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This article appears in the June 2025 issue of The American Prospect magazine. Subscribe here.
The year 1978 is not just noteworthy for the election of Pope John Paul II and National Lampoon’s Animal House. It was also the year that a little investment banking firm known as Kohlberg Kravis Roberts announced plans to take manufacturing conglomerate Houdaille Industries private through a leveraged deal, using the company’s assets and future cash flows as collateral to secure debt financing for the acquisition. Although KKR had completed three smaller deals the year before, its acquisition of Houdaille was the first leveraged buyout of a public company in modern history.
The successful deal set the stage for KKR’s rapid expansion into the 1980s and beyond. Today, KKR is a publicly traded investment firm with $638 billion in assets under management. Despite some initial skepticism, Wall Street would go on to follow in the firm’s footsteps. Such financial engineering has become a staple of the private equity industry.
Private equity firms pool investments from institutions like pensions and endowments into funds that buy a portfolio of companies through leveraged deals, where the bulk of the acquisition is financed through debt. To secure debt financing, the firm fronts a small amount of its own cash and raises additional capital from investors. It then leverages those assets to borrow the money it needs to complete the acquisition.
The typical holding period for a portfolio company is five to seven years. At the end of this period, the firm will either sell the company (ideally at a premium) or attempt to take it public. But countless companies have been crushed under the debt obligations they’ve been saddled with, from Toys “R” Us to Red Lobster. In these and many other cases, the private equity firms extracted hundreds of millions of dollars in fees and interest, while abandoning companies and their workers.
Beyond financial engineering, private equity has undermined competition through serial acquisitions of multiple companies in a particular sector, which then get merged into a single platform that benefits from an enhanced market position. These are commonly referred to as buy-and-build strategies or rollups, and they have been prevalent in health care and even obscure markets like telecommunications for the deaf and hard of hearing.
Not all rollups are illegal. However, serial acquisitions intensifying market concentration triggered regulatory scrutiny under the Biden administration. With private equity’s prospects fading in the uncertain economy, whether that scrutiny continues under President Trump will go a long way to determining whether the KKRs of the world can survive.
A Day of Reckoning
At the end of Biden’s presidency, the Justice Department’s Antitrust Division filed a civil lawsuit against KKR over the firm’s alleged failure to comply with the Hart-Scott-Rodino Act of 1976, or HSR, between 2021 and 2022. The agency accused KKR of “repeatedly flouting the premerger antitrust review process,” which regulators rely on to determine whether further investigation is warranted.
The Justice Department is seeking at least $650 million in civil penalties from KKR, the highest civil penalty ever sought for an HSR violation.
KKR responded with a countersuit, arguing that HSR “is not the government’s primary tool to investigate mergers.” Although the principal method for investigating anti-competitive conduct is through “second requests,” regulators depend on the premerger antitrust review process to detect irregularities.
KKR claimed it has been in compliance, describing its premerger filing errors as “immaterial slips.” But it didn’t stop there: The firm went on to characterize the Justice Department’s complaint as “politically-motivated” and “inconsistent” with HSR guidance, and even sued the then-acting head of the Antitrust Division Doha Mekki personally as part of the lawsuit.
U.S. attorneys for the Southern District of New York filed a motion to dismiss KKR’s complaint on April 23, but the case is ongoing.
The legal exchange comes as regulators under Biden ramped up efforts to rein in the private equity industry, some of which has carried over into the Trump administration. For example, the FTC finalized a new HSR rule that significantly expands how much information and documentation financial sponsors must submit in their premerger filings, and requires filers to disclose all acquisitions from the past five years. Essentially, the revisions to HSR will enable enforcers to evaluate whether certain mergers threaten competition in a more swift and efficient manner. This new filing form was passed with bipartisan votes on the Federal Trade Commission, and allowed to take effect early in Trump’s new term.
