ICLE Comments to FTC and DOJ on Corporate Consolidation Through Serial Acquisitions and Roll-Up Strategies
Executive Summary
We appreciate the opportunity to respond to this request for information on corporate consolidation through serial acquisitions and roll-up strategies issued by the U.S. Justice Department (DOJ) and the Federal Trade Commission (FTC) (collectively, “the agencies”). We agree that robust competition across markets is critical to consumer welfare and the U.S. economy. The agencies have important roles to play in protecting competition and consumers against anticompetitive conduct—including, specifically, those mergers and acquisitions that have harmed, or are likely to harm, competition and consumers. We do not gainsay the importance of effective and efficient enforcement of the federal antitrust laws—including, but not limited to, the Clayton Act. Moreover, we recognize the substantial contributions that agency staff have made to such enforcement through systematic economic research and other policy studies.
While serial acquisitions and roll-up strategies merit further study, there is no apparent basis—in either the economic literature or the agencies’ enforcement experience—for any general changes to the procedures or substantive standards by which serial acquisitions are scrutinized. We also have concerns about the RFI’s approach and framing. The inquiry appears to presume that serial acquisitions tend to be harmful, without adequately acknowledging or requesting information on the potential procompetitive effects or efficiencies of such acquisitions. In addition, the broad scope of the inquiry, covering numerous industries and transaction types, may not yield sufficiently focused insights to inform policy initiatives going forward.
Our response comprises, at the highest level of generality, one observation and one recommendation. The observation is that, while serial acquisitions may constitute an important domain of merger scrutiny, neither enforcement experience nor the economic literature support any fundamental changes in procedural or substantive antitrust law or regulation for these types of transactions. Competition policy is not, and should not be, static. At the same time, sound policy reform is a difficult and iterative process, and one that requires a firm foundation in both research and enforcement experience, along with attention to established precedent.
Correspondingly, our overarching recommendation is that the agencies build on the substantial body of research regarding mergers and acquisitions that has been conducted over the course of several decades by agency staff and others. More specifically, we recommend that economic and policy staff at the agencies synthesize the existing body of research at their disposal. To be sure, market developments and developments in research methods and available data might suggest new avenues of research, as well as those in need of significant updates. But a serious, critical synthesis of the available literature will help to sharpen the agencies’ sense of new research demands, just as it will provide a basis from which to contemplate new enforcement initiatives.
This research-focused approach is particularly crucial for understanding serial acquisitions and roll-up strategies, given their complexity and likely variation across industries. In pharmaceuticals, for example, serial acquisitions may be a vital mechanism to bring innovations to market, while in other sectors they might raise more significant or more frequent competitive concerns. Only through rigorous, sector-specific research can the agencies develop a nuanced understanding of these strategies’ competitive effects.
Furthermore, we encourage the agencies to:
- Develop more focused and productive requests for information on critically important issues in serial acquisitions going forward.
- Recognize that sound policy reform requires a firm foundation in both research and enforcement experience, along with attention to established precedent.
- Be cautious about drawing general conclusions about whole industries, business models, or methods of acquisition, and more cautious still in condemning them.
- Consider the tradeoffs inherent in any new reporting requirements or regulatory approaches, carefully weighing potential benefits against the burdens imposed on businesses and agency resources.
The following sections elaborate on these points and provide specific responses to the RFI questions. Our goal is to encourage a more balanced, evidence-based approach to addressing potential competitive concerns arising from serial acquisitions and roll-up strategies, grounded in rigorous research and analysis.
I. Framing and Conceptual Problems
The role of an RFI should be to collect diverse objective data and perspectives that can help the agencies to better understand complex market dynamics within and across industries. Unfortunately, the current RFI appears to deviate from this purpose. The questions appear designed to elicit responses supporting a predetermined negative view of serial acquisitions, rather than to gather balanced information. It thus creates the unfortunate appearance that the agencies are primarily interested in collecting negative perspectives about serial acquisitions, rather than seeking to learn about their potential—and potentially varied—benefits and harms to competition and consumers.
A. The General Framing Suggests an Answer
The framing of this RFI seems, in many ways, conclusory. It does not suggest a neutral inquiry but, rather, raises significant concerns about bias in the agencies’ approach to serial acquisitions.
The RFI’s language often presumes negative outcomes from serial acquisitions. For instance, the document states that “some companies use serial acquisitions of small firms as a business strategy that can harm competition to the detriment of consumers, workers, and innovation in an industry or business sector without detection by the Agencies.”[1] This statement, presented in the background section, sets a tone that appears to prejudge the issue. It suggests that serial acquisitions are inherently harmful, without acknowledging potential procompetitive effects or efficiencies. After all, only 2% of all mergers subject to premerger notification receive second requests; moreover, a second request is not a complaint, much less a final decision that a proposed merger would be unlawful.[2] Do the agencies believe that the proportion of harmful mergers is higher for small acquisitions or multiple acquisitions by a given firm, whether within or across markets? If not, the presumption of harm seems misguided.
