updated 10/10/2006 11:12:37 AM ET 2006-10-10T15:12:37

The U.S. Department of Justice has begun an inquiry into potentially anti-competitive behavior by private-equity firms, The Wall Street Journal reported on Tuesday, citing people familiar with the matter.

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Justice Department officials have sent letters to private equity firms, including Kohlberg Kravis Roberts & Co. and Silver Lake Partners, the Journal said.

In a probe of anti-competitive behavior, the Justice Department is asking for information on deals and auctions, the paper said.

KKR and Silver Lake officials were not immediately available.

Private equity firms buy companies and typically cut costs, restructure the businesses, and sell them three to five years later. Most firms keep about 20 percent of the profit from the exits and give the rest to their institutional investors — pension funds, college endowments and wealthy individuals.

Private equity firms are on target to raise more than $300 billion from investors this year, with top-tier firms making huge profits and sparking the heaviest buyout activity in more than five years.

The $12.3 billion buyout of Spanish-language broadcaster Univision and the $17.6 billion bid for technology company Freescale Semiconductor Inc. were among the high-profile deals this year that attracted teams of private equity bidders, or clubs in Wall Street terms. Since 2005, SunGard Data Systems and VNU went private through club deals that involved seven and six firms, respectively.

The biggest auctions almost always involve the same large private equity firms, as their $10-billion-plus funds are the only ones able to afford such assets.

Among the potential anti-competitive elements in focus with the probe may be that these big firms frequently join on some deals and compete on others.

Federal officials may be looking into what, if any, information is shared among the firms, and if there are tacit agreements among them to not drive prices on deals higher.

Hedge fund growth and their big profits attracted regulators. Private equity investors and experts wonder if they’re next, given their huge funds and big profits.

Indeed, a few large private equity firms are in the early stages of forming a lobbying group to help them deal with potential federal involvement or pressure.

Copyright 2012 Thomson Reuters. Click for restrictions.

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