Private equity facing an antitrust showdown? | FT Due Diligence

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A new antitrust era is under way in the US. Keen to curb corporate power, Joe Biden has appointed officials set on challenging companies that have grown to dominate swathes of the American economy. Jonathan Kanter heads the Department of Justice’s Antitrust Division. Lina Khan chairs the Federal Trade Commission, and Tim Wu advises the White House on competition policy.

They were all known as Big Tech critics lamenting insufficient antitrust enforcement. But a new industry has now emerged as a potential target – private equity. Despite controlling chunks of US commerce after pouring trillions of dollars across sectors from healthcare to housing and manufacturing, buyout groups have historically skirted antitrust scrutiny.

But their frenzied dealmaking and bulging portfolios have now caught the eye of Washington’s new generation of progressive officials. They are concerned with Wall Street’s roll-up strategy and the buy, strip, and flip model, whereby undervalued companies are acquired, restructured, and quickly sold off.

The DOJ and FTC have also set their sights on buyout groups acquiring assets companies are ordered to sell in order to complete other mergers, as well as interlocking directorates where private equity executives sit on boards of competing companies. The agencies argue the traditional application of antitrust laws misses buyout groups’ anti-competitive behaviour because their portfolios involve multiple deals that relate to each other in a multitude of ways.

Now they could usher in new interpretations of competition laws and potentially bring monopoly cases against buyout groups that could involve criminal charges. Detractors say the trio is politicising antitrust. They argue competition laws were not written to challenge the private equity model or its impact on social groups, an issue raised by FTC studies.

Supporters praise this new cohort for standing up to corporate titans and for shining a light on private equity’s anti-competitive conduct. The agencies have yet to bring a test case. But their stance has already spooked private equity firms, which have scrambled to lawyer up and hire PR executives to counter Washington’s narrative. If US officials make good on their pledge to crack down on buyout groups, we could soon see the biggest antitrust showdown in the history of private equity.