whether private equity firms contribute to ‘extractive business models’, in which companies use a dominant position. in the market to raise prices or crowd out their competitors.

“[T]he growing role of private equity and other investment vehicles invites us to consider how these business models can distort ordinary incentives in ways that reduce productive capacity and facilitate unfair methods of competition and breaches of protection. consumers, ”Ms. Khan wrote.

The FTC may also take the private equity model into account when deciding whether or not to approve an acquisition. Holly Vedova, head of the FTC’s Competition Bureau, wrote in a blog post Tuesday that merger reviews will now examine “how the involvement of investment firms may affect the market’s incentives to compete,” so ” identify and challenge agreements that will unlawfully harm competition. “

It is unclear how effectively the FTC can tackle the well-funded private equity industry. Lawyers say any challenge to a private equity deal could lead to a legal battle.

“Just because you have a new law enforcement official who says you should go back to Teddy Roosevelt and abuse the trust, it remains to be seen if he will have any influence in the courts,” said Philip Bartz, partner in competition and competition law. Bryan Cave Leighton Paisner LLP.

However, changes to the merger review process, while not focused solely on private equity transactions, are starting to worry some companies. Amid a historic merger boom – 2,436 merger notifications were filed with antitrust agencies in the first eight months of 2021, more than in a typical year, according to Ms Vedova – the FTC sought to slow down the process and give yourself more time to analyze these offers.

The FTC has suspended its previous practice of approving certain transactions before the end of the typical 30-day waiting period and has withdrawn its guidance on company mergers in separate industries. Along with the Justice Department, he plans to revise the merger guidelines, a change that should make the process more stringent.

The FTC led by Ms. Khan is asking many more questions, some unexpected, about the proposed acquisitions, according to antitrust lawyers. Problems currently on the agency’s radar include the effects of a merger on the job market in their industry, said Kevin Goldstein, antitrust lawyer at Winston & Strawn LLP.

“Private equity firms need to anticipate these questions and be prepared to answer them,” he said.

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