Antitrust scrutiny intensifies for private equity

Led by antitrust officials in the US appointed by President Biden, authorities around the world have taken a critical look at private equity (PE), making PE the latest target in the global trend toward greater antitrust scrutiny. The most recent sign of the enforcers’ focus on PE came when the US Department of Justice (DOJ) made good on its promise to “reinvigorate” the rules against interlocking directories. when announcing the resignation of seven directors from the boards of five companies, including several directors affiliated with private equity firms. But some other actions taken by US authorities, such as arguing that PE companies are unsuitable divestment buyers, have been rejected by the courts. Calls for more rigorous scrutiny of PEs are also resonating with authorities outside the US, making it all the more important for PE companies to think about ways to anticipate and mitigate global antitrust risk.

Key takeaways:

  • PE is in the antitrust crosshairs, so more care must be taken to anticipate and prepare for questions from sellers and regulators.
  • PE firms should ensure they have a thorough and current understanding of their portfolios, including minority non-controlling interests, to identify potential competition concerns early in a deal process.
  • PE firms should be aware of potential interlocking directories and the risk that an authority may perceive such positions to facilitate the sharing or coordination of illegal information.

The DOJ and the FTC have harshly criticized the business strategies of PE companies

Antitrust enforcers from the Federal Trade Commission (FTC) and the Department of Justice have increasingly criticized PE companies in recent months, stating that their business model is “strongly disagree with the law and strongly disagree with the competition we are trying to protect.” The chairman of the FTC and the head of the Justice Department’s Antitrust Division have criticized private equity firms for engaging in so-called “stacked” transactions that involve combining smaller players in the same industry to “accumulate market power” without the antitrust authorities noticing.

The FTC’s enforcement action against a PE company that demanded the sale of certain health care clinics is emblematic of the agencies’ approach to these settlements; there, the FTC alleged that the PE company was “gobbling up competitors in regional markets that are already concentrated.” To mitigate risk, PE firms need to have a detailed understanding of their portfolios so that they can identify potential competition issues early in the negotiation process.

DOJ reinvigorates enforcement against interlocking directories

In the US, Section 8 of the Clayton Act prohibits directors from serving on the boards of two competitors at the same time, known as “interlocks.” While deadlocks have generally been discovered incidentally as part of a merger review process, the DOJ has said for the first time that proactively search for potentially illegal interlocks. The Justice Department also appears to be taking a new expansive view of which companies would normally be considered competitors and thus barred from having overlapping directors.

Perhaps most importantly, in addition to breathing new life into Section 8 and seeking to deter future violations, the DOJ is using these investigations to look for other possible antitrust violations, specifically, inappropriate information sharing and evidence of explicit or implicit coordination between competitors. And the Justice Department has promised that the recent enforcement actions are just the first salvo in a “broader review of potentially illegally linked directories.” To minimize potential risks, PE firms should ensure they understand their portfolios, the industries those portfolios are involved in now (and in the future), and which portfolios have a representative director. PE firms should also consider developing clear antitrust guidelines for director representatives regarding information sharing and other activities.

US Court Issues Helpful Precedent Approving PE Firm as Qualified Divestment Buyer

While PE deals continue to go through despite strong rhetoric, US antitrust officials have also attempted to take a tougher stance against PE companies in the context of their role as buyers of divestment assets to remedy transactions that would otherwise raise antitrust concerns. The head of the Justice Department’s Antitrust Division has argued that PE companies “are unable or uninterested in using [divested assets] to its full potential” and, therefore, they cannot restore and preserve the competition that may be lost with the transaction.

At least one court has blocked the DOJ’s efforts to oppose these transactions. Earlier this year, a district court denied the Justice Department’s attempt to block UnitedHealth Group’s $7.8 billion acquisition of Change Healthcare. The merging parties entered into an agreement to sell the assets of Change that competed with UHG to a PE company. Despite the proposed divestiture, the Justice Department persisted in its challenge, arguing that the PE buyer was unfit to run the business and restore competition. The district court rejected the Justice Department’s arguments and found that the PE buyer, among other things, had the experience and financial resources to run the business effectively and compete vigorously.

Calls for stronger enforcement are resonating with other regulators

The focus on PE in the US may inspire other regulators, particularly across the Atlantic. In Germany, a bill is under discussion that would give the Federal Cartel Office broad powers to address perceived “disturbances” of competition. Those powers are likely to include oversight of cross-ownership and interlocking directories. In 2020, the European Commission requested A study on the effects of ordinary holdings by institutional investors and asset managers in European markets. While no major enforcement action has been taken since the report, the headlines generated by the Department of Justice may inspire the European Commission to take a fresh look at these issues in Europe. And in the UK, while the Competition and Markets Authority has Recognized that highly leveraged private equity buyouts are unlikely by themselves to affect competition, has shown a willingness to follow the European Commission in going after private equity owners for possible antitrust violations by their portfolio companies , as most recently demonstrated in connection with his case against excessive pricing for thyroid drugs.

In addition, the proposed new EU merger notification forms, currently under discussion, would require disclosure of all significant (including non-controlling) shareholdings and boards of directors in competing companies or companies active in vertically related markets for each reportable transaction. They would also include the obligation to disclose information about significant (non-controlling) interests held by customers and competitors of one or more of the parties. In addition, we expect that the effect on competition of minority non-controlling interests in portfolio companies active in the same industry as the target will be further explored in future substantive merger reviews and that these may require ring-fenced measures more frequently. .

Finally, the European Commission, like the Competition and Markets Authority, has in recent years become somewhat more skeptical of PE companies as buyers of suitable solutions and, as the Department of Justice did in its divestment challenge related to UHG/Change to a buying PE, is raising more questions during the merger review as to whether a PE company would have the incentive and industry knowledge to compete vigorously through ownership of the remedy business. As a result, careful planning is required to successfully demonstrate that a PE company is a qualified buyer.


Recent court rulings are not likely to quell US antitrust officials’ skepticism about PE any time soon. Nor are enforcers outside the US likely to ignore the recent attention US antitrust officials have directed at private equity firms. But there is much that PE firms can do to proactively identify likely risk areas when considering transactions, to strengthen their antitrust defenses, and to mitigate overall risk in the current regulatory climate.

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