The Biden Administration has made clear that a shift to more aggressive antitrust enforcement is under way in the United States. With private equity investment models firmly in the FTC’s crosshairs more intense scrutiny of transactions and their impact on competition can be expected.

From a US competition law perspective, 2021 was a year of transition, with the Biden Administration taking the federal enforcement reins and installing new leadership at the US agencies. FTC Chair Lina Khan and Assistant Attorney General Jonathan Kanter (head of the DOJ’s Antitrust Division) sent clear signals early in their tenures that they intend to challenge a “business as usual approach” to federal antitrust enforcement. 2021 already saw a number of high-profile enforcement actions and policy announcements; we expect 2022 will see an even more dramatic shift, with private equity being a key target. 

Aggressive Enforcement Environment

The Biden Administration released an “Executive Order on Promoting Competition in the American Economy” on July 9, 2021, calling for “full and aggressive enforcement of our antitrust laws” after forty years of following “the wrong path” of alleged under-enforcement. The Order signaled the Administration’s intention to “reduce the trend of corporate consolidation” by encouraging the antitrust agencies to focus enforcement efforts on particular industries of concern, including “labor markets, agricultural markets, internet platform industries, healthcare markets (including insurance, hospital, and prescription drug markets), repair markets, and United States markets directly affected by foreign cartel activity.” (Our overview of key takeaways from the Order can be found here). 

FTC Chair Khan, already known as a champion of antitrust reform during her time in academia, has worked to further the Order’s aggressive mandate.  In an internal memo from September 2021, Chair Khan announced that the FTC should take a “holistic” approach to how it considers antitrust violations, focusing on root causes of and incentives for unlawful conduct instead of one-off remedies. This call to address “rampant consolidation and the dominance that it has enabled” has driven several notable policy changes at the FTC (detailed below).  Although AAG Kanter was only confirmed by the Senate in November 2021, his policy views appear to be consonant with those of Chair Khan. AAG Kanter has previously criticized Big Tech and questioned the prevailing consumer welfare standard (which US courts apply to evaluate mergers and conduct under the antitrust laws) as inconsistent with market realities. (News coverage of the confirmation hearings can be found here).

Private Equity in the FTC’s Crosshairs

Chair Khan’s September 2021 memo also suggested a policy focus on whether the private equity investment model encourages unfair business practices. Chair Khan called on the FTC to investigate whether private equity firms contribute to “extractive business models,” which “may distort ordinary incentives in ways that strip productive capacity and may facilitate unfair methods of competition and consumer protection violations.” In particular, combatting practices that prey upon marginalized communities will be a “key priority.”

Traditionally, private equity deals were often seen as financially-driven and unlikely to raise substantive competition concerns. Accordingly, many of these deals were non-reportable or received grants of early termination of the HSR waiting period. Yet already in 2020, former FTC Commissioner Rohit Chopra encouraged an “increase [in] focus on non-reportable transactions,” and especially private equity firms’ appetite for, “roll-up transactions not subject to HSR reporting.” We expect that both US agencies will adopt this focus and intensify their scrutiny of all private equity transactions. Indeed, Holly Vedova, Director of the FTC’s Bureau of Competition, wrote in a blog post in September 2021 that merger reviews will now consider “how the involvement of investment firms may affect market incentives to compete.”

What to Expect

Among other important trends, the following developments and policy changes will be important to monitor in the coming year:

• New leadership in the driver’s seat: Alvaro Bedoya’s nomination as FTC Commissioner (replacing Rohit Chopra) has been resubmitted to the Senate by the Biden Administration after expiring in December 2021. When confirmed, Bedoya’s appointment will solidify the 3-to-2 Democratic majority at the FTC. 
  
  On November 16, 2021, Jonathan Kanter was confirmed as Assistant Attorney General of the DOJ’s Antitrust Division. AAG Kanter called Chair Khan a “bonafide rockstar and visionary” in the antitrust world and said he’s among her biggest fans. Although some divergence between the US agencies remains possible (e.g., we do not expect the DOJ to consider ESG issues in the way the FTC has signaled), we expect the new leadership at both agencies to continue pushing aggressive enforcement initiatives.
• More costly, time-consuming, and in-depth investigations: The FTC and DOJ suspended grants of “early termination” of the HSR waiting period in February 2021, which continues today. All reportable transactions remain subject to the full 30-day HSR review waiting period, even where there are no obvious competition concerns. Further, the scope and rigor of FTC merger review continues to increase. The FTC Chair’s office has continued to overrule staff by sometimes directing the issuance of Second Requests or expanding what is required to comply with them. Moreover, Second Requests now consider new areas arguably outside the traditional realms of competition law, such as how a proposed merger will affect the company’s management of its relationships with employers, suppliers, customers, or the community in which it operates. All of this has translated to overall expanded timing of FTC reviews. 
  
  Although the DOJ has not implemented each of these initiatives as of now, merger reviews also appear to be taking longer at the sister agency. 
• HSR Approval* (with an asterisk): On August 3, 2021, the FTC announced a practice of issuing “warning letters” to companies in circumstances when investigating staff intends to continue investigation after expiration of the HSR waiting period. Although the FTC and DOJ have always had residual jurisdiction to challenge any transaction – even transactions that have been cleared and/or consummated – under Section 7 of the Clayton Act, this announcement suggests that the FTC may be more likely to challenge cleared transactions than ever before. Parties will continue to see myriad contractual approaches to address the prospect of “warning letters” in transaction agreements.
• Expanded reportability: The FTC has proposed a rule to require buyers to disclose information on their parent companies and subsidiaries, which could subject previously nonreportable private equity roll-up transactions to preclosing antitrust review. A proposed expansion of the HSR rules would expand the definition of person to include “associates” (entities under common investment management), which may trigger more HSR filings for private equity funds particularly when they use special purpose vehicles to make acquisitions. If the rule is implemented, acquisitions that previously did not meet the HSR “size of person test” may become reportable. 
• Revised Merger Guidelines: On October 25, 2021, the FTC resurrected a policy previously rescinded in 1995 requiring pre-approval of transactions in the same relevant market(s) as prior transactions that ended in settlement orders. For a minimum of 10 years, parties subject to settlement orders are required to notify the FTC of future transactions in every relevant market where harm had previously been alleged to occur, and may require further disclosure of transactions involving complementary or adjacent markets. 
  
  On the policy front, the FTC and DOJ have answered the Biden Administration’s call to review and update the Horizontal and Vertical Merger Guidelines to “reflect a rigorous analytical approach consistent with applicable law.” Many observers speculate that this review could result in significant changes to the legal framework used to evaluate proposed mergers and bears close monitoring.