Antitrust Authorities Turn Focus to Private Equity Role in Monopolies
By Natalia Renta
At long last, private equity is getting the attention it deserves from antitrust authorities as a force for consolidation, higher prices, and less consumer choice.
In April, Americans for Financial Reform called on the Department of Justice and the Federal Trade Commission to draft new guidelines for reviewing mergers that take into account the role of private equity in corporate concentration. It’s a relatively recent development, during the last decade or so, but is now a systemic problem that cannot be ignored, AFR argued in a joint letter with United for Respect and the Center for Economic and Policy Research.
The groups highlighted private equity’s penchant for “the roll-up,” an innocuous enough term for assembling smaller companies into a larger one that obscures the real damage. Once a private equity-backed company has scale, it can impose higher prices on customers who have nowhere else to go. Jonathan Kanter, the assistant attorney general for antitrust, told the Financial Times that private equity is “top of mind” for his team.
“That business model is often very much at odds with the law, and very much at odds with the competition we’re trying to protect,” Kanter said.
Roll-ups are now everywhere in the American economy. There are roll-ups of prison subcontractors, cheerleading competitions, youth treatment centers, ammunition, and many others.
Lina Khan, the FTC chair, said that private equity has operated under the radar for too long because the roll-up strategy, which is based on a series of small acquisitions, has helped it evade the attention of antitrust authorities until now.
“You can miss the bigger picture,” Khan told Financial Times. “Every individual transaction might not raise problems, but in the aggregate you’ve got a huge private equity firm controlling, say, veterinary clinics. So that’s a concern.”
A few weeks later, the FTC cracked down on precisely that business by forcing a private equity firm to sell off veterinary clinics it owned in California and Texas before it could acquire a competitor.
Importantly, the FTC is requiring the firm to obtain prior approval for some future acquisitions regardless of whether required under the Hart-Scott-Rodino Act, a point that AFR and its partners flagged in their letter. This law uses a monetary threshold to require prior review by the FTC, but private equity has often rendered this stricture meaningless through the roll-up strategy, which assembles large players from repeated acquisitions of small ones.
“Monopoly power is just as harmful whether it is obtained through a single purchase of a large competitor or 20 deals to absorb a previously richly competitive field of competitors,” AFR and its partners wrote.
Khan added that she has grown alarmed by how private equity has influenced the lives of everyday people, and not for the better. Echoing the thrust of an AFR study early in the COVID-19 pandemic, Khan noted that living in a nursing home owned by private equity firms is a deadly proposition.
“In nursing homes, we saw an increase in the mortality rate after private equity buys them,” Khan said. “There are just very real life and death consequences.”