Top Antitrust Enforcers Signal Increased Scrutiny of Private Equity

In a recent interview, the head of the Department of Justice’s (DOJ) Antitrust Division emphasized DOJ’s intent to examine closely certain private equity transactions. This interview continues a recent theme in public statements by antitrust regulators at both the DOJ and the Federal Trade Commission (FTC) that private equity transactions, especially “roll-up” strategies, will face heightened scrutiny under the current administration.

In an interview with the Financial Times on May 18, 2022, Assistant Attorney General Jonathan Kanter stated that DOJ would be looking more closely at private equity transactions associated with “roll-up” strategies. “Roll-up” strategies involve an acquirer that acquires multiple smaller players in an industry in order to create a single large player. Because a roll-up strategy involves acquiring small firms, it may occur under the radar of the antitrust enforcers because the transactions may be too small to be reportable under the Hart-Scott-Rodino Act (HSR Act). Just because a transaction is not reportable under the HSR Act does not make it immune from challenge under the antitrust laws, before or after consummation. Indeed, Kanter argued that the roll-up model is “often very much at odds with the law and very much at odds with the competition we’re trying to protect.” He also stated that “many of the mergers we’re confronting are as a result of [private equity] roll ups.” As such, he explained that buyout funds will be “‘an extremely important part of our enforcement programme’ and that a fuller assessment of their deals was ‘top of mind.’”

Kanter also raised concern with private equity purchasers of divested assets in settlements of allegedly anticompetitive transactions. “Very often settlement divestitures [involve] private equity firms [often] motivated by either reducing costs at a company, which will make it less competitive, or squeezing out value by concentrating [the] industry in a roll-up,” he said.

FTC Chair Lina Khan appears to share Kanter’s intention to focus on private equity, as shown in her Vision and Priorities for the FTC Memorandum, in which she wrote, “the growing role of private equity and other investment vehicles invites us to examine how these business models may distort ordinary incentives in ways that strip productive capacity and may facilitate unfair methods of competition.” She specifically highlighted “roll-up plays” as an area for further investigation in the joint DOJ-FTC announcement regarding the agencies’ merger guidelines review.

Overall, these announced changes in antitrust enforcement priorities should make private equity firms—in particular, those employing roll-up strategies—aware that antitrust enforcers will be reviewing their transactions—and patterns of transactions—more closely. Private equity firms will want to involve antitrust counsel in reviewing their transactions, even those that are below the HSR Act reportability threshold, to ensure that they will not attract the attention of the antitrust enforcers.