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Spotlight on Private Equity: the Dance with Antitrust Regulators - Timothy Ang


Private equity. One of the hot buzzwords in the commercial law world, yet few have a clear understanding of what it is, and fewer still know how legal developments interact with the sector. Finding what private equity (‘PE’) is can easily be searched online. Of greater interest to the prospective commercial lawyer, on the other hand, are the key regulatory trends affecting the PE sector. After providing a brief overview of the sector to set some context, this article will examine the main recent regulatory force impacting PE, the antitrust crackdown in the US, and what role law firms have in response.

Overview of the PE sector

A 2022 McKinsey study found that the PE sector holds almost $10 trillion in assets under management (‘AUM’), led by three of the largest shops, Blackstone, KKR & Co, and CVC Capital Partners. In terms of deal-making, deals worth $1.12 trillion were made globally in the sector in 2021, a record high. Technology companies constituted 25% of this deal value and 31% of the number of deals made (deal count), forming the largest industry segment by far. Europe has followed this global trend— deal value increased 54.6% from 2020 to 2021 to a record high of €217.4 billion, having almost doubled compared to five years ago. Similarly, technology was the most attractive target industry for PE activity, forming 40.1% of the number of deals.

After a record year in terms of deals, significant headwinds such as Russia’s invasion of Ukraine and high inflation have dampened the market; deal value has dropped by a third in the first half of 2022 to around $350 billion, and in October 2022, was at its lowest monthly amount since early in the pandemic. Nonetheless, Bain & Company reports that the PE industry still has a record level of ‘dry powder’, or unspent capital waiting to be invested, of $3.6 billion in the first half of 2022. As such, the PE sector is still forecast to be relatively active, paving the way for consideration of the regulatory trends emerging in parallel with the current market conditions.

US antitrust leading the charge against PE

In the US, there has recently been a marked increase in antitrust pressure being applied onto PE. This has derived from two fronts: the Department of Justice’s (‘DOJ’s’) antitrust unit targeting PE deals, and the Consumer Financial Protection Bureau (‘CFPB’), which acts against unfair practices in PE firms’ portfolio companies.

DOJ Antitrust Action

The new head of the DOJ’s antitrust unit, Jonathan Kanter, sees tackling antitrust issues in PE as one of the main foci of his tenure. He argues that the business model of PE is to ‘hollow out or roll up’ an industry and subsequently ‘cash out’, referring to PE firms buying multiple companies in the same industry and merging them or letting some die out. This practice, according to Kanter, is ‘often very much at odds with’ the law and the market competition that his unit aims to protect. As such, in contrast to the policy over the past couple of decades to reach settlements in antitrust cases, Kanter aims to block deals that contravene antitrust laws from going through.

This strong rhetoric has been backed up by the unit’s action, which hinges on the novel application of a key piece of legislation: Section 8 of the 1914 Clayton Antitrust Act. Under Section 8, a person cannot serve on the corporate boards of two competitors at the same time (a practice known as ‘interlocking’). For Kanter, the rationale of this law is that competing firms having the same person on their respective boards ‘concentrates power’, and creates the opportunity to ‘exchange competitively sensitive information and facilitate coordination’ to the detriment of consumers.

Historically, this law was enforced upon review of bilateral mergers and acquisitions (‘M&A’), yet the new DOJ regime has significantly expanded its application in two respects. First, the law is now being expanded to the common PE business model of building a string of portfolio companies in the same industry, as opposed to its traditional application in individual M&A transactions. Charles Rule, a partner at law firm Rule Garza Howley who previously served as the head of the DOJ antitrust unit under President Ronald Reagan, terms this application ‘revolutionary’ and as ‘generating a new thread of law’.

