Acquisitions by private equity firms have traditionally sailed below the competition regulator’s radar including because acquisitions have been for a new platform, with no competition issue or have been a considered as a “bolt-on” (i.e. result in only an incremental increase market position).
However, recent scrutiny of PE acquisitions by competition regulators around the world means firms need to understand the competition risks associated with any acquisition and the strategies that will assist in navigating regulatory processes efficiently and quickly. This is also true in Australia where the ACCC appears to be taking a similarly rigorous approach to acquisitions by private equity firms, and has called for greater scrutiny of “bolt-on” acquisitions in particular.
In line with the Biden administration's tough stance on mergers, and public comments made by the Assistant Attorney General regarding the role of private equity in market concentration, the Federal Trade Commission (FTC) has clearly signalled its intention to take a harder stance on mergers involving private equity investors. The FTC has indicated that it proposes to closely examine:
Consistent with this tougher approach, US regulators are also proposing to require parties to provide comprehensive disclosure of related prior acquisitions and organizational structure (including minority shareholdings and partners).
The proposals may be moot (i.e. already in effect) given recent cases:
The above proposals align the US with the EU and UK, where regulators trace structural ownership and influence from the acquiring entity through to ultimate parent(s) and shareholdings.
In doing so, the UK Competition and Markets Authority (CMA) seeks to determine whether the private equity firm has ‘decisive-influence’ over any of its shareholdings and how this influence may lead to an anti-competitive outcome from multiple shareholdings/cross ownership, including when making multiple bolt-on acquisitions across a single sector over time.
The CMA is also closely examining companies managed by private equity firms, having recently opened an investigation into consolidation and price rises in the UK’s pet care sector.
The CMA is specifically concerned that private equity acquisitions and subsequent consolidation has led to price rises across the UK market.
The CMA has also recently concluded a string of investigations during which it imposed liability on private equity firms for competition abuses committed by former portfolio companies (during the period of PE ownership).
The ACCC appears to be taking a similarly rigorous approach to acquisitions by private equity firms, and has called for greater scrutiny of bolt-on acquisitions and minority acquisitions. In particular, it has raised concerns about:
These concerns are already being reflected in the ACCC’s review of current mergers. For example:
What does this mean for your next acquisition?
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