Masters of the Universe: Bid Rigging by Private Equity Firms in Multibillion Dollar LBOs

Abstract

In the first successful case of its kind, a class action alleging widespread collusion in the market for leveraged buyouts, some of the world’s largest private equity firms settled Dahl v. Bain Capital Partners, LLC for $590.5 million. The case was unique not only for its size and the fact that it involved complex financial transactions instead of a typical commodity, but also because the claimants used auction theory to demonstrate both the “plus” factors required to prove antitrust injury and the resulting damages. Economic analyses show that the cost to shareholders of collusion in the eight litigated multi-billion dollar leveraged buyout transactions approached$12 billion. The use of empirical economic analysis in antitrust litigation is now de rigueur. Courts expect it, and litigants have an array of econometricians available who understand both how to work with data and antitrust doctrine. In “ordinary” commodities price fixing cases, plaintiffs and defendants are expected to engage experts who gather transaction data and apply regression theory and other economic analyses to contest whether it is possible to demonstrate injury, impact, and damages. Dahl was not an ordinary case in that it involved neither a commodity nor a sellers’ cartel. Instead, it involved a buyers’ cartel which, Plaintiffs alleged, conspired to drive down the price of a number of unique, large LBOs during the mid-2000s. Additionally, the case was notable because of the Plaintiffs’ decision to use the auction theory to demonstrate the existence of antitrust violations and the extent of damage