Misaligned Measures of Control: Private Equity's Antitrust Loophole

34 Pages Posted: 21 Apr 2023 Last revised: 12 Sep 2023

See all articles by Aslihan Asil

Aslihan Asil

Yale University

John Manuel Barrios

Washington University in St. Louis - John M. Olin Business School; National Bureau of Economic Research

Thomas Wollmann

University of Chicago

Date Written: March 25, 2023

Abstract

Agencies and legislators have raised concerns that acquisitions backed by private equity (PE) threaten competition, but few, if any, have offered explanations as to why they pose a unique threat. In this article, we argue that PE-backed acquisitions may avoid antitrust enforcement because they escape detection. Under the Hart-Scott-Rodino Antitrust Improvements Act, parties intending to merge must notify federal authorities and wait for clearance. However, various exemptions exist based on the size of the transaction, parties involved, and proportion of control conferred by the merger. Recent work demonstrates that to police mergers effectively, agencies must be informed about transactions in their incipiency, meaning that in many economically important industries, the contours of the premerger notification program under the Act are, in practice, the same as the contours of the substantive legal standard. We show that when the Act’s exemptions are applied to PE’s standard investment structure, which use an array of intermediate special purpose vehicles to minimize taxes, share risks, and distribute fees, many PE-backed acquisitions that would otherwise be reportable are exempt. We support our argument with merger and filing data.

JEL Classification: D4, K21, L0, L1, L2, L4

Suggested Citation

Asil, Aslihan and Barrios, John Manuel and Wollmann, Thomas, Misaligned Measures of Control: Private Equity's Antitrust Loophole (March 25, 2023). Virginia Law & Business Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4400139

Aslihan Asil (Contact Author)

Yale University ( email )

493 College St
New Haven, CT CT 06520
United States

John Manuel Barrios

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Thomas Wollmann

University of Chicago

1101 East 58th Street
Chicago, IL 60637
United States

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