No deal is safe anymore, and the timing couldn’t be worse.
Between Jonathan Kanter’s Department of Justice antitrust division and Lina Khan’s Federal Trade Commission, billions of dollars worth of deals are on the chopping block. As of mid-July, the FTC has sued to block nine mergers and led interested parties to abandon 13 more in an 18-month period, Khan told Congress last week. And, as of Monday, another deal is under the microscope: IQVIA’s planned acquisition of Propel Media. Earlier this month, Politico reported that the Department of Justice may challenge Thoma Bravo’s acquisition of cybersecurity company ForgeRock.
The current administration isn’t taking on as many antitrust cases as regulators have in the past, and it isn’t always winning its battles, either: The FTC ended up withdrawing its complaint against Meta over its deal for virtual reality company Within, and, just last week, a California judge blocked its initial attempt at stopping the Microsoft-Activision Blizzard deal, for example. Even so, regulators are taking a decisively more aggressive tone towards private market investors, in particular—especially when compared to the last administration—and it’s spooking an already rocky private equity market.
Private equity rollups—where firms merge portcos and can take advantage of cost savings—never drew much attention from antitrust regulators during the Trump administration. But, following a record year for private equity in 2021 with fat exits, regulators under the Biden administration have changed their tune. Last June, Deputy Assistant Attorney General Andrew Forman said that the DOJ is looking into “enhancing antitrust enforcement” around a “variety of issues surrounding private equity,” including potential antitrust enforcement on private equity rollups and whether there are “filing deficiencies” when it comes to HSR filings, which must be submitted to the FTC and DOJ ahead of an acquisition. That same month, Khan detailed her thoughts on private equity and the PE “playbook” that can sometimes “saddle businesses with debt and shift the burden of financial risk in ways that can undermine long-term health and competitive viability.” Kanter has made similar assertions. The sentiment is being matched abroad, with the United Kingdom’s Competition and Markets Authority making private equity rollups a priority for its enforcement.
Since spring 2022, there have been two settlements in the U.S. both involving a PE firm scooping up veterinary clinics. And at the end of last year, the FTC published a policy statement, which some argued would broaden the action regulators could take to challenge PE rollups. Now, as we wait to see whether the DOJ will sue Thoma Bravo by the end of the month, it may only be a matter of time until we start to see these regulatory actions really start to pick up. Tack the threat of a FTC lawsuit onto the rising cost of debt eating at portco profits and the pace of exits being worse than it was during the financial crisis and it’s a lousy time to try to get into the business of buyouts. Naturally, this enhanced scrutiny has already been enough to strike fear in the hearts of private equity firms—or companies looking for bidders—and for legal firms to post a series of warnings online.
Khan has made some enemies, as we saw last Thursday at the House Judiciary hearing. How did House Judiciary Committee Chairman Jim Jordan (R-Ohio) describe Khan’s approach with Twitter again? Oh, right: “This is outrageous, this is unacceptable, and it's the kind of behavior that occurs in banana republics, not in the United States of America.” But accusations from former FTC Commissioner Christine Wilson made two years ago about Khan “muzzling staff” and “short-circuiting public input” (and later in her resignation letter) have done little to deter Khan thus far. Kanter may just be getting started.
Whatever way you look at it—it’s certainly another wrinkle for anyone hoping the deal spigot would open soon.
Crypto VC fundraising isn’t dead just yet…Crypto-focused Polychain Capital has raised around $200 million for the first close of its fourth fund, a person familiar with the matter told my colleague, Leo Schwartz. Polychain has also let go of three members of its research team, as it focuses on some new investing priorities. Read the full piece here.
The people behind the bots…It’s not just “machines” behind the large language models redefining our society. It’s millions of annotators, who are working long, strange hours for sometimes less than $3 an hour to label images—often with no idea who they work for. “You might miss this if you believe A.I. is a brilliant, thinking machine. But if you pull back the curtain even a little, it looks more familiar, the latest iteration of a particularly Silicon Valley division of labor, in which the futuristic gleam of new technologies hides a sprawling manufacturing apparatus and the people who make it run,” reads the feature story published by The Verge and New York Magazine. The story is worth your time, and you can read it here.
That’s all for now. See you tomorrow,
Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.