Similarly, several of the RFI’s questions are framed in ways that appear to seek confirmation of harm, rather than objective information. Question 2(c), for example, asks whether respondents have “witnessed any actual or attempted coordination or collusion between competitors that you did not notice prior to the serial acquisitions”[3]—a highly unscientific approach, both as a means of sampling and in that it assumes or suggests causality. Question 3 lists nine specific business practices, all of which are framed negatively, such as “[s]elling products or services below cost with the goal or effect of rivals or driving them out of the market.”[4]
Meanwhile, the agencies’ public outreach around the RFI betrays the same presumption of harm, as well as an apparent quest for enforcement targets, rather than better understanding. The subheading on both the FTC’s and DOJ’s press releases announcing the inquiry explicitly asks for information on harmful acquisitions: “Agencies launch public inquiry to identify serial acquisitions, roll-ups that have harmed competition, consumers, workers, and innovation.”[5] Both press releases also include similarly biased quotes from FTC Chair Khan, referring to “stealth consolidation schemes” and highlighting that “[f]irms can use serial acquisitions to roll up markets, consolidate power and undermine fair competition, all while jacking up prices and degrading quality.”[6] Of course, serial acquisitions, like any acquisition, can have these deleterious effects. But the plain implication in the agencies’ communications is that serial acquisitions (perhaps unlike other acquisitions) inherently do have these harmful characteristics.
As noted by former antitrust enforcers in their response to this RFI, “[a]lthough several questions take a neutral approach, many of them solicit negative information about acquisitions, and not one asks about any benefits.”[7] This imbalance is particularly striking, given the inquiry’s breadth and the fact that, as the former enforcers likewise highlight, the agencies have stated that “the vast majority of mergers are either procompetitive and enhance consumer welfare or are competitively benign.”[8]
This apparent bias in the RFI is disconcertingly reinforced by the agencies’ recent statements to the Organisation for Economic Co-operation and Development (OECD).[9] In those comments, the FTC stated that “[s]erial acquisition strategies which aim to achieve—or actually achieve—high market share, exclusion of competitors, suppression of wages, reduction in innovation, or pricing power may violate Section 2.”[10] The commission also noted that “[t]he Agencies are focused on enforcement against serial acquisition strategies.”[11]
If “may violate,” in this context, suggests mere possibility, it is uninformative: Any given acquisition may or may not run afoul of Section 2, as there is no recognized class of mergers that is per se lawful. But “may violate” here would appear to be more naturally read as a suggestion of suspicion, or a predisposition on the part of the federal enforcement agencies toward viewing serial acquisitions as inherently or likely problematic.
These statements, along with examples of enforcement actions, suggest that the FTC has already formed conclusions about the competitive effects of serial acquisitions and determined its enforcement approach. This predetermined stance would contradict the ostensibly open nature of the current RFI, which purports to seek objective information to inform policy, not to vindicate prior policy suspicions.
As enforcement agencies, the FTC and DOJ have a responsibility to be vigilant and duly skeptical when examining potential anticompetitive practices. Their mandate to protect competition and consumers necessitates scrutiny of business practices that could harm market dynamics. This skepticism is not only appropriate, but essential to their role. The RFI’s framing, however, appears to go beyond reasonable skepticism to approach presumption, if not prejudgment. While it is legitimate for the agencies to investigate practices they believe may be harmful, an RFI is a tool for gathering objective information to inform policy and to help establish enforcement priorities.
Careful information gathering, like systematic research, also requires a degree of skepticism about its own priors, including working hypotheses. The current framing lacks such balance or care, ahead of any specific findings or even preliminary analysis of data. For instance, while it is appropriate to ask about potential harms from serial acquisitions, a balanced inquiry would also—at a bare minimum—seek information about potential benefits or efficiency gains associated with or caused by such acquisitions. As noted, the current RFI’s lack of such balance suggests a predisposition toward finding harm, rather than an open-ended exploration of the complex competitive dynamics surrounding serial acquisitions.
This approach not only risks biasing the information received, but it may also undermine the credibility of the agencies’ ultimate enforcement efforts. Effective enforcement requires not just identifying anticompetitive practices but also understanding the full context in which business strategies operate. By appearing to presume harm from serial acquisitions, the agencies may miss important nuances that could inform more targeted and effective enforcement actions.
These concerns are especially troubling when viewed alongside, for example, the 2024 interagency RFI regarding consolidation in health-care markets[12] and the 2023 proposed changes to Hart-Scott-Rodino Act (HSR) rules.[13] As we pointed out in our comments to those inquiries, the workshop that accompanied the healthcare RFI “seems to have been conclusory by design.”[14] Similarly, the HSR rules would dramatically increase the burden of premerger notification, requiring extensive new information on labor markets, nonhorizontal relationships, and other areas—again, without clear evidence that such information is necessary or appropriate for effective merger screening.[15] Both of these initiatives, like the current RFI, suggest presumptions that mergers are unlawful far more often than they have proven to be. Both also suggest substantially increasing scrutiny and reporting burdens on merging parties without clear evidence that such measures are likely to identify anticompetitive harms.
