In a statement to Congress last week, Commissioner Rohit Chopra of the Federal Trade Commission (FTC) advocated for increased antitrust enforcement against private equity-backed “roll-up” acquisition strategies, especially acquisitions of physician practices and other healthcare providers. “Roll-ups” are a common strategy where an investor, such as a private equity firm, buys several companies operating in the same line of business and combines them into a larger organization that is better positioned to obtain a higher valuation due to economies of scale. Roll-up transactions are often valued under $94 million and thus are often not reportable under the HSR Act, a statute requiring the filing of pre-merger notifications to allow the FTC and Department of Justice (DOJ) to determine whether a transaction might violate the antitrust laws. Chopra claimed this lack of reporting allows private equity to “quietly increase market power and reduce competition” and urged the FTC to increase its focus on investigating non-reportable transactions.
Chopra expressed special concern about private equity involvement in the healthcare industry, specifically regarding acquisitions of specialist physician practices and providers of opioid treatment, hospice care, and air ambulance services. Said Chopra, “In addition to the risk of loss of competition, I am also troubled by other collateral consequences, such as the scourge of surprise medical billing by out-of-network physicians and ‘body brokering’ in the treatment of opioid dependency. The FTC must halt these acquisition strategies that result in higher costs and reduction in quality of care.” Chopra recommended the FTC do the following to combat anticompetitive roll-up transactions:
- Increase enforcement against firms that may be engaged in monopolization or who have consummated unlawful mergers.
- Scrutinize any HSR filings by private equity firms to gain insight on their future acquisitions that may be non-reportable.
- Study the competitive impact of non-reportable transactions in the healthcare industry.
- Consider changes to the HSR Act or its implementing regulations to help detect harmful roll-up activity.
Three Things You Need to Know About the FTC Scrutiny of Private Equity Roll-Ups
- Commissioner Chopra has a history of criticizing private equity and is one of two Democratic FTC Commissioners. Because Republicans hold the other three Commissioner seats, Chopra’s comments likely do not signal any impending change in FTC antitrust enforcement policy under the Trump administration. However, Chopra’s views would have greater weight under a Democratic administration. An FTC majority appointed by a Democratic president could lead to heightened scrutiny of private equity deals.
- Chopra’s remarks serve as a reminder that the FTC and DOJ have the authority to investigate, and ultimately challenge or seek to unwind, any transaction – not just those that require HSR filings. The agencies have successfully challenged at least 15 consummated transactions in the past seven years, typically requiring divestitures. The vast majority of these transactions did not require HSR and one third were acquisitions in the healthcare industry.
- Private equity firms and other investors should carefully evaluate the antitrust risks of any potential roll-up acquisition, even if HSR will not be required. This is especially the case for deals in the healthcare industry. Buyers should ensure that their internal analysis of a transaction reflects the procompetitive aspects of consolidation, such as potential lowered costs and increased quality of care.
The Commissioner’s full statement is available here.
If you have any questions about the FTC’s antitrust scrutiny of private equity-backed deals, please contact the authors.