FTC Challenges Private Equity Roll-Up Acquisition Strategy

By Colin P. Ahler and Eric L. Kintner 

A recent U.S. Federal Trade Commission (“FTC”) antitrust lawsuit against a private-equity owner of a large anesthesiology practice in Texas demonstrates that the FTC has begun to implement its more aggressive focus on the perceived competitive harms caused by certain “roll-up” acquisition strategies.

Private equity firms commonly employ roll-up strategies involving the serial acquisition of multiple companies in a single market and consolidation under a single entity. This strategy is frequently seen, for example, in the health care industry. According to the proposed Merger Guidelines released by the U.S. Department of Justice (“DOJ”) and the FTC on July 19, 2023, “a firm that engages in an anticompetitive pattern or strategy of multiple small acquisitions in the same or related business lines may violate [the antitrust laws], even if no single acquisition on its own would risk substantial lessening of competition.”

On September 21, 2023, the FTC filed suit in a federal district court in Texas to challenge a roll-up strategy, asserting that a private equity firm’s serial acquisition of multiple anesthesiology practices in Texas violated federal antitrust law. In its complaint, the FTC alleges that, through this consolidation, the private equity firm was able to obtain monopoly power over the markets for anesthesiology services in several large metropolitan areas in Texas and significantly drive up the prices for such services. The FTC further alleges that the defendants advanced their anti-competitive scheme by combining their roll-up strategy with: (1) price-setting arrangements with independent anesthesia providers in Houston and Dallas; and (2) a market allocation agreement that avoided competition with another large anesthesia provider. 

The FTC named as defendants the private equity firm that devised the roll-up strategy as well as the entity it formed to acquire the anesthesiology practices. For relief, the FTC requested an injunction or other structural relief that would prevent future antitrust violations. 

The same day the FTC filed this complaint, the Chair of the FTC, Lina Khan, published an op-ed in the Financial Times discussing the FTC’s reasons for bringing this case and the broader implications.¹This op-ed repeatedly emphasized the pervasiveness of roll-up strategies across the country and their consequences on competition. For instance, Chair Khan explained: “What happened in Texas is happening across the US. In recent years, private equity firms have made serial acquisitions across markets — from nursing homes and apartment buildings to emergency medicine clinics and opioid treatment centres.” She further noted that serial acquisition strategies are not unique to private equity firms but “have also been used by large technology companies and others to consolidate control over certain markets.”  

Chair Khan also described how roll-up strategies have traditionally evaded antitrust scrutiny because these strategies are often “executed through a series of smaller acquisitions, in which each may fall below the dollar threshold that triggers reporting to federal antitrust agencies.” Chair Khan opined that the FTC must continue to update its approach and the tools in its antitrust arsenal “to keep pace with new business realities.”

Chair Khan’s publication of this op-ed, in tandem with the filing of the suit in Texas and the release of the proposed merger guidelines, indicates that roll-up strategies will continue to be an area of antitrust focus for the FTC and DOJ. This focus could impact not only private equity firms but any other companies that use roll-up strategies.