The leading nature of this RFI’s questions, especially when considered alongside other recent agency actions, raises concerns about the objectivity of the agencies’ approach to serial acquisitions. We urge the agencies to adopt a more balanced, evidence-based approach that considers both the potential harms and benefits of these business strategies. Such an approach would be more consistent with established antitrust principles and more likely to yield insights that truly enhance the agencies’ ability to protect competition and consumer welfare.
B. Conceptual Issues
The RFI also suffers from conceptual issues—mostly concerning the question of what constitutes a “serial acquisition”—that would make subsequent enforcement based on these issues inherently arbitrary.
The RFI’s definition of serial acquisitions as “the same firm consolidating a fragmented market through a number of acquisitions, typically of many relatively small companies” lacks precision and raises several questions.[16] What constitutes a “number” of acquisitions? Over what period should these acquisitions be considered “serial”? How small must the acquired companies be to fit this definition?
Precise numerical answers to these questions are not required at this stage of the agencies’ inquiry, nor are fixed thresholds. Still, without clearer parameters—without some way to cabin the agencies’ inquiry—there is a risk of disparate and unfocused responses to the RFI. Further, a signal of overly broad agency scrutiny could chill legitimate business activity. For instance, two acquisitions over 14 years might be considered “serial” under a broad definition, yet such a pattern hardly suggests a systematic strategy to consolidate a market. Indeed, even within a given industry or sector, a considerably larger number of acquisitions and a narrower time frame may commonly be procompetitive or benign if they range across product or geographic markets.
Moreover, the difficulty in precisely defining “serial acquisitions” raises concerns about potential arbitrary enforcement. While wide-ranging requests for diverse inputs may be suitable for preliminary information gathering, clear, objective criteria are essential for rigorous study and more focused investigations and enforcement. Such criteria are also likely important to develop guidance for businesses to understand their obligations, and for consistent application of the law.
II. Do Serial Acquisitions Present Unique Competition Issues?
Many of the activities described as “serial acquisitions” are indistinguishable from normal patterns of business growth and consolidation in maturing industries. As a general matter, it is not clear why a company growing through multiple small acquisitions should be viewed differently than one growing “organically” or through fewer, larger acquisitions. This raises important questions about the agencies’ underlying theory of harm. If the concern is market concentration, this can manifest through various means, not just serial acquisitions. If the concern is the specific process of multiple small acquisitions, it’s unclear why this would be inherently more problematic than other forms of growth.
Recent research by Jonathan Cohn, Edith Hotchkiss, and Erin Tower sheds light on the motivations behind roll-up strategies in private-equity buyouts of private firms.[17] Their study suggests that these strategies are often driven by two primary motives: unlocking growth potential in capital-constrained firms and improving operational performance in underperforming firms. They find that acquired firms often experience significant increases in sales growth and moderate improvements in profitability post-acquisition, supporting the view that these strategies can create value through both growth and operational improvements. These findings suggest that properly executed roll-up strategies can serve legitimate business purposes beyond mere market consolidation.
Given the legitimate business reasons for acquisitions (serial or not), we are aware of no theoretical or empirical grounds on which to suppose that multiple acquisitions are typically anticompetitive. At the same time, there is no reason to suppose that the organic growth of a firm precludes anticompetitive conduct. The competitive effects of growth, whether through acquisition or internal expansion, depend on a variety of factors—including market structure, barriers to entry, and the specific capabilities and assets being acquired or developed. For example, in some cases, serial acquisitions might allow a firm to quickly assemble complementary assets and capabilities, leading to increased innovation and more robust competition. In other instances, organic growth might allow a firm to build market power in ways that are difficult for competitors to challenge.
By identifying such a broad range of serial acquisitions for special scrutiny, the agencies risk deterring transactions that may be procompetitive or competitively neutral. This is particularly concerning given that, as noted in our HSR comments, “the vast majority of mergers are either procompetitive and enhance consumer welfare or are competitively benign.”[18] The costs of deterring beneficial transactions could be substantial, including reduced incentives for startup formation and innovation, decreased liquidity in capital markets, lost efficiencies from beneficial consolidation, and reduced competitive pressure on incumbent firms.
A. Distinctions Between Organic Growth and Acquisitions Are Baseless
The agencies’ RFI appears animated by a fundamental presumption that it is better for firms to “build” new capabilities than to “buy” them.
