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Intro: Hello, and welcome to Dealmaker Insights, a podcast brought to you by Reed Smith's corporate and finance lawyers from around the globe. In this podcast series, we explore the various legal and financial issues impacting your deals. Should you have any questions on any of the content, please contact our speakers.

Nick: Welcome back to Dealmaker Insights, the Reed Smith podcast series spotlighting the private equity industry. I'm Nick Gibson, a private equity M&A partner in the Chicago office of Reed Smith, and I'm excited to have antitrust partners Michelle Mantine, Ed Schwartz, and Chris Brennan here today to discuss the antitrust outlook for 2025 and what changes the industry can expect and start preparing for. We have a lot to cover today, so let's jump right in. So the U.S. presidential election was a few weeks ago, and a second Trump administration is quickly approaching in January. Let's level set for the audience. What is the current antitrust environment for private equity, and were there any major developments over the last four years that specifically affected M&A activity by private equity firms?

Ed: Yeah, Nick, good question. This is Ed Schwartz, and I'll jump in, and I know Michelle and Chris are going to have thoughts as well. So, I mean, the short answer is there's been a sea change. Historically, the antitrust agencies, both the DOJ and the FTC. Really only focused on private equity and the nature of ownership to the extent that it related to adequacy of the divestiture buyer in a deal where divestitures were required. And that's an issue and a concern that goes back with the agencies for some time. Will a private equity firm be an adequate divestiture buyer and compete effectively and aggressively? The world has changed in that regard. Pretty early on, certainly by 2022, both the DOJ and the FTC were making very aggressive statements about their intent on focusing on private equity and whether private equity were going to be adequate or an acquisition by private equity would be adequate in order to preserve competition in a particular industry. And both Lina Kahn and Jonathan Kanter were making statements along the lines that we're going to take a muscular approach and expressing concerns about whether PE firms were in fact well-suited to compete as effectively and aggressively as other potential buyers. And it didn't take long for the agencies to begin taking action. And so we saw the first sent decree between the FTC and a private equity firm, and this was involved JAB and its subsidiaries, which owned a bunch of veterinary care clinics in Texas. And the Kitsets Decree. Was negotiated and effectuated and required significant divestitures. And we saw also a case a lot of folks are going to be familiar with, and that's the FTC's Law of Citizens, Welsh Carson, a private equity firm, and its portfolio company, which owned a bunch of anesthesia companies. And the complaint that was filed focused on roll-ups in that industry for the last, you know, the prior roughly 10 years. And this is the first case that we've seen that was like this in a number of ways. One, it focused on roll-ups by a PE portfolio company. Two, it sued to block the deal under Sherman Act Section 1, so it hasn't seen in a long time. Ultimately, the case was dismissed by the district court judge, importantly, because Welsh only owned a minority share. But, I mean, this was really a watershed moment that one of the agencies sued on this basis. So the short answer is there has been a sea change. I mean, it's effectively a complete turnaround in thinking about how the antitrust agencies think about ownership, the nature of ownership, and how effectively they may compete. And I think it's worth adding that since their loss in the Welsh Carson case, the agencies haven't let up. They've continued to issue a number of statements, sometimes along with other agencies, you know, really pounding on the fact that they're going to be looking very, very closely at private equity firms and just how effectively and aggressively they will compete following their acquisition. So the heat is very much still on with PE firms, at least in this administration.

Michelle: And I couldn't agree more. I mean, really, since Biden's executive order back in 2020, the heat's been on and sort of been being turned up, right? With respect to almost every angle of antitrust enforcement, and PE has had sort of the share of the limelight, you know, often with industries like healthcare and tech, who sort of usually have that role from an antitrust perspective. Private equity has joined them. When you look at the revised merger guidelines at the end of last year and their focus on private equity, the final HSR rules, which will go into effect February 10th that were largely done under Lina Kahn and their focus on private equity and the ownership structures. The agency's public forum last March, really delving into private equity ownership issues and providing a forum for folks to sort of share their stories about private equity. In my view, it's been much of a one-sided story to date, unfortunately. The only real sharing of the other side, so to speak, the benefits of private equity has been shared with a public filing by an amicus brief in the USAP case where an interested party and association sort of laid out how private equity has also benefited from competition and market. So it's an interesting dynamic at the moment. The heat is very much on and definitely a challenging environment for private equity.

