FTC says some private equity roll-ups may be illegal

The Federal Trade Commission and the Justice Department’s antitrust division are looking closely at the legality of so-called roll-up strategies in which a firm acquires multiple, smaller companies in the same industry, resulting in that company holding a considerable share of the market. The regulators are examining whether this strategy is anticompetitive by unfairly reducing competition in a market. 

There are “instances when a firm will undertake a series of acquisitions, no single one of which may raise legal concerns, but in the aggregate there can be significant consolidation of a market,” FTC Chair Lina Khan said in an interview with CNBC on Wednesday.

The Wednesday draft update to the FTC’s merger guidelines, which the agency follows in its review of mergers and acquisitions and their compliance with antitrust laws, would expand the list of required information and documents firms must submit when notifying the government of a “large” attempted merger. 

An analysis by law firm WilmerHale argues that the proposal, if successful, “would intensify scrutiny on private equity funds,” possibly increasing the time firms currently spend preparing paperwork four-fold to 144 hours per acquisition. 

The change would also enable the FTC to “launch more frequent, and more robust, investigations into transactions involving private equity funds and their platform companies, while greatly increasing the burdens associated with antitrust notifications of even non-controversial transactions,” the analysis said.

Private equity firms often use roll-ups to consolidate companies in fragmented markets into a full-scale business. For example, The FTC blocked JAB Consumer Partners in their series of acquisitions of veterinary clinics in 2022 to “prevent the private equity firm from further consolidating control” over the industry.

The FTC’s notice comes on the heels of the Supreme Court shooting down the FTC’s attempt to stop tech giant Microsoft’s $69 billion acquisition of the videogame-maker Activision Blizzard. The court’s decision was a loss for the Biden administration’s antitrust enforcement in its crackdown on anticompetitive business practices.