While eschewing the more contentious form of the statement in their draft guidelines,[19] the agencies assert in the 2023 Merger Guidelines that “[i]n general, expansion into a concentrated market via internal growth rather than via acquisition benefits competition.”[20] The FTC’s challenge of the Meta/Within transaction centers on the agency’s claim that Meta’s decision to buy its way into a new market obviated its role as a potential entrant through organic growth, thereby reducing competition.[21] As John Newman, then-deputy director of the FTC Bureau of Competition, said in criticizing Meta’s acquisition strategy:
Instead of competing on the merits, Meta is trying to buy its way to the top. Meta already owns a best-selling virtual reality fitness app, and it had the capabilities to compete even more closely with Within’s popular Supernatural app. But Meta chose to buy market position instead of earning it on the merits. This is an illegal acquisition, and we will pursue all appropriate relief.[22]
The FTC’s view has been supported by commentators who contend that, despite their ability to grow organically, many incumbent firms have “opportunities to ‘roll up’ (willing) startups to ‘get there faster,’ ‘buying’ instead of expending effort in rival innovation.”[23] Their conclusion is that “[f]oregoing such effort is never good for consumers and society as a whole.”[24] Indeed, these commentators contend that “the general conclusion of the academic literature is that consumers and society are better off when innovative firms are not permitted to merge.”[25]
But this blunt distinction between “competition on the merits” and growth and entry through acquisition is unwarranted, and not well-supported by the literature. As Jay Ezrielev has observed: “There is, however, no basis for concluding that build-or-buy acquisitions harm innovation. Despite providing ‘build’ incentives, restrictions on buying may lead to less building and less innovation.”[26]
Not only do many firms pursue “hybrid strategies,” as mentioned above, but acquisition by itself can constitute competition on the merits for several reasons. First, acquisitions can lead to significant efficiency gains. These may include cost savings, better resource allocation, and enhanced innovation capabilities, which can ultimately benefit consumers. Second, acquisitions may be the most efficient and effective way to increase competition, by facilitating incumbents’ entry into other markets. As Ezrielev notes: “Buying rather than building frees up resources that the acquirer may use for other innovations. Buying also allows firms to expand into new markets faster and with more certainty.”[27] Third, the potential for takeovers can also drive dynamic competition by encouraging managers to perform sufficiently well to avoid becoming targets. This competitive pressure can also lead to overall improvements in industry performance.[28]
Acquisitions may also serve to reallocate and recombine resources in ways that spur innovation.[29] It may be more efficient to acquire a firm with specialized technologies than to develop those technologies internally. Conversely, acquired firms that excel at developing technology may themselves require managerial and other resources of the acquired firm to develop and commercialize their innovations.[30]
Potential acquisition is also a key exit strategy that makes financing startups more attractive. As Joanna Shepherd similarly notes: “Forcing inefficient builders to build would raise costs and discourage more efficient builders from undertaking building projects as these projects would have fewer potential buyers.”[31] As a result, the existence of a robust merger market offers incentives to create new firms in the first place.
As Jay Ezrielev explains:
The main purpose of build-or-buy acquisitions is to expand into a new market (or to expand a firm’s capacity in a market it already serves) in the most cost-effective way. These acquisitions do not weaken incentives to continue ongoing innovations. On the contrary, many acquirers may be looking to accelerate the development of the target’s innovation. These acquirers may be attracted to the target’s technology precisely because it is promising. Acquirers may be uniquely qualified to recognize the true potential of the target’s innovation because of their related expertise.[32]
By the same token, with respect to vertical acquisitions, there is no basis for the oft-repeated claim that anything a firm can accomplish by merger, it can accomplish by contract, nor that the latter is preferable because it avoids increased consolidation and foreclosure incentives.[33] In reality, just like the decision to buy rather than build, the decision to buy rather than contract is often motivated by important distinctions that make the one preferable to the other.[34]
It is true that there are “limits to vertical integration. In particular, there may be limits to his [sic] entrepreneur’s resources or abilities, such that adding an additional transaction within the firm would generate decreasing returns.”[35] But acquisition can also be distinctly preferable to contracting. It can often be more efficient to organize production within a firm: “[F]irms have a fundamentally different production function from separate, additive market-based production—and [] cooperative team-based production could be much more efficient.”[36]
At the same time, at various stages of the industry life cycle, firms exhibit increasing returns to scale, making acquisition relatively more efficient than contracting, depending on the maturity and other attributes of the relevant industry.[37] Meanwhile, contracting becomes less attractive as asset specificity (i.e., specialized investments or assets that are extremely costly to relocate or redeploy) increases.[38] By the same token, as the costs of contracting increase due to complexity and lack of information (and the risks of asset specificity), the costs of the resulting incomplete contracts increase, again making acquisition relatively more efficient.[39]
Of course, the distinction between vertical and horizontal transactions will also often be blurred, and this, too, provides further reason to be skeptical of claims that perceived horizontal “buy-rather-than-build” acquisitions are harmful. In the case of Meta/Within, for example, while the FTC focused on the acquisition’s purported horizontal effects in the virtual-reality (VR) fitness-app market, it is undeniable that the deal simultaneously allowed Meta to rapidly expand its portfolio of VR-app offerings.[40] In this way, it also signaled a commitment to Meta’s development of the broader ecosystem on which all VR-app markets depend. Meta’s primary interest in the transaction (and the real benefit of the deal for consumers and other app developers) may have been for its broader contribution to the development of Meta’s platform, rather than its narrow contribution to Meta’s place in any particular VR-app market.