According to Brendan Ballou, former special counsel for private equity in the Justice Department’s Antitrust Division and author of Plunder: Private Equity’s Plan to Pillage America, premerger filings “are the primary way by which enforcers see that anti-competitive acquisitions are happening.”
Private equity vehemently opposed the rulemaking changes. “Understandably, they oppose this kind of regulation,” Ballou told the Prospect. “If they are forced to comply with all the HSR requirements, then enforcers are going to see a lot more rollups happening that may be anti-competitive.”
The American Investment Council, a lobbying and research organization that doubles as the industry’s spin doctor, has argued that the new disclosure requirements will result in higher compliance costs and deter mergers and acquisitions altogether. More recently, it lambasted regulators for their supposed “animus” toward the private equity industry and disregard for the “efficiencies and other procompetitive benefits that are often created by mergers.”
The HSR revisions must survive a resolution of disapproval from Congress using the Congressional Review Act, which was introduced as soon as the new form took effect on February 10. But Congress only has until late May to use the CRA mechanism, and the resolution in question only has three co-sponsors.
Boom and Bust
The private equity industry is teetering on the edge of its former glory. Dealmaking has been glacial, tariff-induced market turmoil has upended exit plans (or sales of the portfolio companies), setting prices for acquisitions has been impossible due to the uncertain economic environment, and bankruptcies at private equity–owned companies soared to record levels last year. Moreover, cash-strapped institutional investors have been exploring ways to shed some of their private equity exposure. That includes endowments at universities that are under pressure due to Trump’s attempts to deny them federal funding. Yale’s endowment, one of the first to enter private equity investments, has been considering exits.
These challenges mean that the industry will have to get creative. It remains unclear the extent to which private equity can successfully manufacture favorable profitability outcomes through financial engineering, but as Ballou noted, these firms “are generally out for themselves.”
“One could see them leaning on their portfolio companies to extract as many fees as they can while they still can … to increase profitability in the short term, even if it sacrifices profitability in the long term, in order to try to get a better valuation on some of these businesses and offload them,” he told the Prospect.
When it comes to ensuring competition, regulators have established a new framework for reviewing mergers and acquisitions. The 2023 Merger Guidelines, a nonbinding directive published by the Justice Department and FTC during the Biden administration, have significant implications for the private equity industry. Although the directive does not explicitly mention private equity, it highlights the many ways in which enforcers intend to remedy the industry’s anti-competitive business practices.
In a September 2023 op-ed for the Financial Times, former FTC chair Lina Khan described the 2023 Merger Guidelines as “a handbook for how market participants should understand the analytical tools and frameworks we apply when assessing whether a deal violates the law,” adding that one of the guidelines details how enforcers “can examine whether a firm’s pattern or strategy of multiple acquisitions risks substantially lessening competition or tending to create a monopoly.”
The vigorous antitrust enforcement regulators have pursued since the Biden administration has persisted under President Trump, for now. Notably, the Trump administration agreed to maintain the 2023 Merger Guidelines earlier this year. But how long will this unusual continuity last?
In one sense, what the feds decide won’t completely let private equity off the hook, Ballou said. “In a world where federal regulators are not particularly interested in antitrust enforcement in private equity, that responsibility is going to fall to the states, which have the authority to pursue or to enforce federal antitrust laws. I think that’s probably where a lot of the energy is going to be.”
The FTC has continued to crack down on anti-competitive conduct by private equity firms under the Trump administration, by challenging a medical device rollup. Despite this, the uncertain future of antitrust enforcement at the federal level increases the likelihood that states will need to step up efforts to check corporate power.
“One of the basic problems we’ve got with private equity is we have a disconnect between private equity firms having operational control over their businesses but very little legal or financial responsibility for when bad things happen with those businesses,” Ballou told the Prospect. “State legislatures can help change that.”
States have been fixated on private equity’s involvement in health care for obvious reasons, but rollups by these firms are playing out across a range of sectors. The industry’s iron grip on the U.S. economy and the problems that come with it are not going away.