Chris: I think some of this too, the numbers bear out that this isn't necessarily just the Biden administration. It's also the market over time. In 2022, two out of five deals involve some private equity participant. That is up way, way beyond where it was in 2000. So over the last two decades, you've seen a massive increase in private equity participation. Nick, I'm sure you have seen that in your practice. And so I think a lot of what we've seen from the Biden administration is really a feeling that enforcers were asleep at the wheel. Right. And when we can think about that in terms of other ways in which this has been a very active administration, we know that private equity is here to stay and that those rates may actually increase. The question is really going to be what happens if a new Trump administration takes a different approach.

Ed: That's a really good point and an interesting perspective, Chris. And I think one that does bear emphasis is you could look at what's happened as the antitrust agencies finally capping up with the massive change in the nature of ownership in the United States that shifts from public equity ownership to private ownership. And, you know, and I agree with you. I think that perspective does bear upon, you know, or does help us think about what's going to happen in the future, you know, both in the Trump administration and administrations beyond. I mean, I think it may be too easy to chalk up what we've seen. Under the Biden administration, with private equity antitrust enforcement as well, it's more the same. We've seen very aggressive, some might say hyper-aggressive enforcement efforts to greatly, if not grossly, expand the scope of antitrust enforcement and chalk it up maybe too easily to that. And we do have to keep in mind that to some extent it arguably is attributable to the massive change in ownership and investment in the United States. It's probably worth just mentioning one more thing, and that is, you know, a lot of folks who listen to this know this, but the revised horizontal antitrust guidelines did include language, new language that expressly addressed private equity investment. And the language is where one or both of the merging parties has engaged in a pattern or strategy of pursuing consolidation through acquisition, the agencies will examine the impact of the cumulative strategy to determine if that strategy may substantially lessen competition or tend to create a monopoly. So this focus on roll-ups isn't, of course, limited just to a focus on private equity, but it does seem that that language was included in particular for the purpose of signaling that they're going to be looking hard at private equity. So one of the questions, and I don't want to jump ahead too far. So one of the questions that we're all thinking about is what changes are we going to see and what pullbacks are we going to see in enforcement policy under a Trump administration? Some of them are probably easy to predict. The FTC's policy statement about Section 5 enforcement issued in November 22, that's gone. I think we can all be pretty sure of that. Are the agencies going to revise yet again or even just withdraw? The revised horizontal merger guidelines and this new language with it. We'll see. If we take a step back and we look at what's happened in antitrust enforcement and merger enforcement in general with respect to private equity firms, I think you could look at it and, conclude that it's really a lot like we've seen with a lot of the merger enforcement efforts across the board under the Biden administration. I mean, put cynically, a lot of talk, not much action, and not much success. And I think to some extent, the agencies may be okay with that. Obviously, they don't like losing in court. They hate losing in court. But to some extent, it may be what they expected in that, at least under this administration, they've taken kind of a long view and their efforts are to you know not just win but to A) change policy and B) over time change the case law and change how the courts examine all kinds of antitrust challenges, including merger challenges. And so they may be okay with where they are. They've certainly shifted the narrative. They've shifted the way the antitrust community is thinking about antitrust. And I think to that extent, they maybe have succeeded to some degree. I think the big question, though, is under a Trump administration or any other administration going forward with a very different mindset about antitrust enforcement, how much difference will this all have made? Are we going to just revert to pre-Biden administration completely? Maybe. There's a good chance of that. How much impact has this administration actually had on the case law? Some, probably limited. We've seen some success in shifting how courts think about merger enforcement and antitrust enforcement. You know, I'll cite the loss by the FTC as one example where the court at least seemed to acknowledge the viability of new antitrust thinking. But, you know, we'll have to see how much of an impact over the long term this actually has.