In much the same way, the distinction between “organic” growth and growth through acquisition is not always clearcut. This is particularly true at a time when antitrust enforcers around the world are increasingly tempted to treat minority shareholdings and key personnel hires as notifiable mergers.[41] Indeed, the concept of the so-called “acqui-hire” provides a compelling argument against a rigid preference for internal growth over mergers. An “acqui-hire” is an acquisition primarily aimed at acquiring the talent of a company, rather than its products, services, or other assets.
But in this regard, the very aim of an aqui-hire is ultimately to spur organic growth. And, indeed, many firms pursue hybrid strategies, combining internal development with strategic acquisitions. Mergers of this sort can be essential for internal growth, as they bring in critical human resources that drive innovation and competitiveness. The agencies should be cautious about drawing sharp distinctions between these growth strategies without robust empirical evidence of their differential competitive effects.
B. Issues Particular to Small, Serial Acquisitions
Certainly, it is possible for a series or sequence of acquisitions to prove anticompetitive, whether those acquisitions fall under or above HSR reporting thresholds. Indeed, even a single acquisition may prove anticompetitive. At the same time, the costs of increased scrutiny must be weighed against the likely benefits. As noted in comments we previously submitted to the FTC,[42] the 2023 proposed changes to the premerger notification rules could lead to between $350 million and $2.23 billion in additional annual compliance costs,[43] with other additional costs imposed on agency staff. Extending similar requirements to smaller transactions would necessarily add to those costs, potentially imposing disproportionately high burdens on relatively small filers. Moreover, reviewing a larger number of small transactions would significantly increase the agencies’ workload, potentially diverting resources from more critical enforcement priorities.
The potential for errors in judgment is particularly high when dealing with small acquisitions and evolving markets. False positives could stifle innovation and efficiency, while false negatives could allow anticompetitive harm. Given that most mergers are procompetitive or benign, an approach that scrutinizes all serial acquisitions risks an unacceptably high false-positive rate.
While we acknowledge that a pattern of acquisitions could potentially raise competitive concerns in specific circumstances, we are skeptical that “serial acquisitions” represent a distinct phenomenon that requires special treatment. We urge the agencies to focus on case-specific analysis rather than creating new, potentially overbroad categories of acquisitions for heightened scrutiny. In the alternative, the agencies should use the information informally gathered in response to the RFI—together with further economic research and enforcement experience—to sharpen our understanding of serial acquisitions and the circumstances under which greater scrutiny of such transactions may be cost-justified. Any changes to the current approach should be based on robust empirical evidence of harm and a careful consideration of costs and benefits.
Private-equity investment can bring substantial benefits. Even the DOJ has previously recognized the potential advantages of private-equity buyers in certain merger-remedy scenarios, though this view has since shifted.[44] Research has shown that private-equity investments can lead to improved operational efficiency and total factor productivity, increased innovation, and enhanced competitiveness through entry and exit in the industry.[45]
For example, Steven Davis and his co-authors find that private-equity buyouts lead to a 2.1 log point increase in total factor productivity at target manufacturing firms over two years post-buyout, compared to controls.[46] The authors also find that buyouts catalyze creative destruction, increasing job creation and destruction rates by 14 percentage points over two years.[47] Relatedly, contrary to concerns about short-term benefits but long-term harms, Lerner et al. found that leveraged buyouts do not sacrifice long-term investments in innovation.[48]
It’s important to note, however, that the effects of private-equity investment can vary significantly depending on the specific industry, firm, and investment strategy involved.[49] The shift in the agencies’ stance towards private equity, particularly in merger remedies, should be carefully evaluated against this nuanced body of evidence to ensure that potentially beneficial investments are not unduly deterred.
III. Is Industry Variance in Serial Acquisitions Evidence of Harm?
The competitive implications of multiple acquisitions can also vary significantly both across and within industries, underscoring the importance of context-specific analysis, rather than broad generalizations or simple numerical thresholds. Just as we cannot look at concentration measures across industries as a uniform indicator of competitive harm, we similarly cannot view the number of acquisitions in isolation as a reliable signal of market harm.
Different industries have distinct characteristics that shape their competitive dynamics, innovation cycles, and efficient scales of operation.[50] These factors critically influence the role and effect of acquisitions within each sector. For instance, in pharmaceuticals, serial acquisitions may be a vital mechanism to bring innovations to market, especially given regulatory hurdles and the substantial costs of adequate clinical trials above and beyond those of primary pre-clinical research.[51] Small pharmaceutical or biotech firms, while excelling in early-stage research, frequently lack the resources for large-scale clinical trials, regulatory approval, and commercialization.[52] Acquisitions by larger entities can bridge this gap, facilitating the entry and delivery of new drug therapies to the benefit of both competition and consumers (namely, patients).
