Private Equity Buyouts are Part of the Competitive Process in the Market for Corporate Control: Global Antitrust Institute Comment on the DOJ-FTC-HHS Request for Information on Consolidation in Health Care

ABSTRACT:

We focus on aspects of the Agencies' request for information (RFI) that are unrelated to competition issues. The RFI’s motivating idea seems to be that an increase in profits post-acquisition implies consumer harm. Thus, a private equity leveraged buyout, by sharpening a target firm’s profit-seeking, tends to harm consumers. This view is misguided. Competition is not a zero-sum game and profits do not necessarily reflect antitrust harm. On the contrary, increased profits more commonly flow from a firm’s improved ability to address consumer interests, thereby winning business from rivals. Private equity funds often seek to acquire underperforming firms, reorganize them to improve their performance, and resell them at a premium reflective of that improved performance. None of this is a proper concern of the antitrust agencies unless the acquired firm’s improved performance flows from a lessening of competition in a relevant antitrust market. If the antitrust agencies were to hinder acquisitions by private equity buyers despite the absence of likely anticompetitive effects, the Agencies would unwittingly lessen competition in the market for corporate control and thereby hinder potential improvements in competition in downstream product markets.