Nick: Thanks for that, Ed. You really started hitting on the next question I had. Maybe we can dig a little deeper on, you know, the future here. Michelle and Chris, how do you see this environment changing at all under President Trump? How quickly might those changes come? And then maybe another question related to that, how much weight should we give to Trump's first term with respect to our expectations for the antitrust environment during his second term?

Michelle: Nick, I'm going to start backwards and Chris can obviously fill in. I think his prior term, you can only give limited or marginal weight. This is It's only the second time in history we've had a non-consecutive term president. And I just think so much of what we're going to see and what happens next. Depends upon the leadership that gets put into place. And, you know, while Trump, you know, President Trump, he is a disruptor by nature. That's just, you know, sort of his way. I think it really depends on who will be in charge of the FTC and the DOJ during his term and how they prioritize different aspects of what's going on in antitrust. When you look back at President Trump's first term, right? Antitrust was not a high priority, right? It kind of was let to do its thing. Antitrust was let to do its thing. You had more what I view as independence by the FTC, less politics involved. There wasn't really a focus on either the FTC or DOJ. I think there will be more of a focus coming into this administration. I think given sort of the focus on antitrust and the agency's aggressive approach the past four years, there will still be a focus come January. But sort of that what happens next question, that million dollar question, really depends on who's in charge. So for example, right, J.D. Vance, he supports going after tech companies, right? Will that continue? What influence will he have? It's just a tough prediction to make, I think, at this point in time. I really do think it's inevitable that Khan and Kanter do leave, and I think we'll see a lot of people leave the agencies. But, you know, whether everything goes out the window or not is a much bigger question. So as Ed mentioned earlier, right, the FTC statement on Section 5 of the FTC Act, I think that will change, right? The abandonment of the consumer welfare standard. I think that's likely to be reversed. I think that things like, you know, that came out with some discord, right, the revised merger guidelines, I think some of that perhaps will be pulled back or interpreted in a lighter way or a different way. Than what we've seen thus far from the agencies. Where other things like the revised HSR rules, I think that's a lot tougher of a call, given the way those rules were implemented, how they were walked back from the June 2023 draft by the Republican commissioners and the statements that supported their unanimous vote back in October. So there's really a lot to watch. I don't think any of it will be able to happen tremendously quickly because I think it's going to take time for people to get in place and prioritize their next steps and how to sort of, you know, take on antitrust enforcement going forward. So, you know, it's really going to be something that we're going to have to somewhat wait and see. Right. And while there's history there to say a little bit about what President Trump did under his last term, I don't think it's necessarily indicative of what we'll see in the future. But I'm sure Chris has some thoughts to add to that.

