Dive Brief:
- Federal antitrust agencies on Monday finalized stricter guidelines for mergers and acquisitions that could make it more difficult for healthcare deals to close.
- The guidelines lay out a framework that the Department of Justice and Federal Trade Commission use when reviewing proposed deals and that the courts can reference in overseeing challenges. However, the guidelines are not legally binding themselves.
- The final merger guidelines are not meaningfully different from draft guidelines the DOJ and FTC released in July, according to antitrust experts.
Dive Insight:
The DOJ and FTC received more than 30,000 public comments on the proposed guidelines, with some healthcare industry groups urging the agencies to retain old guidance that was more favorable to industry tie-ups.
The guidance hadn’t been meaningfully updated for over a decade, leading M&A experts to criticize that they had fallen behind evolving deal structures and market forces — including in the healthcare industry, where consolidation has been shown to drive up already sky-high medical prices.
The agencies said they reviewed the comments and took them into consideration when writing the final guidance.
Yet, though the DOJ and FTC toned down some of the more dramatic antimerger rhetoric, “the bottom line is they still have been able to maintain what they wanted to do,” said Jim Burns, an antitrust lawyer at Williams Mullen. “They carefully modified some of the language to address perceived complaints in a way that has not materially altered their guidelines.”
For example, the meat of one guideline in the proposed draft that was somewhat broad on its own — that mergers should not further a trend toward concentration — has been merged into other guidelines in the final edition, Burns said.
Another criticism of the proposed guidelines is that they relied heavily on older Supreme Court case precedent. The final guidelines include references to more recent cases in circuit courts, including from the FTC’s recent triumph against DNA sequencing company Illumina, which is cited three times in the guidance.
An appeals court determined on Friday the FTC was correct in finding Illumina’s planned $7.1 billion buy of cancer test developer Grail anticompetitive. On Sunday, Illumina said it would divest Grail to comply with regulators.
“It seems to me no coincidence that this issued within 24 hours of the FTC winning the Illumina case in the 5th Circuit,” said Burns. “They use that to support a lot of their vertical merger theories that were largely unsupported by case law” previously.
The new guidelines are significantly more critical of mergers than past guidance, and should give regulators sharper teeth in going after vertical and cross-market deals that historically have been difficult to challenge. Private equity “roll-ups” of multiple companies should also face heightened scrutiny.
The guidance is generally more critical of mergers, but doesn’t include a lot of specifics to let companies know what M&A activity is and isn’t allowed, according to Nathan Ray, healthcare M&A lead at West Monroe. That means a range of mergers could be seen as anticompetitive, even if they may not be.
“It feels like a fairly broad warrant to look at everything,” Ray said.
As a result, healthcare companies pursuing a variety of deals may be more wary about a regulatory challenge. However, it remains to be seen how the guidance and the FTC and DOJ’s more novel theories of harm will play out in the courts.
The guidance could also be seen as a boon to market behemoths like UnitedHealth and CVS that have been allowed to swell to a massive size, by preventing their rivals from growing to a similar scale through a series of M&A, Ray said.
