RFI builds on Agencies’ expansive theories of merger enforcement and President Biden’s “whole-of-government” approach to competition
The May 2024 RFI is in-line with the Agencies’ shift towards a holistic approach to analyzing transactions that considers not only the immediate competitive effects of the transaction, but also the acquiror’s history and current or future strategic initiatives. The 2023 Merger Guidelines—finalized by the Agencies in December 2023— specifically address serial acquisitions. Guideline 8 provides that “. . . Agencies may evaluate the series of acquisitions [in the same or related business lines] as part of an industry trend [] or evaluate the overall pattern or strategy of serial acquisitions by the acquiring firm collectively under Guidelines 1-6.” Guideline 8 empowers the Agencies to take a more holistic approach by allowing serial acquisitions to be aggregated and analyzed cumulatively during the merger review process, making it easier for the Agencies to reach the threshold presumption of illegality.
In addition, the FTC posited in a 2022 policy statement that “a series of mergers or acquisitions that tend to bring about the harms that the antitrust laws were designed to prevent, but individually may not have violated the antitrust laws” falls within the agency’s authority to target “unfair methods of competition” under Section 5 of the FTC Act. While the FTC has not yet tested its expansive theory of Section 5 authority as it pertains to serial acquisitions, it has laid the groundwork for doing so.
By expanding the focus of the May 2024 RFI beyond the health care markets to encompass “serial acquisitions in all sectors and industries in the U.S. economy,” the Agencies are also in step with President Biden’s “whole-of-government” approach to promoting competition. This approach was outlined in President Biden’s 2021 Executive Order on Promoting Competition in the American Economy, which highlighted several of the administration’s competition policy priorities and directed a number of federal agencies to address concerns about the effects of increased consolidation on workers and consumers across various sectors of the U.S. economy.
Previous RFI on consolidation in health care markets
In March of 2023, the FTC hosted a public workshop “to examine the role of private equity investments in health care markets.” During the workshop, several panelists and speakers discussed the impact of roll-ups and serial acquisitions on competition. Coinciding with this public workshop, the FTC issued a joint request for information with DOJ and the Department of Health and Human Services (HHS) seeking public comment on the impacts of corporate ownership in health care and consolidation in health care markets (the Health Care RFI). The Health Care RFI was intended to help the Agencies “understand how certain health care market transactions may increase consolidation and generate profits for firms while threatening patients’ health, workers’ safety, quality of care and affordable health care for patients and taxpayers.” The Health Care RFI reflects the Agencies’ concerns regarding transactions across the continuum of health care, including those transactions that are not reportable under the Hart-Scott-Rodino Act (HSR Act).
May 2024 RFI
The May 2024 RFI expands upon the Health Care RFI by broadening the scope of the information requested beyond health care markets to information from the public on serial acquisitions “in any sector or industry in the U.S. economy. . .” The stated purpose of this RFI is to “inform the Agencies’ enforcement priorities and future actions.” The May 2024 RFI emphasizes the Agencies’ commitment to “ensur[ing] [the Agencies’] tools keep pace with changes in how firms do business.”
The first part of the May 2024 RFI asks the public to identify examples of serial acquisitions in which “a company, either individually or through affiliates, pursued a serial acquisition strategy.” Although the May 2024 RFI seeks information from the public on serial acquisitions in any sector or industry, the RFI specifically references the following industries:
The May 2024 RFI also cites examples of several markets the Agencies contend have witnessed consolidation as a result of serial acquisition and roll-up strategies. These include:
The May 2024 RFI broadly seeks information on how serial acquisitions may affect competition. The Agencies will use the information gathered from the May 2024 RFI to investigate serial acquirors based on various theories of competitive harm articulated in the 2023 Merger Guidelines. Below are a few examples of questions posited in the RFI and the corresponding sections from the 2023 Merger Guidelines on which the Agencies might base their theories of harm, in addition to Guideline 8:
RFI Question: How have serial acquisitions affected competition within the industry?
Corresponding Guideline: Mergers Can Violate the Law When they Eliminate Substantial Competition Between Firms. See Guideline 2.
RFI Question: Have you witnessed any actual or attempted coordination or collusion between competitors that you did not notice prior to the serial acquisition?
