The FTC and Roll-Ups
One of the industries that has seen a lot of rollups recently is healthcare (we did a case study in an adjacent field, veterinary medicine). The problem with this activity? The current head of the FTC, Lina Khan, isn’t keen on all that activity.
Prior to her appointment Khan got a lot of attention for her article, Amazon and the Antitrust Paradox, in which she argues, among other things, that America’s antitrust legislation is outdated. Indeed, it was articles like that which spotlighted her for a role in which she would get to put her theories to the test.
A couple weeks ago news broke that after the FTC began an investigation of private equity firms acquiring small medical practices, acquisitions of such firms are down (down over 20% year on year). Unsurprisingly, this has had a downstream effect on valuations of those healthcare firms that could have been acquired in a roll-up market environment.
In these cases the FTC cites concerns about reduced competition, higher costs, and lower quality of care as the specific reasons for the investigation into whether these roll-ups are, as they suspect, harmful to the US economy in general. Now, regulatory scrutiny can slow down deals (and make them pricier), but it doesn’t make them impossible.
And the FTC hasn’t exactly been on a winning streak with these cases, anyway.
One of the cases that recently featured a win/loss was Federal Trade Commission v. U.S. Anesthesia Partners Inc and Welsh, Carson, Anderson & Stowe et al, U.S. District Court for the Southern District of Texas, No. 4:23-cv-03560. The court dismissed the case against Welsh, Carson, Anderson & Stowe (the acquirers), saying that the FTC “had not shown how Welsh Carson as a minority investor in the acquisitions was actively violating competition law,” but ordered that the case against US Anesthesia Partners could be pursued, saying that the FTC had “plausibly alleged acquisitions resulting in higher prices for consumers.”
What is Khan’s strategy anyway? Robert H. Bork Jr. recently opined that she might be trying to “win by losing,” allowing the cases to signal to Congress that laws need to be changed. Whatever her strategy, as we already noted, that shouldn’t really affect deals in the medium to long term, while in some cases interest rates could be slow-walking deals in the short-term (though, as we have noted, good businesses sell in any interest-rate environment). If the FTC starts actually winning these cases or Congress does change laws, that’s when we’ll see major market effects, as we saw in health care after the Affordable Care Act.
