Private equity in unholy alliances

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The Independent Online

Companies seeking to snap up rivals are trying to get round stringent competition laws by teaming up with private equity houses, according to research from a City law firm.

SJ Berwin said that, as markets consolidated, trade buyers were having to use private equity to help them acquire controlling stakes in businesses that would otherwise be out of their reach. The trend - and SJ Berwin predicts it will continue - marks a departure from trade and private equity buyers competing against each other to buy assets.

"In sectors where the market is dominated by a handful of players," said Simon Holmes, a competition partner at the firm, "competition law makes it difficult for companies to acquire their direct competitors outright. As a result, a number of private equity houses are being approached to be the entity that takes control of the competing company, allowing the trade buyers to acquire minority stakes."

Mr Holmes added that even a minority stake would enable companies to gain an advantage, and stressed that structuring deals in this way did not contravene competition laws.

However, he also warned that there was no guarantee problems would not occur as partners jostled for control once the deal was completed.

"The first thing to ensure is that the trade buyer doesn't take too big an interest. The second is the degree of collaboration. You can keep your interest down and think you can do everything via co-operation agreements - but you can't always do that."

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