Corresponding Guideline: Mergers Can Violate the Law When They Increase the Risk of Coordination. See Guideline 3.
RFI Question: How have serial acquisitions affected workers at the acquired companies?
Corresponding Guideline: When a Merger Involves Competing Buyers, the Agencies Examine Whether It May Substantially Lessen Competition for Workers, Creators, Suppliers, or Other Providers. See Guideline 11.
RFI Question: How have serial acquisitions and the resulting market consolidation affected actual or potential competitors?
Corresponding Guideline: Mergers Can Violate the Law When They Eliminate a Potential Entrant in a Concentrated Market. See Guideline 4.
RFI Question: How have serial acquisitions affected suppliers of the consolidating firm.
Corresponding Guideline: Mergers Can Violate the Law When They Create a Firm that May Limit Access to Products or Services That Its Rivals Use to Compete. See Guideline 5.
In addition to requesting public comment on economic sectors impacted by serial acquisitions, the May 2024 RFI also asks the public for examples in which a serial acquirer engaged in certain anticompetitive business practices that could be challenged under Sections 1 and 2 of the Sherman Act. These include, but are not limited to:
The May 2024 RFI also asks about the claimed business goals and objectives of serial acquisition strategies and whether the goals and objectives were realized post-transaction. This question seeks to assess the pro-competitive justifications that may be offered by the acquiring firm to rebut assertions that serial acquisitions may substantially lessen competition or tend to create a monopoly.
The final question of the May 2024 RFI is specific to serial acquisitions executed by private equity firms, and focuses on ownership and control. This request seeks information on the role of private equity investors in evaluating and executing serial acquisitions and managing acquired firms post-transaction. Additionally, the request seeks information regarding control, including (i) whether the investor(s) maintain a majority or minority ownership stake in the acquired businesses, and (ii) whether the investor(s) exercise control over acquired businesses through voting rights (including proxies), directors on the company’s board, or other means.
Takeaways
The public will have until July 22, 2024 to submit comments at Regulations.gov in response to the May 2024 RFI, and submitted comments will be posted online and made available to the public. The comments will likely inform the strategy and scope of the Agencies’ approach to challenging serial acquisitions under the antitrust laws. However, it remains to be seen whether the courts will embrace the Agencies’ efforts to analyze serial acquisitions in aggregate rather than as separate transactions.
The Agencies are already pursuing investigations targeting alleged serial acquisitions. Recent examples of such investigations include DOJ’s May 2024 complaint against Live Nation Entertainment, Inc. and Ticketmaster L.L.C.1 and the FTC’s April 2024 challenge of Tapestry, Inc.’s proposed acquisition of Capri Holdings Limited.2 Corporate actors should monitor for areas where their acquisition strategies may create risk of antitrust scrutiny. Private equity firms and other public or private firms that are acquisitive may be most likely to face serial acquisition claims. Firms in the sectors or industries specifically called out in the RFI (or in the forthcoming public comments) may face specific risk of investigation. However, despite the Agencies’ stated policy goals and even with the new 2023 Merger Guidelines, the Agencies’ antitrust claims based on serial acquisition theories will still need to be supported by traditional evidence such as high market shares and market concentration to persuade a court. Further, as noted above, the May 2024 RFI and the Agencies’ broader focus on serial acquisitions reflects the policy goals of the Biden Administration’s “whole-of-government” approach to promoting competition. With the presidential election just around the corner, a potential change in leadership could result in a change in the Agencies’ focus as it relates to merger enforcement.
*(Hogan Lovells 2024 Summer Associate).
References
1 See Complaint ¶ 116, U.S. v. Live Nation Entertainment and Ticketmaster LLC, 24-cv-03973 (S.D.N.Y.) available here (“In its own words: ‘Live Nation is a company founded on acquisition. At its inception, Live Nation began rolling up the regional world of promoters and venues and has not stopped since.’ Over the past decade, Live Nation has acquired dozens of companies across the industry to expand its reach and entrench its positions.”)
2 See FTC Moves to Block Tapestry’s Acquisition of Capri, Federal Trade Commission, April 22, 2024, available here (FTC press release alleges that Tapestry had a “pattern of serial acquisitions” and that acquisition of Capri would “further entrench Tapestry’s stronghold.”).
