Dear Readers,
This edition of the Chronicle focuses on private equity (“PE”) markets.
The PE industry has experienced extraordinary growth over the past few years. In parallel, antitrust scrutiny of PE by antitrust enforcers has intensified, with visceral rhetoric from various agencies and legislatures worldwide. The articles in this volume address the implications of these developments.
Giorgio Motta, Kenneth B. Schwartz, David M. Goldblatt & Michael B. Singer focus on developments in the U.S. As noted, over the last several years, private equity firms have faced an increasingly aggressive antitrust enforcement environment. The U.S. Department of Justice, the Federal Trade Commission, and antitrust agencies in Europe are also closely examining private equity acquisition strategies as a whole, general investment incentives, potential filing violations and board interlocks. Antitrust regulators may, however, ultimately have difficulty proving that private equity business models actually result in less competition. The bottom line is that, with the right approach, private equity firms can continue to pursue their investment and acquisition strategies despite greater agency scrutiny.
Vishal Mehta, Megan E. Gerking & David E. Grothouse build on the above, by analyzing how these actions have ranged from strong concessions demanded in PE transactions under review to DOJ letters alleging illegal interlocking directorates and threatening lawsuits. In this article, the authors explore recent antitrust focus on PE in the context of broader enforcement trends, highlight recent enforcement activity, and preview what dealmakers and practitioners may expect on the horizon, and offer practical tips for navigating this new landscape.
Anna Tzanaki ponders the question of where competition, antitrust, and private equity intersect. PE was once antitrust’s favored child compared to strategic buyers, but now PE seems to have fallen from competition enforcers’ grace. Interestingly, this is part of a broader trend: financial investors in general, have come into the antitrust spotlight. Being a minority financial investor is no longer reason for antitrust immunity. Economic theory and competition policy have been shifting. Common ownership of small stakes in rival firms by institutional investors, even if passive, can create harm. In developments on both sides of the Atlantic, competition law enforcement signals no empty threats, but rather an eagerness to cover blind spots. As the article discusses, what is particularly intriguing is that the US and the EU, for reasons of path dependence and system design, have chosen different legal paths to achieve the same goal.
Taking a specific angle, Julie Carlson focuses on one of the unexpected consequences of the pandemic: the dramatic increase in pet ownership. Beginning in 2019, but continuing through the pandemic, private equity firm JAB undertook a series of acquisitions of specialty and emergency veterinary clinics — each of which was met by an FTC consent order. While the DOJ’s recently revised merger remedies guide suggests that private equity buyers may be preferred to strategic buyers of divested assets in consent agreements, recent rhetoric has been increasingly. Aggressive. The recent concerns antitrust enforcers have raised about private equity, i.e. that it creates market power, facilitates unfair methods of competition and undermines the competitive viability of acquired firms, are, in the author’s view, largely unfounded.
Finally, Laura M. Alexander, Ola Abdelhadi, Brent Fulton & Dr. Richard M. Scheffler also focus on the large and increasing amount of money under PE management and the huge push by PE into healthcare. This raises concerns and challenges for healthcare policy, but also for competition policy. Emerging evidence about the adverse impact of PE investment in healthcare on competition, prices, quality of care, and patient health is a serious concern. These findings raise the question of how, if at all, antitrust law and antitrust enforcers should treat conduct and deals involving PE owners. While one of the virtues of the antitrust laws is their broad applicability, application of those laws to particular markets and companies is only effective when it is rooted in the realities of competition in those markets and the competitive incentives that those companies face. PE’s impact on healthcare reveals significant gaps in the tools and methods for using the antitrust laws to protect competition.
As always, many thanks to our great panel of authors.
Sincerely,
CPI Team
