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June 2022
AAM Magazine
June 2022
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PE Panorama: Private equity in DOJ’s crosshairs

private equity
By Paul Mackintosh   
May 23, 2022

Poor persecuted private equity can't catch a break from regulators and the news media. If it's not the Securities and Exchange Commission and The Wall Street Journal, it's the Justice Department and the Financial Times.

After the recent concerted media attacks on the beleaguered asset class, the FT recently published an interview with Jonathan Kanter, the Justice Department’s top antitrust enforcer, in which he asserts that buyout groups are hollowing out sectors of the US economy and deserve the DOJ’s strict attention.

Kantner says the buyout business model of hollowing out and cashing out of an industry is "often very much at odds with the law and very much at odds with the competition we're trying to protect". He's declared that scrutiny of private equity deals is now top of mind with him and his team.

Private equity groups might legitimately complain that his analysis of their business model is somewhat prejudiced. After all, they are always trumpeting the business improvement and enhancement capabilities which are supposed to build back better businesses after buying, not gut them.

Unfortunately, US buyout deals have accumulated a number of headline cases to validate Kanter’s analysis, the bankruptcy of Toys "R" Us being only one. There's also the broader issue that private equity groups are now big enough to dominate whole sectors of the US economy in a manner that certainly deserves antitrust attention.

Kantner cites roll-ups by private equity groups buying up and bundling businesses in the same sector as one major area of concern, along with interlocking directorates of private equity executives on the boards of numerous related companies. He cites this specifically as being in violation of the Clayton Antitrust Act of 1914. And he condemns a dearth of assertive antitrust enforcement in the US over the past two decades.

His agency and the Free Trade Commission are also apparently working together to tighten up pre-deal disclosure requirements, giving them more and more accurate information ahead of time to act on. This is part of a general thrust at the DOJ to revamp competition law and enforcement, which has been mostly tailored to bilateral merger deals rather than asset agglomerators like private equity firms.

I am sure that private equity groups have more than enough paid lobbyists, political cronies, well-heeled lawyers and other tools to fend off or mitigate this latest challenge to their business. But it is interesting and revealing to see how many different agencies, stakeholder groups and constituencies are finding new and different ways, and new and different reasons, to come at the private equity model. Goodness, one might almost suspect that there's something wrong with it.