On May 23, 2024, the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”) Antitrust Division announced a Request for Information (“RFI”) seeking information from the public to “identify serial acquisitions and roll-up strategies throughout the economy that have led to consolidation that has harmed competition.”

This is the latest action by the Biden administration to enforce against corporate consolidation more aggressively. The FTC and DOJ claim that serial acquisitions are particularly troublesome because a company can become “larger” and “potentially dominant” through a series of smaller acquisitions that fall below the Hart-Scott-Rodino (“HSR”) thresholds and therefore are not subject to pre-closing agency review or oversight. According to the FTC, through these smaller deals, firms can “amass significant control over key products, key services, and/or labor.”

The focus on serial acquisitions is not new. The new Merger Guidelines and changes to the HSR filing process highlight the administration’s concern with these types of acquisitions. The FTC has recently brought multiple cases based on alleged roll-up strategies, one of which recently met headwinds in court and another that advances a novel view of competition. And agency leadership has repeatedly emphasized their views that this is a priority area of focus. FTC Chair Lina Khan vowed to take a “muscular” approach to PE enforcement,[1] and DOJ Antitrust Division head Jonathan Kanter declared that “the era of lax enforcement is over.”[2]

Public comments in response to the RFI could prompt investigations of past acquisitions. But this RFI is unlikely to otherwise meaningfully change or increase the current agencies’ enforcement efforts.

Information Sought by RFI

The RFI seeks information from the public on serial acquisitions and roll-up strategies, which the FTC describes as companies becoming larger and potentially more dominant by buying several smaller firms in the same or related business sectors or industries. The RFI seeks information on all sectors, but specifically references housing, agriculture, defense, cybersecurity, distribution, construction, aftermarket/repair, and professional services markets.

The RFI requests information from consumers, workers, businesses, advocacy organizations, professional and trade associations, elected officials, and academics or other experts on:

• Examples of serial acquisitions;

• The effects that serial acquisitions have had on competition, pricing, customers, suppliers, and workers;

• Anticompetitive conduct by companies engaged in serial acquisitions such as below-cost pricing, bundling or tying products and/or services, refusing to deal with competitors, actual or threated litigation to force mergers, and price discrimination among customers;

• Claimed business objectives of serial acquirers such as cost savings, more innovation, and other efficiencies; and

• The role and actions of private equity firms after acquisitions in managing businesses and driving additional acquisitions.

Perspectives from the FTC

Michael Arin, an attorney in the FTC’s Health Care Division, emphasized that serial acquisitions and roll‑up strategies are of growing interest to the agencies, and this RFI is part of a multi-step effort to increase enforcement against illegal and anticompetitive consolidation. The FTC’s recent actions include (1) a 2022 policy statement regarding the scope of Section 5 of the FTC Act, which specifically calls out this same behavior as a potentially illegal unfair method of competition; (2) revised 2023 Merger Guidelines, which expressly recognize that firms engaging in anticompetitive serial acquisition strategies in the same or related business lines may violate Section 7 of the Clayton Act; (3) a proposal to amend HSR filing requirements to require disclosure of more information on each party’s prior acquisition history; and (4) a similar joint inquiry into serial acquisitions in the healthcare industry.

At the Open Commission Meeting during which the RFI was announced, Chair Khan echoed Arin’s sentiments about FTC’s longstanding but growing concern on serial acquisitions. Commissioner Bedoya reiterated his particular interest in health care, and Commissioner Ferguson highlighted interest in effects of roll-ups in rural communities.

The FTC’s Recent Challenges of Serial Acquisitions

This focus on serial acquisitions is not new, and there have been multiple recent relevant enforcement actions consistent with the agencies’ focus on these types of deals. During the Open Meeting, Chair Khan referenced the FTC’s ongoing case in the U.S. District Court for the Southern District of Texas against U.S. Anesthesia Partners, Inc. (“USAP”) and Welsh, Carson, Anderson, & Stowe (“Welsh Carson”),[3] a minority investor in USAP. Chair Khan cited the court’s denial of USAP’s motion to dismiss as an auspicious decision for its case and FTC’s larger effort in challenging serial acquisitions. In that case, the FTC alleges that Welsh Carson orchestrated an anticompetitive roll-up strategy to consolidate and monopolize anesthesia services in Texas, which was carried out by USAP. Chair Khan framed Judge Hoyt’s May 13, 2024 Order[4] denying USAP’s motion to dismiss as a “win” for the FTC. However, Judge Hoyt granted private equity firm Welsh Carson’s motion to dismiss, finding that Welsh Carson’s minority investment in USAP was distinguishable from other cases attributing a violation to a parent company. Judge Hoyt also found that the FTC failed to make any factual allegations that Welsh Carson was about to violate the antitrust laws—the FTC did not show that Welsh Carson plans on re-upping its investment and acquiring a greater stake in USAP.

