Team Bidding by Private Equity Sponsors: Are the Antitrust Allegations Plausible?

Abstract

The dozen largest private equity firms are accused of bid-rigging in the M&A market due to the practice of team bidding in groups known as clubs or consortia. Comparatively low offer premiums are unsurprising in low-synergy mergers and no conspiracy theory is needed to explain why financial buyers might pay lower offer premiums than strategic buyers, so Occam’s razor seems applicable here. In a multiple regression using a sample of 2,023 cash-only purchases of U.S. public companies during 1998-2011, including 85 by teams of private equity sponsors, team bidding is associated with a differential average offer premium of zero. The antitrust allegations are implausible because (1) the segments of the M&A market that are dominated by private equity firms are among the most competitive of all when competition is measured by the number of prospective buyers that sign confidentiality agreements or by whether a sale process culminates in an auction, (2) a selling company’s permission generally is required before prospective buyers can team up and (3) the differential average offer premium paid by teams of private equity sponsors is zero.