Thus, while some pharmaceutical and bio-tech acquisitions might prove anticompetitive, multiple or serial acquisitions could often, or on average, prove pro-competitive, signaling a vibrant innovation ecosystem rather than anti-competitive behavior. Indeed, as Joanna Shepherd has noted: “In industries in which most innovation originates externally…, analyses should be less concerned with mergers’ impacts on internal innovation, and more focused on whether consolidation will increase demand for externally-sourced innovation and, ultimately, increase aggregate drug innovation.”[53] This perspective underscores the importance of understanding the specific dynamics and needs of different sectors in order to accurately assess the implications of serial acquisitions.
Similarly, in technology sectors, acquisitions of small, innovative firms can accelerate the development and deployment of new technologies.[54] Many tech startups are founded with the intent and expectation of being acquired, and the viability of this type of exit strategy in turn creates incentives for investment and innovation. The fast-paced nature of technological change means that the competitive landscape can shift rapidly, and what might appear to be market consolidation through acquisitions might instead be a series of attempts to keep pace with evolving consumer demands and technological possibilities.
In contrast, in more mature industries with stable technologies, a pattern of acquisitions might warrant closer scrutiny. Even here, however, the specific market conditions matter. In fragmented industries like home services or local retail, roll-up strategies can create efficiencies of scale that benefit consumers through lower prices or improved service quality.[55]
Moreover, the relevant geographic market can vary dramatically across industries, further complicating any attempt to apply uniform standards. A series of local acquisitions in a national market might have minimal competitive impact, while similar acquisitions in a local or regional market could be more significant. This variability in geographic-market definition is well-documented in antitrust literature and case law. For instance, in the health-care industry, hospital markets are often defined locally or regionally, as evidenced by the FTC’s lawsuit against U.S. Anesthesia Partners Inc., which focused on the Houston and Dallas markets.[56]
The dynamic nature of many industries also means that market boundaries and competitive threats can change rapidly. Today’s competitors might be tomorrow’s complements, or vice versa. This fluidity makes it particularly challenging to assess the long-term competitive impact of a series of acquisitions based solely on their number or frequency.
IV. Conclusion
In light of these complexities, we urge the agencies to resist the temptation to rely on simple metrics or across-the-board presumptions about serial acquisitions. Instead, a nuanced, industry-specific approach is necessary to accurately assess the competitive implications of multiple acquisitions. This approach should consider such factors as the pace of technological change, the role of innovation, typical firm lifecycles, efficient scale of operations, and the specific competitive dynamics of each industry.
For example, in many smaller markets, independent providers of hospital-based services (such as anesthesiology) may be highly concentrated on any standard for “highly concentrated” markets. Further research might aid the agencies in examining highly concentrated provider markets to develop filters or screens for provider acquisitions below the HSR filing threshold, so that the agencies might identify and investigate those subthreshold filings that are the most likely candidates for investigations and, depending on the results of those investigations, enforcement actions. Efficient matter-selection tools will be critical to that effort, less the agencies commit scarce resources to small, unpromising investigations and impose undue costs on health-care providers.
By recognizing and accounting for these industry-specific factors, the agencies can more accurately identify truly problematic acquisition patterns, while avoiding undue interference in benign or beneficial market evolution. This nuanced approach is crucial to maintain a competitive economy that fosters innovation and efficiency across all sectors.
[1] Request for Information for Public Comment on Corporate Consolidation Through Serial Acquisitions and Roll-Up Strategies, Fed. Trade Comm’n & U.S. Dep’t of Justice, Docket No. FTC-2024-0028 (May 22, 2024), at 1, https://www.regulations.gov/docket/FTC-2024-0028 [hereinafter “RFI”].
[2] Lina Khan & Jonathan Kanter, Hart-Scott-Rodino Annual Report, Fiscal Year 2022, Fed. Trade Comm’n & U.S. Dep’t of Justice (Jan. 4, 2024), at 23, available at https://www.ftc.gov/system/files/ftc_gov/pdf/FY2022HSRReport.pdf.
[3] RFI at 5.
[4] RFI at 6.
[5] Press Release, FTC and DOJ Seek Info on Serial Acquisitions, Roll-Up Strategies Across U.S. Economy, Fed. Trade Comm’n (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; Press Release, Justice Department and Federal Trade Commission Seek Information on Serial Acquisitions, Roll-Up Strategies Across U.S. Economy, U.S. Dep’t of Justice (May 23, 2024).
[6] Id.
[7] Asheesh Agarwal et al., Former Enforcers Comment on Request for Information on Corporate Consolidation Through Serial Acquisitions and Roll-Up Strategies (Jun. 26, 2024), at 2, available at https://www.regulations.gov/comment/FTC-2024-0028-0214.
[8] Id., at 3 (citing Statement of Ass’t Att’y Gen. Christine Varney, Merger Guidelines Workshops, Third Annual Georgetown Law Global Antitrust Enforcement Symposium (Sep. 22, 2009)).
[9] See Serial Acquisitions and Industry Roll-ups—Note by the United States, OECD DAF/COMP/WD(2023)99 (Dec. 6, 2023), available at https://one.oecd.org/document/DAF/COMP/WD(2023)99/en/pdf.
