Private Equity Firms at Stake?

Recently, a Federal judge refused to dismiss an antitrust lawsuit against some of the major private equity firms. The lawsuit alleged that these firms had collaborated to bring down the prices of mega-takeovers during the buyout boom, thereby duping shareholders of billions of dollars.

At the same time, the judge also dismissed certain claims of the lawsuit, providing some relief to the accused firms. Although the judge mentioned that in some cases the buyers might have given effort to lower prices, there was no evidence that could prove that the transactions were actually rigged.

The plaintiffs had claimed that prices were reduced when the private-equity firms formed groups to acquire companies. The firms distributed the transactions among themselves and agreed not to compete for the deals.

The lawsuit was filed in 2007 against 11 firms including private equity giants, namely Bain Capital Partners LLC, The Blackstone Group LP (BX - Analyst Report), The Carlyle Group LP (CG - Snapshot Report), GS Capital Partners – the private equity arm of The Goldman Sachs Group, Inc. (GS - Analyst Report), Kohlberg Kravis Roberts & Co. (KKR - Snapshot Report) and TPG Capital Management LP. The lawsuit alleged that these firms had manipulated deals worth $250 billion over a period from 2003 to 2007.

The lawsuit encompasses 27 transactions including 2 deals, which were never carried out, 19 leveraged buyouts, and 6 non-leveraged buyouts. JPMorgan Chase & Co. (JPM - Analyst Report), which acted as a financial adviser to many of the above-mentioned deals, was a defendant but the charges against it are now dropped.

For private equity firms, the continuation of this litigation would result in millions of dollars in legal costs, adding to the already-mounting expenses. However, with the removal of certain of its claims, the lawsuit possibly opened doors for likely settlement talks with the plaintiffs.