Private Equity Megadeals in the EU: Navigating Regulatory Risks in a Shifting Landscape

In the summer of 2025, U.S. private equity giant KKR finds itself at the center of a regulatory storm in the European Union. The European Commission has launched an investigation into whether KKR misrepresented or omitted key details during its €22 billion acquisition of Telecom Italia's fixed-line business in 2024. This scrutiny, while specific to KKR, is emblematic of a broader shift in the EU's approach to private equity megadeals. Regulators are increasingly prioritizing transparency, antitrust enforcement, and the mitigation of foreign subsidy risks—a trend that is reshaping the risk calculus for investors and firms alike.

The KKR Case: A Harbinger of Heightened Scrutiny

The EU's probe into KKR stems from concerns over the accuracy of information provided during the Telecom Italia deal's approval process. Central to the investigation are long-term access agreements between Telecom Italia's FiberCop unit and rivals Fastweb and Iliad, which KKR argued would preserve competition in the market. The Commission's scrutiny of these agreements reflects a broader enforcement strategy: ensuring that private equity firms cannot exploit regulatory loopholes to consolidate market power or obscure competitive risks.

This case is not an isolated incident. The EU has intensified its enforcement of merger control rules, with the European Central Bank (ECB) and the Commission jointly emphasizing the need for “unambiguous compliance” in cross-border transactions. For KKR, the potential consequences—ranging from financial penalties to reputational damage—underscore the growing costs of navigating a regulatory environment that demands meticulous due diligence and proactive transparency.

Regulatory Trends Reshaping the Sector

The KKR case is part of a larger pattern of regulatory evolution in the EU, driven by three key developments:

1. Foreign Subsidies Regulation (FSR): Enforced since late 2023, the FSR has become a critical tool for the EU to counteract market distortions from non-EU state-backed investments. By mid-2025, the Commission had received over 179 FSR notifications, with private equity firms accounting for a third of these. The e&/PPF Telecom Group case, cleared with behavioral remedies, set a precedent for how the EU addresses foreign subsidies in private equity deals. Firms must now contend with mandatory pre-merger notifications and the risk of ex officio investigations, even in the absence of formal filings.

2. Basel IV and Credit Market Reforms: The EU's implementation of Basel IV is forcing banks to optimize capital for securitized and risk-weighted exposures. This has created a vacuum in mid-sized lending, where non-bank lenders like KKR are stepping in. However, the same regulatory shifts that open opportunities for private credit also heighten scrutiny. For instance, the ECB has warned of liquidity mismatches in open-ended private debt funds, which could amplify market volatility during downturns.

3. Geopolitical and Trade Policy Uncertainty: The U.S. imposition of new import tariffs in 2025 has introduced volatility into global supply chains, affecting European private equity-backed companies. The ECB's Financial Stability Review highlights the risk of “confidence effects” that could ripple through the sector, particularly in sectors like consumer discretionary, where credit rating downgrades have surged.

Sector-Wide Implications for Investors

The evolving regulatory landscape presents both challenges and opportunities for private equity investors.

• Risk of Regulatory Delays and Penalties: The FSR's mandatory notification requirements and the EC's proactive enforcement posture mean that deal timelines are lengthening. For example, the e&/PPF case took over six months to clear, with behavioral remedies requiring ongoing compliance. Firms must allocate resources to navigate these complexities, which could delay returns for investors.

• Opportunities in Structured Credit: As banks retreat from capital-intensive lending, private equity firms with expertise in structured credit—such as KKR's direct lending platforms—are well-positioned to fill gaps. The EU's ELTIF reforms, which permit retail investor access to private equity, are expected to unlock tens of billions in capital, further fueling demand for tailored credit solutions.

• Strategic Sectors for Resilience: The EU's Digital Decade strategy and push for industrial competitiveness are creating fertile ground for tech-driven private equity investments. Sectors like healthcare, software, and clean technology are attracting capital as regulators prioritize innovation and resilience.

Investment Advice for Navigating the New Normal

For investors, the key to success lies in balancing caution with strategic agility:

1. Prioritize Transparency and Compliance: Firms with robust compliance frameworks—such as KKR's recent emphasis on governance—will fare better in a regulatory environment that rewards transparency. Investors should scrutinize a firm's track record in navigating FSR and antitrust reviews.

2. Diversify Sector Exposure: Given the ECB's warnings about sector-specific risks, investors should diversify across resilient sectors like healthcare and tech while hedging against overexposure to trade-sensitive industries like consumer discretionary.

3. Monitor Regulatory Guidance: The EC's anticipated 2026 FSR guidance will clarify enforcement priorities, such as the balancing of competitive harm against policy benefits. Investors should prepare for a more nuanced regulatory landscape by staying ahead of these developments.

Conclusion

The EU's regulatory crackdown on private equity megadeals is not a temporary phase but a strategic recalibration of market oversight. For KKR and its peers, the path forward requires a dual focus: navigating the immediate risks of FSR and antitrust scrutiny while capitalizing on long-term opportunities in structured credit and innovation-driven sectors. Investors who adapt to this new paradigm—by prioritizing compliance, diversifying portfolios, and staying attuned to regulatory shifts—will be well-positioned to thrive in a landscape where regulatory risk is no longer a peripheral concern but a central determinant of success.