The Justice Department is entering the final stages of making a decision on whether or not to challenge private equity firm Thoma Bravo’s $2.3 billion acquisition of an enterprise software company. This move is fueled by concerns that the acquisition will potentially harm competition in the ever-growing cybersecurity sector, reported POLITICO.
The DOJ requires a decision by July 26 on whether or not to bring a case, with lawyers for the companies preparing to meet with leadership in the DOJ antitrust division to convince the agency to approve the deal. The decision would be a sign that the DOJ’s antitrust head Jonathan Kanter, is continuing with a principled stance against mergers and acquisitions, despite a troublesome past of failed lawsuits. It will also challenge the private equity industry, which commonly uses the strategy of acquiring competing companies in a sector before merging and selling them as one business.
This is not the first time the DOJ has focused on the private equity market. Thoma Bravo has seen several potential acquisitions collapse due to antitrust concerns. Companies like Momentive have recently ruled out Thoma Bravo as a prospective acquirer, as Thoma Bravo currently owns another competitor, Medallia. The DOJ and Federal Trade Commission have officially set their sights on private equity, which usually has fewer issues with antitrust enforcement, given that there is no direct competition.
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The main focus of the DOJ’s review is on the overlap in the CIAM market between ForgeRocket and Ping, both of which are considerably smaller than the leading company, Okta. The combination of the two companies will give them more power in the industry due to a handful of lucrative contracts they are competing to receive from large companies in sectors such as health care, financial services and telecom.
At the same time, Liz Micci, a Thoma Bravo spokesperson defended the acquisition in a statement: “The acquisition of ForgeRock will create a stronger vendor in the market that is better prepared to compete with the likes of Microsoft and Okta.” Despite the fears of the DOJ’s legal team, people familiar with the matter have said Ping and ForgeRock’s combined share of the market is as little as 9%.
The companies have also pointed to competition from large customers, which often use multiple providers at the same time, such as IBM, Oracle, Broadcom and Salesforce.
“The DOJ remains concerned that the company is too close a competitor to Ping,” said some people familiar with the matter. Internal Ping and ForgeRock documents describe each other as competitors, according to these same people.
In a speech last summer, senior DOJ antitrust official Andrew Forman drew attention to the difference between private equity firms and other market participants, saying, “[P]rivate equity firms can be fundamentally different than other market participants. It is also for these reasons that the division often looks more favorably on a market participant as a buyer of assets than a private equity firm.”
In response to criticism, Orlando Bravo, founder of Thoma Bravo, said the firm has focused its strategy on “boring” but lucrative enterprise software companies, and that its strategy usually involves raising prices, layoffs and acquiring competitors.
