U.S. antitrust regulators eye private equity takeover

U.S. antitrust regulators are zeroing in on private equity, after mostly ignoring the industry for decades.

Driving the news: The Justice Department "is nearing a decision" on whether to challenge Thoma Bravo's proposed $2.3 billion take-private buyout of identity management firm ForgeRock, per Politico.

Why it matters: Neither DOJ nor the FTC have ever sued to block a private equity transaction of this size, instead playing around the edges by focusing on things like partners sitting on multiple board seats within the same industry.

• In fact, the most significant U.S. antitrust action in recent memory on a PE deal came last year when the FTC forced a JAB Investors portfolio company to divest 16 veterinary clinics it acquired via a $1.1 billion bolt-on.

Theory of the case: Private equity typically avoids antitrust scrutiny because each of a fund's portfolio companies typically operate independently of one another.

• DOJ, however, believes that Thoma Bravo may seek to merge ForgeRock with existing portfolio company Ping Identity — and maybe even with a third portfolio company called SailPoint.
• Thoma Bravo itself hasn't said it plans to merge portfolio companies, at least not publicly, but it also hasn't said it won't merge them — the latter of which seems telling. A spokesperson declined further comment.
• Earlier this year, the FT reported that Thoma Bravo lost out on Qualtrics because of fears that a subsequent portfolio merger would run into antitrust opposition.

🧠 Thought bubble, from Axios Codebook author Sam Sabin: "The identity management space is, understandably, saturated with Google, Microsoft, 1Password and others competing for business. The only concern for regulators could be that ForgeRock and Ping seemingly go after the same customer markets, but it's unclear if that's enough to support an antitrust probe."

The bottom line: Investors seem a bit skeptical that the buyout will close, with ForgeRock shares closing Tuesday at a 14,3% discount to what Thoma Bravo agreed to pay.

Go deeper: Listen to the Axios Today podcast, where Margaret Talev and Dam Primack explain why private equity doesn't usually get antitrust scrutiny.