by Andrew J. Nussbaum, Jonathan M. Moses, Nelson O. Fitts, Adam L. Goodman, and Itai Y. Thaler
From left to right: Andrew J. Nussbaum, Jonathan M. Moses, Nelson O. Fitts, Adam L. Goodman, and Itai Y. Thaler. (Photos courtesy of Wachtell, Lipton, Rosen & Katz)
Last week, the Federal Trade Commission sued U.S. Anesthesia Partners, Inc. (“USAP”) and its private equity investor, Welsh, Carson, Anderson & Stowe, as well as a number of Welsh Carson entities, in federal district court, alleging that USAP and Welsh Carson conspired to monopolize and reduce competition for anesthesia services in Texas. The FTC’s complaint alleges that, beginning in 2012, Welsh Carson, through its investment in USAP — which varied between 23% and 50.2% over the relevant period — directed a “roll-up scheme” to acquire and consolidate over a dozen Texas anesthesia practices; caused price increases across the state; and coordinated prices and allocated markets with some of the remaining independent anesthesia providers. The complaint claims violations of the Sherman Act, the Clayton Act, and the FTC Act, and seeks unspecified “structural relief” that could include restitution and divestitures.
In a Financial Times Op-Ed published promptly after the FTC filed its lawsuit, Chair Lina Khan proclaimed a new focus on “serial acquisitions” — whether by private equity firms or others. According to Chair Khan, a series of small acquisitions may each individually fall below the Hart-Scott-Rodino Act’s reporting thresholds, or otherwise fail to attract the antitrust authorities’ notice, thereby avoiding contemporaneous antitrust scrutiny that would otherwise be warranted. She suggested the agencies will consider other sectors as potential targets of FTC “serial acquisition” scrutiny, including nursing homes, apartment buildings, and emergency medicine clinics, and warned that the antitrust laws “may apply to parent companies and investors if they directly participate or conspire to participate in anti-competitive conduct.”
The lawsuit comes on the heels of the FTC’s and DOJ’s recently published draft Merger Guidelines, a proposed wholesale revision of the 2010 Horizontal Merger Guidelines (which we recently discussed here). The allegations in the litigation initiated against Welsh Carson and USAP are consistent with what the draft merger Guidelines describe as an “anticompetitive pattern” of acquisitions that, in the antitrust agencies’ view, may violate the Clayton Act. To support detection of so-called “roll-up” strategies, the FTC has also added new specifications in its proposed revisions of the HSR Act notification form (which we discussed here).
While the FTC and DOJ have occasionally challenged consummated mergers in prior administrations, the USAP/Welsh Carson lawsuit heralds a new level of scrutiny for PE firms and other highly acquisitive companies. Firms considering sequential acquisition strategies should be cognizant that there is no statute of limitations under the Clayton Act and take into account the FTC’s new approach in assessing the risks of “roll-up” deal plans and follow-on business strategies.
Andrew J. Nussbaum, Jonathan M. Moses, Nelson O. Fitts, Adam L. Goodman are Partners and Itai Y. Thaler is an Associate at Wachtell, Lipton, Rosen & Katz. This post was originally published on the firm’s blog.
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