[10] Id., at 6.
[11] Id., at 7.
[12] Request for Information on Consolidation in Health Care Markets, Docket No. ATR-102, Dep’t Justice, Dep’t Health & Human Servs., & Fed. Trade Comm’n (Mar. 5, 2024), https://www.regulations.gov/docket/FTC-2024-0022; Daniel J. Gilman & Geoffrey A. Manne, ICLE Comments Re: Request for Information on Consolidation in Health Care Markets, Int. Ctr. Law Econ. (Jun. 5, 2024), https://laweconcenter.org/resources/icle-comments-re-request-for-information-on-consolidation-in-health-care-markets.
[13] Premerger Notification Rules, 88 Fed. Reg. 42178, (Jun. 29, 2023), (to be codified at 16 C.F.R. Parts 801 and 803); Brian Albrecht, Dirk Auer, Daniel J. Gilman, Gus Hurwitz, & Geoffrey A. Manne, Comments of the International Center for Law & Economics on Proposed Changes to the Premerger Notification Rules, Int. Ctr. Law Econ. (Sep. 27, 2023), https://laweconcenter.org/resources/comments-of-the-international-center-for-law-economics-on-proposed-changes-to-the-premerger-notification-rules.
[14] Gilman & Manne, supra note 12, at 6.
[15] Albrecht et al., supra note 13, at 7-9.
[16] RFI at 1.
[17] Jonathan B. Cohn, Edith S. Hotchkiss, & Erin M. Towery, Sources of Value Creation in Private Equity Buyouts of Private Firms, 26 Rev. Fin. 257 (2022).
[18] Albrecht et al., supra note 13, at 5.
[19] See Draft Merger Guidelines, U.S. Dep’t of Justice & Fed. Trade Comm’n (2023), available at https://www.ftc.gov/system/files/ftc_gov/pdf/p859910draftmergerguidelines2023.pdf (The assertion in the draft guidelines was: “The antitrust laws reflect a preference for internal growth over acquisition.”)
[20] 2023 Merger Guidelines, U.S. Dep’t of Justice & Fed. Trade Comm’n (2023), available at https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf.
[21] See Press Release, FTC Seeks to Block Virtual Reality Giant Meta’s Acquisition of Popular App Creator Within, Fed. Trade Comm’n (Jul. 27, 2022), https://www.ftc.gov/news-events/news/press-releases/2022/07/ftc-seeks-block-virtual-reality-giant-metas-acquisition-popular-app-creator-within (“Meta is a potential entrant…. But instead of entering, it chose to try buying Supernatural. Meta’s independent entry would increase consumer choice, increase innovation, spur additional competition to attract the best employees, and yield other competitive benefits. Meta’s acquisition of Within, on the other hand, would eliminate the prospect of such entry, dampening future innovation and competitive rivalry.”).
[22] Id.
[23] Cristina Caffarra, Gregory S. Crawford, & Tommaso Valletti, “How Tech Rolls”: Potential Competition and “Reverse” Killer Acquisitions, CPI Antitrust Chron. (May 2020), at 2, available at https://www.competitionpolicyinternational.com/wpcontent/uploads/2020/05/CPI-Caffarra-Crawford-Valletti.pdf.
[24] Id.
[25] Id., at 4.
[26] Jay Ezrielev, Antitrust Policy and Legal Standards for Build-or-Buy Decisions, CPI Columns US & Canada (Mar. 2024), at 2, https://www.pymnts.com/cpi-posts/antitrust-policy-and-legal-standards-for-build-or-buy-decisions.
[27] Id.
[28] Henry G. Manne, Mergers and the Market for Corporate Control, 73 J. Pol. Econ. 110 (1965).
[29] See generally Carl Shapiro, Competition and Innovation: Did Arrow Hit the Bull’s Eye?, in The Rate and Direction of Inventive Activity Revisited (Josh Lerner and Scott Stern, eds., 2012), at 361–404. Shapiro calls this the “Synergies Principle: ‘Combining complementary assets enhances innovation capabilities and thus spurs innovation.’” Id., at 365. As he explains: “The Synergies principle emphasizes that ?rms typically cannot innovate in isolation. The quest for synergies is especially important in industries where value is created by systems that incorporate multiple components, as in the information and communications technology sector. The Synergies principle is directly relevant for competition policy since procompetitive mergers and business practices allow for the more e?cient combination of complementary assets.” Id.
[30] See, e.g., Joanna Shepherd, Consolidation and Innovation in the Pharmaceutical Industry: The Role of Mergers and Acquisitions in the Current Innovation Ecosystem, 21 J. Health Care L. & Pol’y 1 (2018).
[31] Id.
[32] Ezrielev, supra note 26, at 3.
[33] See, e.g., Steven C. Salop, The AT&T/Time Warner Merger: How Judge Leon Garbled Professor Nash, 6 J. Antitrust Enforcement 459, 468 (2018).
