Member Article

Rohit Chopra, the head of the Federal Trade Commission, recently issued a statement regarding private equity roll-ups in connection with the FTC’s annual report to Congress related to the Hart-Scott-Rodino (HSR) Act. The full text of the statement can be found here.

In the statement, Commissioner Chopra stated that while the HSR Act has been effective at providing market intelligence to antitrust enforcement agencies for larger transactions, the FTC should increase its focus on non-reportable transactions given the significant consolidation through smaller roll-up transactions over the last decade. He noted that most private equity transactions are below the size of transaction threshold and therefore not subject to HSR reporting, even though many are part of broader roll-up strategies through which private equity sponsors may quietly increase market power and reduce competition.

Commissioner Chopra went on to express special concern about unreported roll-ups in the healthcare sector. He noted that M&A activity in healthcare is among the highest of any sector in the U.S. economy, and the median deal size for such transactions involving private equity firms is between $60 million and $70 million, well below the HSR reporting threshold of $94 million. He noted that private equity firms are actively acquiring physician practices, with a particular focus on anesthesiology, emergency medicine and hospice care, as well as acquiring fragmented players in the opioid and addiction treatment sector. Commissioner Chopra said that, in addition to the risk of harm to competition, he is troubled by the resulting increases in billing by out-of-network physicians, higher costs and reduced quality of care.

Because of these concerns, Commissioner Chopra proposed that the FTC actively identify enforcement targets who may be engaging in anticompetitive conduct and order information related to non-reportable mergers in the healthcare sector pursuant to Section 6(b) of the FTC Act, which empowers the FTC to conduct broad-based studies and seek various types of information, even without an enforcement purpose. He said that the FTC should also more closely scrutinize HSR filings by private equity firms to gain insight on future acquisitions, even if non-reportable, and may need to consider changes to the HSR Act or its implementing regulations to help the FTC better detect harmful roll-up activity.

Strategic acquirers and sellers would be wise to consider pro-competitive and efficiency arguments for their transactions, and how they might respond to inquiries from enforcement agencies, up front and should assume that documents and communications may be subject to production requests and, as always, avoid making statements which might be construed unfavorably from an antitrust standpoint if reviewed by the FTC or DOJ.

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