Secondly, and more pertinent to PE firms, the DOJ is now proactively searching for violations of Section 8 outside of merger reviews. In September 2022, the DOJ issued warning letters to some public companies, investors, and individuals, notifying them that they were violating antitrust laws. Consequently, seven directors resigned from five corporate boards, including a partner from PE firm Thoma Bravo, who had been sitting on the boards of two software companies. The Financial Times hence termed this enforcement action as “pioneering a new category of antitrust enforcement”, yet commentator Dan Primack warns that if the law is stretched too far, it would “blow a huge hole” in the core investment strategies of many PE firms with a specific industry focus.

The Consumer Financial Protection Bureau

The ambit of the CFPB, set up under the Consumer Financial Protection Act 2010, is to prohibit ‘unfair, deceptive, or abusive acts or practices’ (‘UDAAP’) in covered persons (i.e. consumer companies), and their affiliates, which includes owners. The CFPB has, in recent times, conducted a ‘naming and shaming’ exercise of PE firms with portfolio companies that the Bureau has taken enforcement action against. While there are no direct allegations of wrongdoing on the PE firms’ part, law firm Debevoise & Plimpton states in an October 2022 report that this exercise is “clearly intended” to inflict reputational damage on PE firms.

The report further outlines potential legal action that the CFPB could bring against PE firms. The Act allows the Bureau to bring enforcement action against anyone that knowingly or recklessly provides ‘substantial assistance’ to a covered person’s conduct of UDAAP, which in practical terms potentially involves lawsuits against PE firms to gain access to documents and testimony.

European Action

Freshfields Bruckhaus Deringer (‘Freshfields’) argues in an October 2022 post that the recent US enforcement action ‘may inspire other regulators’, especially in Europe. This seems to be the case; for example, in Germany a draft law is being discussed that would grant the Federal Cartel Office broad powers to address ‘disruptions’ of competition, including cases of interlocking.

The UK Competition and Markets Authority has also brought legal action against PE firms for antitrust infractions by their portfolio companies. In 2021, for charging ‘excessive and unfair’ prices for thyroid medication, the CMA imposed a hefty fine not only on the pharmaceutical company Advanz (which was fined £40.9 million), but also on the PE firms that had owned it during the time it was engaging in such practices— Cinven was fined £51.9 million, and HgCapital £8.6 million.

On a broader scale, the EU Commission recently issued a report on the effects of common shareholding between competing companies, and has also proposed to require firms to disclose shareholdings in competing companies in their merger notification forms.

Where law firms come into play

Given the recent upheaval in DOJ antitrust policy, and the threat of enforcement held by the CFPB and European antitrust regulators, what then can PE firms do to avoid potential legal sanctions?

First, PE firms could review and strengthen existing internal governance processes. Freshfields advises that PE firms should ensure that they have a deep understanding of their portfolio companies, and the industries that said companies operate in. Further, they should consider developing clear antitrust guidelines for their partners that sit on company boards, especially via-à-vis information sharing. Wilson Sonsini, in a September 2022 client alert, agrees, further cautioning PE firms to bear in mind that circumstances change, and a portfolio company that was not previously a competitor to another could become one, for example if it expands into a new sector or acquires another company.

Second, there are more factors to consider when firms approach future deals. Jones Day recommends that PE firms strategise their sequencing of acquisitions— for example, a firm could pursue a strategically important target that does not carry potential antitrust concerns before another transaction that may be less important, but which carries a higher risk of triggering regulatory action. Along a similar line, Wilson Sonsini advises that when pursuing a roll-up strategy, firms need to understand not only the risks inherent in specific transactions, but also the broader series of transactions. When going ahead with a particular transaction, Morrison Foerster advises that PE firms should pay close attention to the language used in deal analyses and investment memoranda, and more generally, adopt the defensive assumption that such documents will be examined by antitrust regulators.


In summary, just as market conditions have become tougher for PE firms, they must also consider the changing regulatory environment. Namely, the sector has been put in the spotlight by regulators, and accordingly need to ensure that their strategies and internal policies align with the law. Consequently, the increased regulatory compliance needed in the sector means more work for law firms, and in turn more hiring— the prospective commercial lawyer may now go forth to vacation scheme interviews with more confidence in their knowledge of the workings, and relevance, of private equity.

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