The FTC is Ramping Up Antitrust Enforcement Actions. Is Your Roll-up in the Crosshairs?

In recent months, there has been a significant uptick in antitrust enforcement actions, grabbing the attention of legal practitioners and businesses alike. One notable example is the recent action by the Federal Trade Commission (“FTC”) alleging that U.S. Anesthesia Partners, Inc. (“USAP”) and private equity firm Welsh, Carson, Anderson & Stowe, which created USAP, engaged in a three-part strategy to consolidate and monopolize the anesthesiology market in Texas.

While increased antitrust scrutiny may raise concerns for some, it is important to provide clarity on how these developments impact the middle-market and lower-middle-market M&A landscape. One crucial aspect to consider is the high size-of-transaction and size-of-parties tests established under the Hart-Scott-Rodino (“HSR”) Antitrust Improvements Act. These tests play a vital role in determining whether a proposed transaction requires pre-merger notification to the FTC and the Department of Justice (“DOJ”).

Size-of-Transaction Test

Under the HSR Act, parties to certain transactions must submit pre-merger notification filings and observe a waiting period before closing. The size-of-transaction test is one of the key thresholds that trigger these requirements. Historically, the threshold for reporting transactions was set at $50 million. However, as of January 2023, it has increased significantly to $111.4 million. This means that M&A deals below this threshold are generally exempt from the HSR pre-merger notification requirement.

Size-of-Parties Test

In conjunction with the size-of-transaction test, the size-of-parties test is a key determinant in assessing whether a transaction necessitates notification under the HSR Act. Under the updated guidelines, when the size-of-transaction threshold is met, a triggering transaction typically requires that one party involved in the deal have assets or annual revenues of at least $222.7 million (increased from the previous threshold of $202 million), while the other party must have assets or annual revenues of at least $22.3 million (previously set at $20.2 million) to mandate an HSR Act filing.

However, it’s important to note that if the size of the transaction exceeds $445.5 million (up from the prior threshold of $403.9 million), the size-of-parties test becomes immaterial. In such cases, parties are obliged to file an HSR Act notification, regardless of their respective assets or annual revenues.

Why It Matters for Middle-Market and Lower-Middle-Market Deals

While increased antitrust enforcement is a notable trend, it’s crucial to understand how these developments impact different segments of the M&A market. The higher size-of-transaction and size-of-parties thresholds under the HSR Act provide significant relief for middle-market and lower-middle-market deals, reducing regulatory burdens and allowing businesses in these segments to focus on their strategic objectives.

Furthermore, while increased antitrust enforcement actions, such as the FTC’s recent challenge to private equity firms, may capture headlines, it’s important to recognize that these actions often pertain to transactions involving larger entities with a more significant impact on competition. Middle-market and lower-middle-market deals typically fly under the radar of such enforcement actions due to their smaller scale.