Chris: Yeah. You know, Michelle, look, I agree. Almost every client alert I've seen in the past couple weeks has suggested that, you know, well, what to expect? Well, let's look at what happened in term one for Trump. I just don't know how valuable that is, especially for strategic planning or thinking about the road ahead. I mean, one thing is Trump came into office and was not a career politician. And I think he has learned tremendously over the last eight years about what he would do differently, whether you agree or disagree with what he's done. I think he has learned a lot about his approach to, you know, we're recording this right in the midst of all these cabinet nominations. I mean, who had some of these picks on their bingo card? And so I don't think, you know, I think Trump 1.0, we saw a fairly traditional assortment of conservative appointees. We're not seeing that. I think that's going to continue. And I think these more unorthodox appointees are going to want to impress the boss and be able to say, look, here's what I'm doing for you. I think we're going to see a very, very different approach. But one thing I would point out is we are seeing a number of actors in Trump's circle that may or may not be part of the cabinet. And so who's going to have a bigger influence on policy? Is it going to be Elon Musk or J.D. Vance? Traditionally, the vice president gets a lot of attention. And then after the election, after inauguration, you don't hear from them. So he may not be as influential. A lot of people have looked at his track record to suggest, well, maybe there'll be more active enforcement. I don't know if he's going to have the president's ear, we certainly know, based on history, that you don't get to do anything for long in a Trump administration if you're disagreeing with the boss. And so to the extent there's daylight between what Trump thinks we should be doing from an antitrust perspective and what J.D. Vance thinks, I'm confident betting that Trump will have his way. I think in terms of any predictions I would feel comfortable making, I do think we're going to move away from these sort of categorical approaches. And this is particularly true to private equity, to bring it back to this spotlight. I think there was a feeling from critics of this administration, the outgoing administration, that private equity was viewed as some inherent problem that needed to be solved via aggressive antitrust enforcement. It didn't matter the industry, didn't matter the dynamics of the transaction. It's just we're going to be a little suspicious here because it's private equity. I think that's going away. I think the same is true for big tech. I think we're going to have to look deeper what aspect of big tech social media might be treated differently than AI might be treated differently than autonomous driving might be treated differently than search so I think we're going to get back to maybe some deal specific some market specific industry specific. Transaction evaluations and that can make a big change from the Biden administration that was very categorical in its enforcement.

Ed: Chris I agree with all that I think those are really helpful comments. I think... Well, we just take a step back. The crystal ball is really, really cloudy here. And, you know, as Michelle and Chris both said, you know, it really is going to depend on who is, you know, who's going to wind up chairing the FTC and who else is at the FTC and who's going to head the antitrust division. So I think this could go a lot of different ways. And there is a lot of chatter in the antitrust community about who's going to be filling these seats. A lot of wildly different perspectives on this. Here's what I'll say about it. I mean, at bottom, I think the chances of our seeing it under Joe Simons, who chaired the FTC under the first Trump administration, that is someone who came out of a big law firm who approached every issue that was put on his desk based on thoughtful consideration. Of antitrust policy, what it is and what it should be, and a careful application of the law. I think the chances of our seeing another Joe Simons is really low. And I'll get back to why. What are the chances we're going to see another Makan Delrahim heading the antitrust division? Pretty good chance of that. Maybe it even will be Delrahim. There's been some chatter on the internet that he's lobbying for the job again. Who knows? The one thing I think that will drive enforcement under the second Trump administration that will be very different from the Biden administration, well, one among many from the Biden administration, and even different from the prior Trump administration, particularly the FTC. Is that it is very likely that whoever he appoints is going to be very much open to taking calls from the White House and considering very seriously what the White House wants. Why do I say that? Well, I think we ought to take Trump at his word. That's what he has said he's going to do. And that's what we've seen him do largely, almost entirely with his proposed nomination to date. So what does that mean? I think that means, and this may sound cynical to some listeners, I think what that means is we are going to see politics play a bigger role at the FTC and a bigger role at the antitrust division. So what does that mean for private equity firms? I think it may mean that for private equity firms that have the ear of someone powerful on Capitol Hill or the White House, that they may get treated differently than others. And that may sound cynical and it may be too cynical, but I think. Again, if we take Trump at his word and we look at his proposed nominations to date, I think there's a reasonable to good chance that that's going to happen. I completely agree with Chris that private equity will not be vilified the way it's been under this administration. Again, I think what happens under Trump could really depend upon the administration's goals, and that's going to be very much a matter of policy and a matter of politics. We all have a pretty good idea where Trump's politics lie, the hostility towards some of the digital platforms that is going to continue, maybe very much like it has under the Biden administration. With respect to the rest of tech, I completely agree with you, Chris. It's going to depend on the industry and how the administration views that industry, both as a matter of policy and politics.

Nick: All right, let's step into the shoes of our clients. what should private equity firms be doing right now to best position themselves for deals in 2025, maybe breaking it into two parts, you know, deals that are in process now, but not closing until Q1 2025, and then perhaps for deals that will close later in the year.

