Key takeaways 

• This ruling is a major victory for private equity investors and a blow to the FTC’s enforcement efforts in this space. The court ruled that having a 23% equity stake in, and minority representation on the board of, an operating entity that allegedly engaged in activity that violates federal antitrust law cannot support a finding of liability for the private equity investor — even where the private equity investor helped to establish the operating entity and devised the acquisition strategy that allegedly violated antitrust law.

• The case against USAP is proceeding and companies should carefully consider the risk of antitrust enforcement when pursuing any "roll-up" acquisition strategies. Despite the FTC's loss in this case, the FTC will continue to prioritize enforcement against "roll-up" acquisition strategies, particularly in the healthcare sector. Only days after this decision, the FTC released an agenda for an upcoming meeting that clarified its intent to continue scrutinizing "roll-up" acquisitions.

In depth

In granting WCAS’s motion to dismiss, the court reasoned that the FTC has limited authority to bring cases against minority investors when it alleges potential and ongoing antitrust violations. The court held: "[t]he FTC has not cited a case in which a minority, noncontrolling investor — however hands-on — is liable ... because the company it partially owned made anticompetitive acquisitions."¹ The court continued: such a holding "would expand the FTC's reach further than any court has yet seen fit; it would also expand liability to minority investors whose subsidiaries reduce competition. This Court will not adopt this novel interpretation."² The court also highlighted that "the FTC does not cite any authority for the proposition that receiving profits from an entity that may be violating antitrust laws is itself a violation of antitrust laws."³  Finally, the court found that WCAS's continued minority position and its ability to increase its investment in, and/or retake control of, USAP could not establish that WCAS is "about to violate" federal antitrust law. The court succinctly stated: "[t]he mere capacity to do something does not meet the requirement that the thing is likely to recur."⁴ 

The court did, however, allow the case to proceed against USAP, denying its motion to dismiss, because USAP's "acquisitions constitute ongoing activity and plausibly contribute to the monopoly power and unfair competition that the FTC’s complaint alleges."

Despite WCAS's victory, it is possible for the FTC to initiate an administrative action against WCAS, or it could pursue similar allegations against minority private equity investors in different federal jurisdictions where it may find a more receptive jurist. Nevertheless, "roll-up" acquisition strategies remain an enforcement priority for the FTC. In fact, on 16 May 2024, FTC Chair Lina Khan released an agenda for an FTC Open Meeting on 23 May 2024.⁵  One of the agenda topics includes, "Staff Presentation on Roll-Up RFI" described as "a presentation on the Commission's Request for Information for public comment on corporate consolidation through serial acquisitions and roll-up strategies."⁶ Further, on 23 May 2024, the FTC and DOJ issued a Request for Information seeking public comment about serial acquisitions and roll-up strategies.⁷ The FTC's Director of the Bureau of Competition, Henry Liu, published a blog post the same day highlighting the agency's focus on roll-up strategies.  He stated that "[s]erial acquisitions that eliminate small competitors over time can have serious consequences for consumers, workers, and businesses [and noted that o]nce the antitrust agencies detect that a firm is relying on a strategy of serial acquisitions to buy up small competitors, they can take action."⁸ Private equity firms and other companies considering or pursuing a "roll-up" strategy should remain diligent and seek advice from counsel to minimize antitrust risks. 

1 Order, FTC v. US Anesthesia Partners, Inc., et al., No. 4:23-CV-03560 (S.D. Tex. May 13, 2024) (ECF No. 146).

2 Id. at 12-13.

3 Id. at 9.

4 Id. at 15.

5 See Press Release, Federal Trade Commission, FTC Announces Tentative Agenda for May 23 Open Commission Meeting (May 16, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/05/ftc-announces-tentative-agenda-may-23-open-commission-meeting.

6 Id.

7 Press Release, FTC and DOJ Seek Info on Serial Acquisitions, Roll-Up Strategies Across U.S. Economy, FTC (May 23, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/05/ftc-doj-seek-info-serial-acquisitions-roll-strategies-across-us-economy?utm_source=govdelivery.

8 Henry Liu, Slow the Roll-Up: Help Shine a Light on Serial Acquisitions, FTC.GOV COMPETITION MATTERS BLOG (May 23, 2024), https://www.ftc.gov/enforcement/competition-matters/2024/05/slow-roll-help-shine-light-serial-acquisitions?utm_source=govdelivery.