Antitrust

The Federal Trade Commission (“FTC”) announced in the final days of the Biden administration that private equity firm Welsh, Carson, Anderson & Stowe (“Welsh Carson”) had agreed to a settlement to resolve the FTC’s allegations that it spearheaded its portfolio company’s consolidation of anesthesia clinics in violation of the antitrust laws. The Democratic Commissioners portrayed the settlement as a victory for their crusade against serial acquisitions and an example of “novel treatment of private equity defendants.”

Notably, however, the Republican Commissioners, soon to be in the majority, emphasized that “this case is an ordinary application of the most elementary antitrust principles” and that there is “no reason for the Commission to single out private equity for special treatment.” So what does the Welsh Carson settlement mean for scrutiny of roll-up strategies going forward?

Roll-up strategies in the spotlight

As discussed in our previous post, private equity roll-up strategies have been an area of significant antitrust focus for antitrust regulators in recent years.  The FTC originally filed suit against both Welsh Carson and US Anesthesia Partners (“USAP”) in September 2023, alleging that the companies had engaged in a roll-up scheme by systemically buying up a dozen anesthesia practices in Texas to create a dominant provider, in violation of antitrust laws.

In May 2024, a federal district court dismissed the FTC’s case against Welsh Carson on procedural grounds, on the basis that Welsh Carson no longer held a majority position in USAP. Nevertheless, the FTC had continued to pursue administrative action against Welsh Carson.   Welsh Carson did not admit to any wrongdoing, but under a proposed Consent Order agreed to (among other actions):

• Limit its go-forward role in USAP, by freezing its investment in USAP at current levels and reducing its board representation to a single, non-chair seat.
• Obtain prior approval from the FTC in the event that it seeks to invest in or acquire any ownership interest in any other anesthesia business in the US, as well as prior approval for certain acquisitions by any majority-owned Welsh Carson anesthesia group nationwide.
• Provide 30-days advance notice for certain transactions involving other hospital-based physician practices.

Contrasting views on the role of private equity  

The Democratic Commissioners issued a joint statement in connection with the settlement, referring to Welsh Carson’s allegedly illegal “roll-up” strategy as just one example of a broader industry trend of “serial acquisitions and other stealth acquisitions.” The Commissioners claimed that such a gradual and incremental consolidation of power has in the past “sidestepped antitrust review,” but that the settlement with Welsh Carson “builds upon [the agencies’] significant programmatic advances in addressing serial acquisitions,” which include targeted provisions in the 2023 Merger Guidelines, increased investigations of transactions involving private equity firms, and informal steps toward advancing rulemaking aimed at private equity firms’ strategies.

By contrast, though the Republican Commissioners concurred in reaching the settlement, they disputed that this “case is extraordinary because it involves ‘private equity’ and ‘serial acquisitions…’” To the contrary, the Republican Commissioners – who will soon be in the majority – wrote that Welsh Carson’s status as a private equity firm was “irrelevant” and that the firm’s alleged actions were flatly prohibited by Section 7 of the Clayton Act.

The global picture

This focus on private equity roll-up strategies is not limited to the US.  In the UK, for example, the Competition and Markets Authority (“CMA”) has previously identified roll-up acquisitions by financial investors, such as private equity firms, as an enforcement priority.  The CMA has investigated a number of completed transactions in the dentistry and veterinary sectors involving an acquirer controlled by one or more private equity firms, applying its jurisdictional test expansively and requiring significant structural divestments. 

In Australia, a new mandatory and suspensory merger notification regime was enacted in October 2024, to replace the existing voluntary regime.  The new regime includes turnover thresholds specifically designed to address serial acquisitions, with a requirement to take account of cumulative Australian turnover from acquisitions in the same market over a three-year period.  The new regime will formally commence on 1 January 2026, with voluntarily notification available from 1 July 2025.

Moreover, while not specific to the issue of serial acquisitions, a number of jurisdictions have also introduced, or are in the process of introducing, reforms aimed at increasing scrutiny over smaller mergers. While the drivers for such reforms, discussed in our previous post, have centred on concerns about acquisitions of nascent potential competitors (so-called ‘killer acquisitions’), particularly in the digital sector, the reforms may also assist the authorities to identify and address serial acquisition patterns due to their focus on smaller transactions.  Indeed, the head of the Dutch competition authority has specifically called for the agency to be given powers to review below threshold mergers for this purpose, citing concerns around private equity roll-up strategies.

Practical takeaway

The Republican Commissioners made clear in their statement on the Welsh Carson settlement that they do not share their Democratic colleagues’ perceived “antipathy toward private equity.”  While this will come as welcome news to private equity firms, the Commissioners also made clear that acquisitions – “serial” or not – will continue to be closely scrutinized.

Moreover, the expansion of HSR premerger filing requirements – set to go into effect on February 10, 2025 – will impose heightened disclosure requirements on filers, including certain disclosures targeting roll-up strategies in particular. For instance, the new rules will require buy-side and sell-side HSR filers to disclose information about prior acquisitions within the last five years.

Alongside continued scrutiny in other jurisdictions, these developments highlight that companies should be aware of the risks of antitrust enforcement when planning multiple deals in the same sector (regardless of size), and ensure that individual deal feasibility is not assessed in isolation.