Biden’s strict review of merger applications leads to PE deal delays, attorneys say

The administration has talked about taking a tougher approach to private equity deals, especially those focused on healthcare.

The Biden Administration has implemented a tighter review of filings that firms must submit before the completion of a merger, resulting in increased delays and costs for private equity managers and potential portfolio companies, according to two attorneys.

Under the Hart-Scott-Rodino Act, mergers and similar transactions over a certain size threshold must submit an HSR filing to both the Federal Trade Commission and Department of Justice. The agencies then consider if the pending deal may unduly harm competition, according to a primer from Thomson Reuters. Either agency then has 30 days to notify parties to a deal of antitrust concerns. A second request notification within the 30-day period will trigger an investigation.

“The simplest way to put it is that under this administration, the hard deals are still hard, and they always were hard where there were obvious competitive issues. But deals that before would be considered easier are getting calls from either agency before the 30 days,” according to Andrew Lacy, a partner at law firm Goodwin.

The Biden Administration increased the number of questions and concerns it has when reviewing HSR filings, especially ones focused on healthcare, according to Lacy.

“Now, more than ever, we are seeing the agencies have more questions over what were previously considered somewhat minor issues. And we’re seeing more second request investigations, which are long, drawn-out, and burdensome,” Lacy told Buyouts. These investigations can last between three months and one year, according to the attorneys.

Typically, a firm will either ask for an extension or will withdraw their first HSR filing if either agency raises an issue to avoid facing a second request and following investigation, the attorneys said.

Diana Moss, president of the American Antitrust Institute, said her organization has also heard reports of more second requests made by the administration.

“This ‘closer look’ is in keeping with the administration’s needed, stronger stance on antitrust and especially merger enforcement,” Moss said.

In a January speech, Jonathan Kanter, the assistant attorney general for the DOJ’s antitrust division, said a record 3,500-plus HSR notifications were filed in the 2021 fiscal year.

In his remarks, Kanter said his office would take a stricter approach when weighing whether a possible merger would harm competition and hurt customers, citing research that this type of consolidation has led to less competition.

The administration’s strict review of HSR filings could delay dealmaking, the attorneys said.

“On the front end, this can hold up dealmaking activity throughout the approval process. This makes it harder for private equity dollars to get to those companies,” said Chris Wilson, another partner at Goodwin.

Wilson said the administration has particularly focused on healthcare deals in its HSR reviews, noting that the White House issued a fact sheet in February outlining its concerns about nursing homes owned by private equity managers.

In its fact sheet, the White House cited studies alleging that private equity-owned nursing homes have higher rates of preventable injuries and hospitalizations, excessive mortality rates and covid-19 infections.

“The ongoing rhetoric says private equity firms may hollow out productive assets and make them less competitive. That’s not something in my years of experience that I see as a goal of a private equity investment. In my experience, these deals are intended to find ways to make companies more competitive,” said Wilson.

Update: This report has been updated to clarify attribution on some quotes throughout the story.