After years of strong rhetoric, the Federal Trade Commission has announced new enforcement targeting what they describe as a scheme to suppress competition through a series of non-reportable roll-up and bolt-on acquisitions. On September 21, the FTC filed a complaint against U.S. Anesthesiology Partners (USAP) and its largest investor, private equity firm Welsh, Carson, Anderson & Stowe (Welsh Carson). The complaint alleges that the two conspired to monopolize anesthesiology services in Texas by rolling-up individual practices and “systematically buying up nearly every large anesthesia practice in Texas to create a single dominant provider.” The FTC alleges Welsh Carson devised this scheme in setting up USAP in 2012 and continued to control, direct, dictate, or encourage USAP’s conduct after it sold down its interests in the company. The FTC also alleges that USAP entered into price fixing agreements with independent anesthesiology practices and agreed with a potential competitor to stay out of the market.

While the lawsuit presents novel theories of antitrust law and liability, it also comes as little surprise given the FTC’s longstanding focus on healthcare and its skepticism of private equity. This case tests the theories of harm the agencies have been developing to challenge serial acquisitions. If successful, bolt-on transactions will be more challenging. The complaint also pushes the boundary for holding an investment fund liable for the conduct of its portfolio company. Accordingly, private equity houses should keep an eye on the activities of their portfolio companies and consider whether such activities raise risks.

Spotting serial acquisitions & roll-ups

The FTC complaint comes amid increased scrutiny of serial transactions and private equity “roll-up” strategies both globally and at home. According to the FTC, roll-ups are a series of acquisitions generally aimed at consolidating unconcentrated sectors. Individual transactions valued below the jurisdictional threshold (currently $111.4 million) would not trigger merger filings and may not be publicly announced, meaning that those transactions are unlikely to be detected by the agencies absent customer or other complaints.

Regulators have nonetheless found ways of monitoring such activity. The FTC reinstated a prior approval policy for non-reportable mergers in concentrated markets in 2021 and has since included prior notice or approval provisions in two consent decrees last year. Notably, the consent decrees related to a private equity roll-up strategy addressing veterinary services and covered geographic areas broader than the areas at issue. Outside the United States, regulators have also found novel methods of targeting transactions under their own reporting thresholds.

Recent amendments proposed to the HSR form are further intended to expand reporting requirements for past transactions that can highlight patterns of acquisitions where one transaction is later reportable. In addition, the proposed amendments require the buyer and the target in a transaction with product overlaps to report prior acquisitions in the last 10 years of entities or assets that have sales in the overlap areas.

Pushing the bounds of established law

The case against Welsh Carson is yet another example of the antitrust agencies’ newly aggressive interpretations of the antitrust laws. The complaint seeks to push the bounds of caselaw on monopolization, anticompetitive transactions, and unfair competition. Indeed, the enforcement picks up on themes highlighted in the agencies’ largely aspirational proposed Merger Guidelines that are seeking to push the law on these issues.

The case also challenges multiple acquisitions in a single geographic market as anticompetitive acquisitions under Section 7 of the Clayton Act. Rather than looking at individual transactions, which might not have had a substantial effect on competition, the complaint aggregates three “tuck-in acquisitions” in Houston and six in Dallas to look at the effect on each regional market. This stance reflects recent agency policy initiatives: the agencies’ proposed Merger Guidelines indicate that serial acquisitions will be evaluated together rather than separately. The case also picks up on the FTC’s Section 5 policy statement last year, proposing that serial acquisitions constitute unfair methods of competition, potentially as a standalone claim.

The FTC alleges that Welsh Carson’s roll-up constitutes monopolization. The FTC alleges that USAP acquired market power in the Houston and Dallas markets through its early acquisitions. As a result, the complaint posits that all its subsequent acquisitions therefore constitute illegal monopolization under Section 2 of the Sherman Act. This approach draws from the FTC’s case against Meta and is consistent with statements in the proposed Merger Guidelines that would make all deals by a firm with a 30% or greater market share presumptively unlawful.

Reaching past the portfolio company

The FTC charged the private equity fund itself, alleging that Welsh Carson controlled and directed USAP’s activity. However, that conclusion is not obvious. According to the complaint, Welsh Carson initially had formal control when it founded USAP in 2012, but that share was soon diluted to less than 50% and now sits at 23%. The agency also seeks to establish an active role for Welsh Carson in the relevant conduct.

The FTC asserts that Welsh Carson “maintained control in all practical respects” despite its lack of formal control. According to the FTC, Welsh Carson controlled the voting rights of other USAP shareholders and worked closely with USAP to provide strategic, operational, and financial support its acquisition activity through management agreements. Furthermore, Welsh Carson appointed at least two USAP directors, including the chair, until 2017. Those appointees allegedly signed deal documents, led negotiations, and directed Welsh Carson employees outside of USAP to assist USAP’s activities. These creative arguments for “constructive” control demonstrate the FTC’s determination to target private equity funds and management, in addition to the acquiring portfolio company.

Conclusion

This FTC lawsuit will test the boundaries of antitrust law. Because the full limits of Section 2 monopolization and standalone Section 5 claims are not well-defined, they present an avenue for the agencies to press their aggressive and recently articulated view of antitrust law. If successful, this lawsuit could also widen the range of enforcement targets by expanding liability even to minority stakeholders if they are deemed sufficiently involved in the activities of the acquirer.

Private equity houses and portfolio companies contemplating successive bolt-on transactions should carefully assess if a proposed acquisition will tip the scales into competitive harm or even monopoly. In addition, private equity houses should understand that if they participate in the strategic business decisions of their portfolio companies, the agencies could view them as responsible for their alleged antitrust violations.

Notably, this case began as a conduct investigation into alleged price-fixing and market allocation agreements and morphed into a monopolization case based on merger activity. The likelihood of an investigation of serial acquisitions will be heightened if the acquirer may have engaged in anticompetitive conduct.