This paper aims to summarize and discuss the motivation behind an investigation recently begun by the Department of Justice Antitrust Division concerning the practices of private equity firms when they are bidding for control of target companies.
Describes the reasons for the Antitrust Division's interest in private equity firms' auction practices; hypothetical auction scenarios that could raise the Division's interest; additional steps the Division could take such as further letters and Civil Investigative Demands; and possible private equity firm defenses and responses to Division theories.
The Division appears most interested in the nature of the “clubs” formed by competing private equity firms to place bids. So, the Division's investigation will likely focus on whether it can bring claims against private equity firms for violations of Section One of the Sherman Act (15 U.S.C. § 15), which prohibits “contracts, combinations and conspiracies in restraint of trade”. Private equity firms can respond to the Division's theories by showing that “club” collaborations are beneficial to competition and actually help streamline the process, resulting in better auction bids.
A useful explanation and update of an investigation in process.