[34] See generally Geoffrey A. Manne, Kristian Stout, & Eric Fruits, The Fatal Economic Flaws of the Contemporary Campaign Against Vertical Integration, 68 Kansas L. Rev. 923 (2020).
[35] Id., at 939 (citing Ronald Coase, The Nature of the Firm, 4 Economica 386, 394 (1937)).
[36] Id., at 940.
[37] See George Stigler, The Division of Labor Is Limited by the Extent of the Market, 59 J. Pol. Econ. 185, 188 (1951); Manne, Stout, & Fruits, supra note 32, at 941 (“[I]n Stigler’s model, the degree of vertical integration is a dynamic interaction among the firm’s economies of scale as well as the extent of the firm’s market and the market for its inputs.”).
[38] See Oliver E. Williamson, The Economic Institutions of Capitalism 85-102 (1985); see also Paul L. Joskow, Vertical Integration, 55 Antitrust Bull. 543, 563 (2010).
[39] See Benjamin Klein, Robert G. Crawford, & Armen A. Alchian, Vertical Integration, Appropriable Rents, and the Competitive Contracting Process, 21 J.L. Econ. 297, 306-09 (1978).
[40] FTC v. Meta Platforms Inc., U.S. Dist. LEXIS 29832 (2023);
[41] See, e.g., Ryan Browne, Microsoft’s Hiring of Staff from AI startup Inflection Referred for UK Merger Probe, CNBC (Jul. 16, 2024), https://www.cnbc.com/2024/07/16/microsoft-hiring-of-ai-inflection-staff-referred-for-uk-merger-probe.html; Brandon Vigliarolo, UK Antitrust Cops Thrust Probe into Microsoft, Inflection AI Merger, The Register (Jul. 16, 2024), https://www.theregister.com/2024/07/16/uk_competition_officials_kick_off.
[42] Albrecht et al., supra note 13.
[43] Id., at 7-8.
[44] See Bernard A. Nigro Jr. & Harrisson C. Kummer, Unraveling the Roll-Up: Private Equity’s Misunderstood Investment Strategy, CPI Antitrust Chron. (Jun. 2024). The authors discuss the benefits of private-equity investment, citing the DOJ’s 2020 Merger Remedies manual (now withdrawn), which acknowledged that “in some cases a private equity purchaser may be [the] preferred” remedies buyer. See Merger Remedies Manual 24, Dep’t of Justice Antitrust Division (Sep. 2020, withdrawn Apr. 2022), https://www.justice.gov/atr/page/file/1312416/dl. Nigro & Kummer also reference a recent court decision that rejected DOJ arguments against a private-equity divestiture buyer, finding the buyer “well-positioned to maintain, and perhaps even improve upon” competition. United States v. UnitedHealth Group Inc., 630 F. Supp. 3d. 118, 137 (D.D.C. 2022).
[45] See Shai Bernstein et al., Private Equity and Industry Performance, 63 Mgmt. Sci. 1198 (2017).
[46] Steven J. Davis et al., Private Equity, Jobs, and Productivity, 104 Am. Econ. Rev. 3956 (2014).
[47] Id.
[48] Josh Lerner et al., Private Equity and Long-Run Investment: The Case of Innovation, 66 J. Fin. 445 (2011).
[49] Steven J. Davis, John C. Haltiwanger, Kyle Handley, Ben Lipsius, Josh Lerner, & Javier Miranda, The (Heterogeneous) Economic Effects of Private Equity Buyouts (Nat’l Bureau of Econ. Research, No. 26371, 2019), https://doi.org/10.3386/w26371.
[50] See generally Stigler, supra note 35.
[51] See Shepherd, Consolidation and Innovation in the Pharmaceutical Industry, supra note 30.
[52] See Jeffery M. Drazen et al., Drug-Development Challenges for Small Biopharmaceutical Companies 376 New Engl. J. Med. 469 (2017), (“Small biopharmaceutical companies often encounter important challenges in designing and implementing clinical development programs. In a context in which only approximately 10% of clinical programs result in drugs that achieve regulatory approval, small-company clinical programs may have an even lower rate of success than that of large companies owing to limited internal experience in clinical development and limited infrastructure, which may also affect manufacturing and clinical supply. However, these challenges are largely overshadowed by limited resources and funding, which in turn fuel demand for short timelines owing to the need to demonstrate progress to investors. As such, these companies must focus their resources on small, less-costly development programs for very specific targets and often must spearhead new approaches to testing new products in order to survive.”).
[53] Joanna Shepherd, Understanding Innovation Markets in Antitrust Analysis, Truth on the Market (Mar. 30, 2017), https://truthonthemarket.com/2017/03/30/understanding-innovation-markets-inantitrust-analysis-ag-biotech-symposium.
[54] See discussion of the Meta/Within merger, infra Section III.A.
[55] See Stigler, supra note 35, at 190.
[56] Fed. Trade Comm’n v. U.S. Anesthesia Partners, Inc., et al., No. 2010031, Complaint Filed (S.D. Tex. Sep. 21, 2023).