The Justice Department has begun an informal antitrust inquiry of private-equity firms and their collaboration on leveraged buyouts, a person familiar with the matter said Tuesday.
Justice officials in recent weeks sent letters to firms seeking information about deals and business practices, said the person, who asked not to be identified because the inquiry isn’t public.
Kohlberg Kravis Roberts & Co. and Silver Lake Partners were among those to receive letters, the Wall Street Journal reported Tuesday.
Chicago-based Madison Dearborn Partners LLC isn’t among the firms approached by the Justice Department, a person close to the situation said.
“It’s very serious for the buyout firms, as this investigation could last up to a year,” said Sean Boland, co-chair of the antitrust practice at Washington-based law firm Howrey LLP.
LBOs by groups of firms have increased to $201 billion this year from $31 billion in all of 2001, according to data compiled by London-based Private Equity Intelligence Ltd.
In July, the industry’s biggest deal was announced, the $33 billion takeover of hospital chain HCA Inc. by Kravis, Bain Capital LLC, Merrill Lynch & Co. and HCA co-founder Thomas F. Frist Jr.
Buyout firms sometimes form partnerships with each other to spread out risk when making multibillion-dollar purchases, or so-called club deals.
The Justice Department may be concerned that cooperation among bidders is unfairly pushing down prices, said Robert Burka, an antitrust lawyer at Foley & Lardner in Washington and a former official at the Federal Trade Commission.
“This is a new area for antitrust law enforcement,” he said.
Collaboration among firms alone isn’t anti-competitive, said Steven Sunshine, a partner at Cadwalader Wickersham & Taft LLP in New York and a former antitrust enforcer at the Justice Department.
“If a bunch of makers of some chemicals get together in a room and fix prices, it’s criminal,” he said. “The question is whether there is enough of a legitimate reason for private-equity firms to talk to one another such that it is not a naked cartel.”
KKR spokeswoman Ruth Pachman and Silver Lake spokesman Matthew Benson declined to comment.
New York-based KKR and Silver Lake, which has offices in New York and Menlo Park, Calif., have together participated in $23.5 billion of acquisitions since 2005, including the takeover of Royal Philips Electronics NV’s semiconductor unit for $9.4 billion in August.
Last year, they bought Agilent Technologies Inc.’s semiconductor unit for $2.66 billion and joined with five others to acquire SunGard Data Systems Inc. for $11.4 billion.
