According to press reports, the U.S. Department of Justice Antitrust Division ("DOJ") has initiated an investigation of leading private equity funds relating to how these firms conduct their bidding in corporate auctions. It is our understanding that the DOJ has sent letters to several private equity funds seeking broad information about their business practices regarding the formation of consortia of private equity funds to bid for targets. The DOJ letters are reportedly seeking information on why the private equity funds decided to form (or not form) a consortium and whether there have been any agreements to bid (or not bid) against another consortium for the acquisition of private and public companies.
Although consortium arrangements among private equity funds are often procompetitive because they allow individual private equity funds to bid on large targets and spread the risk of any one transaction, such consortia can potentially raise antitrust issues if the funds "collude," by agreeing to form a consortium rather than bidding against each other (in order to keep the bid price low), or agreeing not to bid against deals announced by their competitors. Such conduct could artificially depress the price of takeover bids and hurt corporate shareholders. As of now, it appears that only a limited number of private equity funds have been contacted by the DOJ. Potential targets of this DOJ investigation should quickly assess any potential issues by reviewing internal documents and retaining relevant documents.
Even if your company is not a target of the current DOJ investigation, as a result of this new DOJ investigation and the growing number of consortium bids among private equity funds, it is important that all private equity funds have an antitrust compliance program and a document creation policy in place to identify antitrust issues and to educate business people on what conduct/communications are permissible under the antitrust laws.
McDermott, Will & Emery lawyers regularly defend companies before the DOJ and other competition authorities relating to both criminal and civil antitrust investigations. In addition, we are available to assist companies in proactively addressing potential antitrust issues by helping to design antitrust compliance programs and document retention policies.
For more information, please contact your regular McDermott Will & Emery lawyer or the authors: