The Department of Justice will use the same criteria to evaluate private equity firms and their companies as it does with other strategic buyers when they acquire divested assets—but also said PE may be a preferred purchaser.
In cases where the merger of two companies violates antitrust law, the Department of Justice can intervene to modify a transaction to make sure market competition is preserved—known as a remedy. That can involve selling off some assets of the combining companies to strategic buyers and private equity firms.
In remarks delivered to Georgetown Law on Tuesday, Assistant Attorney General for the Antitrust Division of the Department of Justice Markan Delrahim said the guide that helps law enforcement officials avoid anticompetitive business practices in M&A transactions, known as the Merger Remedies Manual, will begin treating private equity firms and private equity-backed companies the same as other strategic buyers when purchasing divested assets. Private equity firms were not named specifically in previous versions of the manual.
Delrahim said the decision to update the Merger Remedies Manual, which has not undergone significant revision since 2004, came as the discussion over private equity buyers has become common in recent years.
The model many private equity firms and their companies follow today involves longer holding periods and a greater focus on improving company performance and developing expert management teams than it did in the past, which Delrahim said was a reason for including them in the new guidance.
“Private equity firms are not simply holding their investments and waiting to dispose of them,” he said.
Delrahim added that private equity firms can also help divestitures succeed by giving the businesses a ready source of additional investment funding.
Because of this shift in the private equity model, the DOJ’s 2020 Merger Remedies Manual—published in September—said PE divestment purchasers may be preferred over others, which could make it easier for PE firms to acquired divested assets in some DOJ-mediated mergers.
“Funding from private equity and other investment firms was important to the success of the remedy because the purchaser had flexibility in investment,” the Merger Remedies Manual’s authors wrote.
Delrahim and the manual’s authors cited a 2017 study from the Federal Trade Commission, which found funding from private equity and other investment firms was important to the success of a DOJ remedy.
Benjamin Glick is Middle Market Growth’s associate editor.