A recent divesture ordered by the Federal Trade Commission should serve as a reminder that private equity- and venture capital-backed companies need to evaluate the other holdings of their investors and directors to avoid potential antitrust problems.
Background
Red Ventures and Bankrate are marketing companies that connect consumers with providers in various industries. In 2017, Red Ventures entered into an agreement to acquire Bankrate for $1.4 billion. Among other interests, Bankrate operated "Caring.com," a website used to generate customer leads for providers of senior living facilities. Red Ventures did not offer a competing product in this space, but the FTC nonetheless required the divestiture of Caring.com, citing competitive concerns generated by operations of Red Ventures’ investors and directors.
Specifically, two of the largest shareholders in Red Ventures are private equity firms General Atlantic and Silver Lake Partners, with a combined 34 percent stake, two of seven board seats, and other substantial rights over operations. General Atlantic and Silver Lake separately owned "A Place for Mom" which, like Caring.com, provides an online referral service for providers of senior living facilities. According to the FTC's complaint, "A Place for Mom" and "Caring.com" were each other's closest competitors, with the number one and number two positions in the market. Here, the FTC looked behind the actual parties to the transaction to identify potential competitive concerns.
Takeaways
Private equity- and venture capital-backed companies must be aware of the competitive, or potentially competitive, holdings of their investors and directors.
- As in the Red Ventures/Bankrate acquisition, the separate holdings of significant investors may become a focus of the government's antitrust review of a transaction.
- An investor simultaneously holding seats on the boards of two competing companies may violate the statute prohibiting interlocking directorates.1
- Finally, companies should ensure that protections are in place to prevent any scenario – real or implied – where the investor or director could serve as a conduit for the sharing of competitively sensitive information between competing companies.2
Footnote
1 See 15 USC § 19.
2 See 15 USC § 1.
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