New M&A Proposals Will Discourage Investment in Small Businesses Across America
WASHINGTON, D.C. – Drew Maloney, President and CEO of the American Investment Council, released the following statement about recent proposals by the Federal Trade Commission (FTC) and Department of Justice (DOJ) that would directly target productive private equity and private credit investments that build small business, support under-resourced companies across America and are critical to retirement security and US economic growth. One proposal would dramatically increase the cost of preparing required notifications about proposed transactions. The FTC itself anticipates that its new requirements will increase the time required to comply with its new paperwork demands by 290% – even though more than 90% of those filings raise no competition issues at all. The other threatens to drag mergers that are clearly legal under existing law into protracted administrative review, including mergers that raise no competition issues but are instead disfavored merely because they are “financed in part with debt.”
“Private equity investment helps small businesses across America grow, scale, and hire new workers. The FTC and the DOJ are throwing sand in the gears of small business growth and prosperity by making the investment process slow and expensive. These proposals threaten future employment, innovation and undermine the vibrancy of the US economy,” said American Investment Council President and CEO Drew Maloney.
Private equity’s calling card is small businesses – approximately 85% of private equity investments went to support small businesses with fewer than 500 employees. Small businesses drive 44% of US economic growth and account for 1.5 million jobs annually. Their prosperity drives the prosperity of local communities and is the foundation of economic resilience.
Private equity partners with companies to increase efficiency and productivity. A recent AIC-Pitchbook report shows how the private equity industry has a strong record of breathing new life into undervalued and misaligned businesses nationwide at a record pace. The report specifically highlights private equity’s growing investment in “carveouts,” a term used to describe transactions involving under-loved, under-resourced, or misaligned business units nestled in much larger companies.
- In 2021, private equity firms invested over $119 billion to carveout nearly 600 new, standalone companies — a 52 percent increase from 2020.
- Over the past decade, private equity firms have invested over $700 billion and carved out over 4,000 new, standalone companies.
Private equity is building better, more robust businesses across America using the buy-and-build model, in which investors acquire several smaller companies to create a new, more competitive business. Another recent AIC-Pitchbook report explores how this buy-and-build model creates companies that are stronger and better organized for their employees, provide better goods and services at a lower price for their customers, and create more channels of growth for the companies themselves.
- “By injecting new capital and bringing management and operational expertise into stagnant businesses, private equity firms foster competition against more established firms and boost economic output.”
- “Political antipathy to the private equity industry is not a sound or defensible basis for altering well-established, neutral merger guidelines in order to create a systematic bias against one category of transaction participants.”
- “The [FTC and other] agencies are already empowered to review and challenge those mergers and acquisitions that raise competitive concerns, while still allowing free and open markets to serve as the engine for economic growth and efficient capital allocation.”