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A Fresh Take

Insights on M&A, litigation, and corporate governance in the US.

| 4 minutes read

Private Equity in the Antitrust Spotlight

On September 21, the Federal Trade Commission (“FTC”) filed a suit against a private equity firm and one of its portfolio companies, challenging what the FTC dubbed a “roll-up” strategy targeted at the market for anesthesiology services in Texas and keeping its vow to bring enforcement actions against PE firms. 

In its 106-page complaint, the FTC claims that US Anesthesia Partners (“USAP”), at the direction of its parent PE firm, Welsh, Carson, Anderson & Stowe, violated Sections 1 and 2 of the Sherman Act, Section 5 of the FTC Act, and Section 7 of Clayton Act. In particular, the FTC alleges that (1) USAP entered into a series of transactions to consolidate the anesthesiology practices in Texas, (2) USAP and Welsh Carson entered into price-setting agreements with the remaining independent providers, and (3) USAP sought to suppress entry of a competitor into Texas via a market allocation agreement. The complaint notes that while Welsh Carson was initially a majority stakeholder in USAP and has since decreased its ownership to approximately 23%, it nonetheless “actively directed” USAP’s strategy through its board seat and involvement in day-to-day operations. 

This challenge signals a continued escalation of the FTC’s and Department of Justice’s (“DOJ”) commitment to using multiple enforcement tools to target private equity and other financial sponsors. Recent examples include:

  • Prior challenge to PE transaction: In August 2022, the FTC challenged a PE firm’s acquisition in the veterinary services space. The challenge was settled but the parties are now subject to limitations on future acquisitions including prior approval and notice requirements on any purchase of other specialty or emergency veterinary clinics within certain geographic areas.
  • Proposed revisions to merger control notification form: In June 2023, the FTC announced upcoming changes to the information that will be required for merger control notifications under the Hart-Scott-Rodino Act, including requiring significantly more information regarding minority investors, officer/director relationships, and board observers, as well as a broader scope of internal documents to be submitted with the filings. Private equity buyers will be particularly impacted including requests for more information about and disclosure of prior acquisitions within the past 10 years. (Indeed, the complaint against Welsh Carson focused on transactions going back ten years.)
  • Draft Merger Guidelines: In July 2023, the DOJ and FTC released a proposed draft of the revised Merger Guidelines (“draft Guidelines”) that also call for heightened scrutiny of private equity activity. While they are not yet final, the draft Guidelines confirm the agencies’ focus on private equity, including by expressly noting that the agencies will investigate the broad strategy of serial acquisitions “even if no single acquisition on its own would risk substantially lessening competition or tending to create a monopoly.” Additionally, the draft Guidelines reinforce current guidelines in noting that the agencies will consider how minority interests may impact competitive decision making and suggesting that this would expand to even nonvoting interests.  
  • Unfair methods of competition: In November 2022, the FTC issued a policy statement describing the types of conduct it considers “unfair methods of competition,” even if that conduct does not violate the “traditional” antitrust laws such as the Sherman and Clayton Acts. The policy statement identifies roll-up transactions specifically: a “series of [transactions] that tend to bring about the harms that the antitrust laws were designed to prevent, but individually may not have violated the antitrust laws.”
  • Interlocking directorate enforcement: Both the DOJ and the FTC have continued to enforce Section 8 of the Clayton Act, which prohibits interlocking directorates between companies that cross certain thresholds, particularly in case of private equity. On August 16, 2023, for example, the FTC announced an action to prevent “an interlocking directorate arrangement,” marking the first time that the FTC applied Section 8 enforcement for non-corporate entities (i.e., LLCs or LPs).

Key Takeaways:

The FTC’s latest challenge to PE activity, if successful, could help chart a path for future challenges to roll-up strategies. PE firms should:

  • Expect continued scrutiny: The antitrust agencies’ focus on private equity and financial sponsors will continue. Chair Khan has vowed that “[t]he 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.” 
  • Consider that minority interests may garner attention: The FTC is expected to assess even minority investments from PE firms and financial investors and take an expansive view of control—including evaluating how board or advisor position influence strategic and commercial decision making. 
  • Anticipate potential enforcement outside of the merger clearance process: Firms should expect that agencies will take an interest in consummated transactions alongside their review of individual transactions reportable under the HSR Act. 
  • Understand that roll-up strategies will be of particular interest: In particular, firms should be aware that agencies are following through on their agenda with respect to “roll-ups” – taking a critical view toward series of acquisitions concentrated within a single sector or related sectors over a more expansive multi-year timeline.
  • Be aware of internal documents: Firms are reminded that internal documents are typically a key element in any enforcement challenge and should therefore consider those in evaluating antitrust risk.

Antitrust enforcement relating to PE acquisitions is one of a number of enforcement priorities the FTC and DOJ have advanced in recent years. As suggested above, PE activity is part of a broad enforcement agenda focused on all aspects of business activity that has competitive implications.

If you have questions, contact Jamillia Ferris, Jenn Mellott, Meghan Rissmiller and Angela Landry


antitrust and competition, m&a, private equity