The 2018 Hart-Scott-Rodino Annual Report (the 2018 HSR Report), recently released by the Federal Trade Commission (FTC) and the Department of Justice’s (DOJ) Antitrust Division, conveys information about their review of transactions in the fiscal year running from October 1, 2017 to September 30, 2018. The report confirms the continuation of some general trends, while also providing industry-specific information, particularly possible renewed interest in hospitals and ambulatory care transactions.
General Trends in Transaction Reviews
The 2018 HSR Report shows that the number of reported transactions has continued to increase since 2013. A transaction is only reportable to the federal agencies if it involves a dollar value above a certain threshold and, in some cases, if it involves parties of a certain size. In 2018, there were a total of 2,111 transactions reported, a 2.9 percent increase over 2017. Yet, this increase in reported transactions has not led to an increase in the total number of “Second Requests.” A Second Request is a request by the reviewing antitrust agency for additional information about the transaction and its potential effect on competition. It stops the parties from closing until the additional information is provided to and reviewed by the agency, which can then either allow the transaction to close or sue to enjoin closing.
While the number of Second Requests has fluctuated since 2013, it has actually decreased since 2016. There were 54 Second Requests issued in 2016; 51 in 2017; and only 45 in 2018. This indicates that the agencies issued a Second Request in just 2.2 percent of all reported transactions in 2018, compared to 2.6 percent of reported transactions in 2017.
Yet even as the total number of Second Requests appears to be decreasing, the significance of receiving a Second Request is becoming more troubling. The 2018 HSR Report confirms an increasing correlation between Second Requests and challenged transactions. In 2017, 80.4 percent of all transactions receiving a Second Request resulted in challenges (source). In 2018, this percentage rose to 86.7 percent.
While such impediments to closing are never welcome, receiving an enforcement challenge does not necessarily mean a transaction is doomed. The 2018 HSR Report indicates that of the 22 merger enforcement challenges brought by the FTC, the majority were resolved by negotiated settlements. Likewise, of the 17 challenges brought by the DOJ, eight were resolved by settlement. Nonetheless, these numbers emphasize the importance of evaluating anti-competitive concerns at the very earliest stages of a deal to assess and address the risk of a Second Request and ultimately any challenges to the transaction.
The consequences of facing a merger challenge from the FTC or the DOJ can vary dramatically. The parties may find the challenge so serious that they abandon the deal. Alternatively, the parties could restructure the deal to satisfy the agencies, leading to a settlement that allows the transaction to close. In more extreme scenarios, an agency may seek to block a transaction by obtaining a preliminary injunction in federal court. The FTC obtained two such injunctions in 2018, while the DOJ only filed one.
A Renewed Interest in Healthcare Transactions?
The healthcare industry should take note of this year’s report, as it may indicate new interest in transactions involving hospitals and ambulatory healthcare services. In 2018, there were 33 hospital transactions and 50 ambulatory healthcare services transactions reported. In 2017, there were 32 hospital transactions and 56 ambulatory healthcare services transactions reported.
While none of the 2017 transactions were subject to a Second Request, that was not the case in 2018, when two hospital transactions and three ambulatory healthcare services transactions were subject to Second Requests. Even though none of these Second Requests led to litigation, they are a reminder of the need to consider potential antitrust restrictions when structuring a transaction in the healthcare industry.
All companies planning an acquisition that could raise anti-competitive concerns should consult experienced antitrust counsel early in the consideration of the deal to ensure that such concerns are addressed before proceeding. While Second Requests cannot always be avoided, experienced counsel can prepare the company to respond to the agency as quickly and effectively as possible. Given the uptick in Second Requests aimed at healthcare transactions in 2018, companies in the healthcare industry should be particularly mindful of the need to consider the significance of any antitrust risk.