Details remained sketchy last week about a reported probe by the U.S. Department of Justice into so-called club deals by buyout firms.
The Wall Street Journal was the first to report that firms such as Kohlberg Kravis Roberts & Co. (KKR) and Silver Lake Partners had received letters from the DOJ that “asked for a range of information and documents related to deals and business practices.”
The New York Times subsequently reported that The Carlyle Group and turnaround specialist Clayton, Dubilier & Rice had also received inquiry letters from the DOJ.
The probe isn’t entirely surprising, as PE Week sister publication Buyouts magazine raised the question of federal scrutiny of club deals in January. Thane Scott, an antitrust partner with Edwards Angell Palmer & Dodge, stated in that Buyouts article:
“We will likely see increased levels of scrutiny by the federal regulators in the coming months, and private litigation is likely to be a fertile ground as well, given the amount of money at stake and the guarantee of treble damages to successful plaintiffs.”
Buyout shops routinely get together to pull resources for a deal that they couldn’t do on their own. The DOJ is apparently trying to figure out if any firms are getting together simply to reduce competition and lower prices.
“The difficulty here will lie in distinguishing the ‘good’ consortium from the ‘bad’ consortium, and that is likely to be determined by the documents, emails and conversations surrounding the deal,” says Scott. —PE Week staff