Chris: So I think just starting with that early piece, I think it's important to remember that even though we're all talking about changes and where these agencies are likely to go, it's still very much business as usual on the short term. Leadership changes, it's all going to take time. And just you know, it sort of gets lost in the in the more interesting topics. But the staff at the P&O, the people who do this, you know, Monday through Friday, they're going to be around, they're not going to go anywhere. And their sort of approach to how they evaluate mergers and review these things is largely going to stay the same. It's there, you know, those are career positions in many respects. So while some headline deals might get a different treatment, I think if you're in the midst of a deal, I think you just keep plugging ahead, I don't think you really change course. I do think, and I'll let one of my colleagues pick this up, that I think the changes with the HSR form and some of those changes, I mean, I think you have to start to get ready for that because that's, you know, right on the horizon. And so that is a different issue. And you really need to start to get ready for that.

Michelle: Yeah, Chris, I couldn't agree more. I mean, right now it's business as usual, right? You keep moving forward and working through your transactions as you would have last month. But I do think with that February 10, 2025 effective date on the new HSR rules, that will be a game changer in terms of the time, burden, and cost it takes to actually make an HSR filing. And then we need to see what does it actually mean, right? Does that additional data or information lead to more questions, more investigations and the like, or is it just sort of out there, so to speak? I mean, it's interesting because under Khan, you know, there's no data to suggest that there was actually an increase in merger cases or an increase in conduct cases. You know, a lot of the merger cases that were out there, frankly, when Khan got in, were out there or started during the Trump administration. The prior Trump administration. So the merger statistics are down. There's no data showing really that agencies materially or significantly stopped more deals. But I think one thing's for sure is that the current administration materially increased the costs of trying to do the deals, right? And so now I think you have to look at it as not a free pass. You need to keep doing the hard antitrust work you've always done regarding your transactions, but focusing on how do I get this done and knowing that if there are issues, the new administration is likely to be more receptive to some sort of merger remedy, perhaps more open-minded to getting the deal through with a remedy as opposed to challenging it. But I think that's well down the road sort of in that after February time period to think about that. And there's going to be a lot of that depends again on who Trump puts into place at the agency's.

Ed: Yeah, I think that's all spot on, Michelle, and maybe just to drill down a little bit more. On what companies and PE firms should be doing right now, or if not now, very soon to prepare for the implementation of the new HSR guidelines, February 10th. And there's been a lot of talk about all this. I think maybe just hit the high points. I think obviously with respect to planning, which I know a lot of folks are starting to do now, planning for a much heavier lift to prepare HSRs and beginning some of that work before you're really ready to dive into a new transaction. And that includes working on the narratives, and I do think that preparing the narratives that are going to be required under the new HSR regime present unique challenges for PE firms, and that's going to require some significant thought in preparing them. It does require looking very closely at documents that are going to have to be filed and then weren't previously required to be filed with HSRs in order to identify the kinds of content that may set off. Alarms at the agencies in reviewing the filings. And that means taking a close look at, for example, ordinary course reports that are going to senior management at the PE firms and, of course, at the portfolio companies as well. There are a lot of things that are going to require a lot of serious thought and preparation that weren't required before. The other thing, of course, is to prepare for longer investigations. And that is something that may well change under a Trump administration. To Michelle's point, investigations are taking much longer now. We may revert back to the norm, which itself was very long, but still, I wouldn't count on that in the next administration. You know, I think going forward, another thing for companies to be taking a close look at is, of course, interlocking directorates. And most all of you know that the renewed focus on interlocking directorates, which may not change under a Trump administration, is something that places, you know, that raises particular challenges for PE firms. So I think that is something to be taking a look at now.

Nick: Great. Thanks, Ed. I think that's all the time we have for today. So thanks to Michelle, Ed, and Chris for today's episode, and thank you all for tuning in.

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