• Newly proposed merger guidelines from the Federal Trade Commission (FTC) and Department of Justice (DOJ) drastically expand the government’s merger and acquisition review process, placing an undue burden on small businesses around the country and their investors.

• While historical data indicates the vast majority of filings – more than 90 percent! – pose no antitrust concerns, the proposed changes will mean new onerous administrative reviews for routine transactions. From government officials spanning multiple administrations to competition law experts, there exists broad agreement that these new guidelines will do more harm than good.

• Private equity continues to foster market competition and opportunity by backing small businesses (85% of private equity-backed companies in 2022) and creating new entities through the “buy-and-build” model and “carveouts.” This gives more small disruptors a fighting chance against the biggest market players.

The FTC and DOJ have released new proposed merger guidelines that would dramatically increase requirements for free market actors and unduly broaden the scope of transactions subject to burdensome administrative review. As private equity continues to back small businesses and facilitate market entry for new entities across the economy, policymakers seeking to advance competition should encourage free markets, not stifle them.

Proposed changes create unnecessary red tape for private funding

If enacted, these proposals will directly saddle private equity investors with extensive administrative paperwork and oversight. In fact, by the FTC’s own estimate, the proposed changes could lengthen the process for merger filing by nearly 300% – even though 90% of these filings raise no competition concerns.  

As stated by American Investment Council President and CEO Drew Maloney,

“Private equity investment helps small businesses across America grow, scale, and hire new workers. The FTC and the DOJ are throwing sand in the gears of small business growth and prosperity by making the investment process slow and expensive. These proposals threaten future employment, innovation and undermine the vibrancy of the US economy.”

Former Treasury Secretary Lawrence Summers – who also served as Director of the National Economic  Council during the Obama administration – notes the new DOJ/FTC proposal “seems almost like a war on business.” Now a Harvard University professor, Summers explains how the proposed changes “are a substantial risk” and are “moving into problematic territory,” as they favor “broader abstractions” over long-accepted outcome metrics like lower prices for consumers.

Competition law experts take issue, too. In a recent opinion piece, Gus Hurwitz, Academic Director at University of Pennsylvania Carey Law School’s Center for Technology, Innovation & Competition, and Geoffrey Manne, President and Founder of the International Center for Law and Economics (ICLE), argue that the proposed changes “would increase the cost and uncertainty that businesses face when considering mergers” – also noting that the agencies’ rationale underpinning the proposal demonstrates “selective bias toward outdated judicial opinions and economic knowledge.” In a separate piece, Brian Albrecht, Chief Economist at ICLE, notes the new guidelines reflect a “misunderstanding of modern markets,” underscoring that “mergers can be beneficial to consumers” – a reality he believes any solid draft must reflect.

Meanwhile, Richard McKenzie, Professor Emeritus of Economics at the University of California, Irvine, notes that the proposed changes seek to achieve “market nirvana,” an “entirely theoretical market structure” that can actually discourage private investment in the market – forgoing value-creation opportunities for businesses and consumers alike.

Even those who support merger reform overall agree that it must be a “balancing act.” Jason Furman, a Harvard University professor and Chairman of the White House Council of Economic Advisors from 2013 to 2017, and Carl Shapiro, a University of California, Berkeley professor and former economic advisor to President Obama, write that the newly proposed guidelines “depart sharply from previous iterations by elevating regulators’ interpretation of case law over widely accepted economic principles,” wrongly assuming that any “growth by large and successful firms is undesirable.” Shapiro also served as Deputy Assistant Attorney General for Economics in the Justice Department’s Antitrust Division during the Obama administration, leading efforts to draft the last merger guidelines update in 2010.

Proposed changes harm small businesses that depend on private investment

Across America, private equity is helping small businesses grow and thrive – in turn providing well-paying jobs and quality goods and services within communities. In 2022, the overwhelming majority (85%) of private equity-backed companies were small businesses with 500 employees or less, while over 60% had 100 employees or less. These companies directly employed 1.4 million workers earning $135 billion in wages and benefits and generating $240 billion of GDP in 2022 – a sizeable footprint that stands on shaky ground if proposed changes are waved through.

By targeting private equity, these proposed FTC and DOJ changes stand to threaten small businesses’ ability to access critical financing from private equity and private credit.

Private equity is bolstering small disruptors and creating new entities, increasing market competition

Across the economy, private equity investments help strengthen existing businesses and create new ones – altogether driving competition in the broader market.

Though the “buy-and-build” model, private equity has helped small companies gain a stronger footing within highly fragmented industries with large, entrenched market players. According to PitchBook data, more than 60% of all private-equity backed buy-and-build instances – also known as “add-ons” – occur in such industries, like insurance, construction, manufacturing, and more. Take insurance, for example: over 400,000 companies currently compete for about 85% of market share. With private equity’s help, smaller players within this landscape are optimized to better compete against major insurance brokers – generating efficiencies and competitive pressure that can yield savings for consumers.

In a similar vein, private equity is helping foster growth and efficiency through a growing investment in “carveouts” – in which an under-resourced but valuable business unit is reimagined as a standalone company with private equity backing. This method allows private equity to revitalize important business units that are under-resourced but demonstrate strong promise, creating new companies that help increase market competition. In the last ten years, private equity firms have invested over $700 billion and carved out over 4,000 new companies from within larger businesses – giving new smaller players a fighting chance within the broader market.

Policymaking that wrongly targets and places undue burden on private equity only threatens these trends, curtailing business opportunities for would-be market entrants.

The bottom line

Complicating the merger filing process is unnecessary government overreach that harms small businesses and their investors. As a proven partner of small business, private equity will continue to build competitive companies that provide millions of jobs and generate positive market effects.