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Next chapter of the series: US antitrust agencies place greater emphasis on roll-up strategies

Posted on by darion

Massive acquisitions and roll-up strategies are under intense scrutiny as the Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice (DOJ) seek public attention on the impact of these types of transactions on competition in “any sector or industry” U.S. Economy , including “housing, agriculture, defense, cybersecurity, distribution, construction, aftermarket/repair and professional services markets.”1 In their press release announcing the public investigation, the FTC and the Department of Justice emphasized their concerns that serial takeovers, even those below HSR thresholds, allow companies “to accumulate significant control over key products, services, or labor markets without government control,” which “may harm competition to the detriment of consumers, workers and innovation across an industry or business sector.” FTC Chair Lina Khan described the acquisitions as “secret consolidation plans” and asked the public to participate in reporting on future enforcement actions.

RFI seeks information from any sector of the U.S. economy

According to the agency, the purpose of the latest request for information (RFI) is to “identify sectors of the economy impacted by serial takeovers.” To this end, the inquiry requests:

  • answers to questions about the impact of serial acquisitions on competition, wages, prices, innovation, and the quality and availability of relevant products and services;
  • information about the buyers’ business practices, including whether they sold products or services below cost to drive out competitors, forced or encouraged customers to buy exclusively from the buyer, and more; AND
  • particularly in the case of serial acquisitions by private equity firms, information about the company’s involvement in the post-acquisition business.

RFI cites various news articles and recent transactions involving serial acquisitions. For example, the RFI cites a proposed takeover by TopBuild Corp. SPI Parent Holding Company (SPI), which abandoned in April due to DOJ competition concerns.

The current comment deadline is July 22, 2024, although it may be extended.

For companies engaged in iterative, strategic mergers and acquisitions, this latest development offers several key takeaways:

  • The sectors or industries identified by key audiences are likely to be the subject of future research.
  • Companies can expect to see more investigations and enforcement actions targeting both private equity and non-private equity firms engaged in roll-ups and other serial acquisition strategies.
  • If implemented, the changes to the HSR Act will be another tool to identify transactions of interest to agencies that might otherwise be overlooked.

This is the latest element of the agency’s broader effort to increase merger enforcement, particularly private equity M&A enforcement.

In March 2024, the FTC, the Department of Justice, and the Department of Health and Human Services (HHS) jointly initiated an investigation into private equity acquisitions of healthcare providers and related entities.2 As of May 28, 2024, the RFI received 11,077 public comments, of which 6,280 were published. On the same day the RFI was announced, the three agencies hosted a virtual workshop to discuss the impact of private equity firms on health care markets.

The workshop was held just after the FTC initiated enforcement proceedings against US Anesthesia Partners, Inc. in September 2023. (USAP) and private equity firm Welsh Carson in federal court alleging that a large Texas-based anesthetic supplier and its parent company engaged in a decades-long anticompetitive scheme that violated federal antitrust laws. Following on from their recent promises to increase scrutiny of private equity-driven transactions, the FTC’s complaint accuses USAP and Welsh Carson of using a series of roll-up acquisitions, pricing arrangements and a market allocation scheme to stifle competition and increase economic growth. prices for hospital anesthesiology services in Texas.3 Southern District of Texas recently awarded Welsh Carson’s motion to dismiss, finding in part that because Welsh Carlson only owned a minority interest and had no control, Welsh Carson could not be held liable for the alleged antitrust violations.

While this latest effort heralds a new era of targeted enforcement, it is not the first time agencies have raised concerns about the allegedly anticompetitive effects of some serial takeovers.

For example, in June 2022, the FTC sued private equity firm JAB Consumer Partners ahead of its acquisition of Ethos, an owner and operator of specialty and emergency veterinary clinics in nine states. JAB is the parent company of two companies operating chains of veterinary clinics. According to the FTC, JAB’s proposed acquisition of Ethos was part of its strategy to “gobble up” smaller competitors in already concentrated regional markets.4 Ultimately, the FTC reached a level of approx consent agreement with JAB, under which the private equity company agreed to divest five veterinary clinics and obtain prior approval to acquire any future veterinary practices within a 40 km radius of existing or future JAB-owned veterinary clinics.

Recently, the FTC cited concerns about serial takeovers in: a lawsuit prevent Coach’s parent company, Tapestry, Inc., from acquiring Capri Holdings, owner of Michael Kors and other fashion brands. The FTC complaint alleged that the $8.5 billion fashion merger would eliminate direct competition in the market for affordable luxury handbags. In an accompanying press release, the FTC asserted that Tapestry had engaged in a “decade-long strategy of mergers and acquisitions through serial acquisitions to fulfill its dream of becoming a major U.S. fashion conglomerate” and that due to the company’s “pattern of serial acquisitions” the acquisition Capri will further strengthen Tapestry’s position by making it more difficult for new brands to both enter the market and have a significant presence.”5

The investigation reflects the Biden administration’s aggressive stance on merger enforcement

This request for proposals reaffirms the Biden administration’s continued commitment to expanding the agency’s enforcement scope. This follows other actions, including the 2023 Merger Guidelines, which recognize that a company may violate antitrust laws by making serial acquisitions.6

Plus the FTC and the Department of Justice jointly announced last June’s proposed change to filing requirements under the Hart-Scott-Rodino (HSR) Act, which, if implemented, would impose significantly greater burdens on merging parties. The proposed changes would require much more information about the previous acquisitions of both parties to the transaction, including: by extending the disclosure period from five to 10 years and eliminating the disclosure threshold (currently, reporting is only required for entities with $10 million in sales/assets in the year prior to acquisition).

Please contact Jamillia Ferris, Maureen Ohlhausen, Brendan Coffman, Franklin Rubinstein or another member of Wilson Sonsini antitrust and competition practice if you have any questions regarding this RFI.

(1) See Request for information.

(2) ID.

(3) Complaint, FTC v. US Anesthesia Partners, Inc.No. 4:23-CV-03560 (S.D. Tex. Sept. 21, 2023).

(4) Federal Trade Commission Press Release FTC Takes Second Action Against JAB Consumer Partners to Protect Pet Owners from Veterinary Services Clinic Shutdown by Private Equity Firm (June 29, 2022), https://www.ftc.gov/news-events/ news /press-releases/2022/06/ftc-takes-second-action-against-jab-consumer-partners-protect-pet-owners-private-equity-firms-rollup-of-veterinary-services-clinics.

(5) Federal Trade Commission Press Release, FTC Blocks Tapestry Acquisition of Capri (April 22, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-moves- block tapestries -capri acquisition.

(6) Guideline 8 states that agencies may evaluate “multiple acquisitions in the same or related business line” as part of an “industry trend” or “a general pattern or strategy of serial acquisitions by the acquiring company.”