Early in her tenure, Federal Trade Commission (the “FTC”) Chair Lina Khan vowed to take a “muscular” approach to regulating U.S. private equity dealmaking. Recent events, such as the FTC’s targeting of roll-ups, make clear, more than ever before, that U.S. private equity buyers should consider antitrust strategy when seeking to get deals done.
On September 21, 2023, in the current administration’s first litigated case challenging serial acquisitions by a private equity firm, the FTC challenged Welsh, Carson, Anderson & Stowe’s (“Welsh Carson”) roll-up strategy of anesthesiology practices across Texas. The FTC brought suit against Welsh Carson and its partially owned portfolio company, U.S. Anesthesia Partners, Inc. (“USAP”), in Texas federal court, accusing them of using a roll-up scheme to systemically acquire “nearly every large anesthesia practice in Texas to create a single dominant provider with the power to demand higher prices.” That same day, Chair Khan said in a statement that “the FTC will continue to scrutinize and challenge serial acquisitions, roll-ups, and other stealth consolidation schemes that unlawfully undermine fair competition and harm the American public.” The FTC’s complaint seeks “structural relief,” presumably including divestitures to effectively unwind the acquisitions and to enjoin the defendants from engaging in similar conduct (potentially not limited to Texas and not just with respect to anesthesiology practices).
One of the most interesting facts about this challenge is that Welsh Carson formed USAP back in 2012, with the roll-up acquisitions in question occurring between 2012 and 2020, the vast majority of which took place prior to 2017 and likely all of which were of a deal value below the threshold requiring a Hart-Scott-Rodino (“HSR”) filing. USAP has been operating in its “rolled-up” form for years, so why is the FTC now asserting that the acquisitions were illegal “whether considered individually or as a series?”
It doesn’t help that private equity buyers are on the administration’s stated agenda. In June 2022, Chair Khan issued a statement calling out private equity firms and their serial acquisitions in the healthcare industry, highlighting the following sectors: anesthesiology, emergency medicine, hospice care, air ambulances, and opioid treatment centers. The takeaway here is that even non-reportable transactions that closed years ago may get attention from today’s U.S. antitrust agencies, particularly those involved in a roll-up strategy in any of the named healthcare sectors.