On November 3, 2017, the Federal Trade Commission filed a complaint challenging Red Ventures’ proposed acquisition of Bankrate. The FTC alleged that the deal likely would have lessened competition in the market for third-party paid referral services for senior living facilities—even though Red Ventures was not itself present in that market—since two of Red Ventures’ large private equity shareholders jointly own the closest competitor to Bankrate’s Caring.com. To remedy the FTC’s concerns, Red Ventures agreed to divest Caring.com. This is a cautionary reminder that (1) private-equity-backed merging parties must consider the portfolio companies of their shareholders when assessing the antitrust risks of a merger, and (2) the U.S. antitrust agencies can and will examine competition concerns stemming from minority shareholdings.
On July 2, 2017, a definitive merger agreement was entered into between Red Ventures and Bankrate, two marketing companies that provide customer leads in a variety of industries. One such industry is senior living facilities, for which Bankrate’s subsidiary, Caring.com, is the second largest provider of customer leads. The largest provider, its direct and closest competitor, is A Place for Mom (APFM). Although Red Ventures itself has no affiliation with APFM, APFM is jointly owned by two private equity firms—General Atlantic and Silver Lake Partners—which together also own approximately 34 percent of Red Ventures. In addition to their equity participation in Red Ventures, General Atlantic and Silver Lake Partners have two of the seven seats on Red Ventures’ board, approval rights over two other seats and approval rights over significant capital expenditures.
The FTC filed an administrative complaint alleging that, because APFM is owned by two of Red Ventures’ large private equity shareholders, Red Ventures’ acquisition of Bankrate (and its subsidiary Caring.com) would (1) increase the likelihood that Red Ventures would unilaterally exercise market power and (2) increase the likelihood of coordinated interaction between APFM and Caring.com. According to the FTC, post-merger, APFM’s owners would effectively gain a minority interest in, and ostensibly control of, APFM’s closest competitor.
Simultaneously with the complaint, the FTC entered into a proposed consent decree with Red Ventures, whereby Red Ventures agreed to divest Caring.com, the only overlap between Red Ventures, Bankrate and APFM.
Even where merging parties do not have any overlapping products or services, parties must be cognizant that portfolio companies of their significant shareholders can impose antitrust risk on a transaction. Private-equity-backed parties to a merger should have their antennas raised to this concern, particularly where they have board seats or any special shareholder rights.
The FTC and DOJ have, over the years, including in the 2010 Horizontal Merger Guidelines, identified minority positions involving competing firms as a potential area of competitive concern. Although such challenges are infrequent, the agencies can and will challenge a deal based on competitive concerns stemming from minority shareholdings, especially when the minority shareholder(s) have the ability to influence or control management.