FTC's Khan puts private equity 'on notice' that roll-up strategies could be illegal

By Chris Matthews

The Federal Trade Commission and Department of Justice issued new merger guidelines Wednesday

Biden administration antitrust enforcers are continuing an aggressive crackdown on what they see as anticompetitive business practices, and new merger guidelines issued Wednesday could be of particular concern to the private-equity industry.

Federal Trade Commission Chair Lina Khan said in an interview with CNBC Wednesday that her agency, along with the antitrust division of the Department of Justice, are intent on looking more closely at roll-up strategies, in which a company engages in a series of small acquisitions in a single industry that ultimately result in that company holding a significant share of the market.

There are "instances when a firm will undertake a series of acquisitions, no single one of which may raise legal concerns, but in the aggregate there can be significant consolidation of a market," she said. "We wanted to make sure we are putting folks on notice that those types of instances can warrant legal scrutiny and legal concern."

Khan noted that the guidelines issued Wednesday are "agnostic" in terms of business model, but the scrutiny of roll-up strategies, along with the recently proposed overhaul of the notification some companies must submit to the government when attempting a merger, have implications for the private-equity industry.

An analysis by the law firm WilmerHale estimated that proposed changes to the notification forms will increase the number of hours a company must spend preparing them to 144, four times more than under current rules.

"Both the FTC and the DOJ have recently voiced intensive concerns regarding the perceived anticompetitive effects of private equity strategies involving an investment in an initial platform company in a particular industry followed by that platform pursuing follow-on acquisitions in the same industry," the analysis reads.

The new guidelines come amid a series of losses for antitrust enforcers, including last week's court ruling in favor of Microsoft Corp.'s (MSFT) planned $69 billion acquisition of videogame maker Activision Blizzard Inc. (ATVI), which the FTC has attempted to block.

Though the guidelines do not have the force of law, they will inform how current and future administrations decide which mergers to attempt to block.

President Joe Biden is touting the proposal as part of his economic-reform agenda, which has underscored increased competition as necessary for lowering prices and increasing wages. He is set to meet with his competition council, which includes Khan and Attorney General Merrick Garland, on Wednesday afternoon.

-Chris Matthews

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07-19-23 1153ET

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