Welsh Carson’s 23% minority ownership stake in USAP was not a strong enough hook for an “ongoing violation” under the FTC Act, and the court found that a mere capacity to do something does not equate to likely recurrence. Instead, any ongoing scheme would be carried on by USAP itself, and not of Welsh Carson even if Welsh Carson had the “blueprints, finances, and personnel to continue to scheme.”

In addition, the FTC recently sued to block the proposed $8.5 billion acquisition by Tapestry, Inc. (“Tapestry”) of Capri Holdings (“Capri”), a deal that, according to the FTC, “seeks to combine three close competitors – Tapestry’s Coach, Stuart Weitzman and Kate Spade brands and Capri’s Michael Kors brand.” The FTC Complaint accuses Tapestry, which acquired Stuart Weitzman in 2015 and Kate Spade in 2017, of “engag[ing] in a [decade-long] anticompetitive pattern and strategy of acquisitions in the ‘accessible luxury’ market and intend[ing] to continue this pattern and strategy.”[5] According to the FTC, because of “Tapestry’s pattern of serial acquisitions, the acquisition of Capri will further entrench Tapestry’s stronghold, making it harder for new brands to both enter the market and have a meaningful presence.” The FTC further alleged that Tapestry will likely use leverage gained from the Capri acquisition to make further acquisitions in the future. The FTC’s focus on this strategy is particularly noteworthy because of the arguable number of competitive handbag brands. In Tapestry’s Answer, it cited over 150 competitive brands in the marketplace, underscoring the potential headwinds that an FTC case would have to overcome.

Conclusion

The RFI reiterates the agencies’ focus on serial acquisitions, labor markets and employees, big companies harming or eliminating smaller players, and renewed Robinson-Patman Act enforcement.

The comment period is open and ends on July 22, 2024. Comments submitted in response to this RFI will inform the agencies’ enforcement priorities and future actions. This RFI appears to be another step in laying a foundation for the agencies to scrutinize mergers in certain industries with active acquisition histories and ask additional questions about consolidation in industries when reviewing mergers. The agencies could also start an in-depth study like with pharmacy benefit managers, try to issue a rulemaking, or open investigations into specific industries or companies. The agencies could even sue to unwind certain consummated mergers as they have done for Meta, Google, and USAP.

Key Takeaways

In light of this RFI, private equity firms and companies that engage in iterative, strategic acquisitions should consider the following:

• Monitor public comments – The information gathered from this RFI will be public. You can find it at Regulations.gov. It is possible that comments about your company’s recent acquisitions, or deals within your industry, will be submitted.
• Assess your company’s antitrust risk – If your company has engaged in these types of acquisitions, consider your company’s (1) holdings in companies that compete in the same products within the same geographies; (2) historical acquisition timeline; (3) portfolio of companies and their competing products and services; and (4) internal documents, communications, and business records discussing acquisitions.
• Be aware of the agencies’ ongoing interest in this area – Even if your past and future acquisitions did not or will not meet the HSR reporting threshold, any of these acquisitions may become the subject of an agency investigation requiring production of documents, testimony, and other information related to the acquisition(s).

[1] Stefania Palma, Mark Vandevelde, and James Fontanella-Khan, Lina Khan vows ‘muscular’ US antitrust approach on private equity deals, Financial Times.

[2] Jonathan Kanter, Assistant Attorney General, Antitrust Division, United States Department of Justice, Keynote Address at the University of Chicago Stigler Center: Antitrust Enforcement: The Road to Recovery (April 21, 2022).

[3] Complaint, FTC v. U.S. Anesthesia Partners, Inc., No. 4:23-cv-03560 (S.D. Tex. Sept. 21, 2023).

[4] Memorandum Opinion and Order, FTC v. U.S. Anesthesia Partners, Inc., No. 4:23-cv-03560 (S.D. Tex. May 13, 2024).

[5] Complaint, FTC v. Tapestry, Inc., No. 1:24-cv-03109 (S.D.N.Y. Apr. 23, 2024).

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