Federal Court Protects Private Equity from Antitrust Claims

June 3, 2024

A federal court in Houston made a good call that protects a sizable number of private investors and the economic growth they create.

In an antitrust case against U.S. Anesthesia Partners (USAP), Lina Khan’s ever-inventive FTC also targeted a private equity firm, Welsh, Carson, Anderson & Stowe. Welsh Carson held a minority 23 percent share in USAP, granting it one-seventh of that entity’s board seats. Under FTC’s expansive theorizing, receiving profits from an entity that violates antitrust law makes even a minority investor culpable for an antitrust violation.

The court found that claim didn’t pass the laugh test. So the court agreed to a pretrial motion to dismiss Welsh Carson from the case. This is a bullet dodged for the private equity sector. Holding an interest in a company should not subject an investor to any antitrust action. But don’t break out the champagne just yet.

Khan has often expressed a desire to bring private equity into her antitrust crosshairs. In a speech in March, Chair Khan condemned private equity firms that “load up companies with enormous amounts of debt, strip valuable assets and sell them off to enrich the private equity owners and pursue financial engineering tactics that leave the underlying firm weaker and worse off.” The economics seem a bit off here. How can you load up a company with debt, strip it of its valuable assets and then sell it off at a handsome profit? Who would buy such a company? Someone who can’t read a balance sheet?

This is all part of a larger plan at FTC to demonize the role of capitalism in health care. The FTC recently announced a cross-agency investigation and issued a request for public comment – sure to result in many denunciations of successful companies by their competitors – under the official announcement release headline: “Corporate Greed in Health Care.” With objective standards like that, who needs Lavrentiy Beria? In this effort, FTC is leveraging health care companies to squarely target private equity.

Despite the court’s granting of this pretrial motion, don’t expect Khan to let up on private equity. She will likely test this decision by pursuing a claim against an investor who holds a majority interest. Still, protecting even minority investors is a significant victory. Oh, hell, go ahead and pop the champagne. A win’s a win.