The Justice Department is looking into potential anticompetitive practices in the burgeoning world of private equity-led corporate buyout, according to a published report.
The Wall Street Journal
says federal attorneys have sent informal requests for documents to a number of private equity firms. The letters seek information about the auction process for taking companies private.
The inquiry appears to be in its early stages, but authorities apparently are investigating allegations that the private equity is one big club, in which rival firms don't compete too hard in bidding wars taking a company private.
The allegation is that the lack of competition keeps the takeout price for a company relatively low.
The investigation comes at a time that private equity firms are raising a record amount of money and doing ever larger deals.
Private equity firms usually make money by buying a company and cutting costs or reforming the business over a number of years. Depending on the investment, the private equity firm often will pay itself a dividend each year for its work, then sell the restructured business for more than the purchase price.