Alert November 14, 2017

Lessons for Private Equity Shareholders and Merging Parties from the FTC’s Challenge of Red Ventures/Bankrate

Summary

The Federal Trade Commission recently challenged Red Ventures’ proposed $1.4 billion acquisition of Bankrate, alleging it would lessen competition in the market for third-party paid referral services for senior living facilities. This is notable because Red Ventures itself does not actually provide third-party paid referral services for senior living facilities. Red Ventures is, however, backed by two private equity firms that own interests in a purportedly close competitor to Bankrate’s senior living referral services. This serves as a stark reminder for private equity funds and merging parties that when assessing the overall antitrust risk of a proposed transaction, the minority interests of private equity shareholders across portfolios must be considered.

The FTC’s Complaint and Remedy

On November, 3, 2017, the FTC filed a complaint alleging Red Ventures’ proposed acquisition of Bankrate, a marketing company that provides proprietary internet content and customer leads for various industries, would lessen competition in the market for third-party paid referral services for senior living facilities. According to the FTC, one of the companies Bankrate operates, Caring.com, is the second largest provider of customer leads to senior living facilities, while the number one provider of customer leads to senior living facilities is APlaceforMom.com. Two of Red Ventures’ minority private equity-backed shareholders (that own approximately 34% of Red Ventures combined) operate APlaceforMom.com. 

According to the FTC’s complaint, Caring.com and APlaceforMom.com are each other’s closest competitors. Because these private equity shareholders are entangled with both entities, the FTC believed that if consummated, the proposed transaction would enable Red Ventures to exercise unlawful market power unilaterally, as well as increase the likelihood of unlawful marketplace coordination between Caring.com and APlaceforMom.com. The concerning entanglement arises because each private equity shareholder would have board seats and attendant board approval powers to influence significantly day-to-day management decisions at APlaceforMom.com through Red Ventures and Caring.com. 

As a condition of the acquisition, the FTC will require Bankrate to divest its Caring.com assets to a third party.

Conclusion

This action makes clear that the antitrust authorities may look upward at any competitive holdings of private equity funds backing merging parties to root out potential competitive entanglements. Merging parties and private equity sponsors are wise to take this “upward look” into consideration when evaluating the antitrust risk of a proposed transaction. In addition, traditional prohibitions on interlocking directorates also must be observed and evaluated during the course of such transactions.