#hart scott rodino

[nationallawreview]

Revisions to HSR Form Released

On October 7, 2024, the Federal Trade Commission (FTC), with the concurrence of the U.S. Department of Justice (DOJ), released its long-awaited final rule related to the revision of the Hart-Scott-Rodino (HSR) premerger notification form (the “Final Rule”). The Final Rule will be effective 90 days after its publication in the Federal Register. The FTC and DOJ state that the revisions are intended…

[joeraetzer]

What Does an M&A Lawyer do?

An M&A (Mergers and Acquisitions) lawyer is at the core of the deal-making process, acting as the central figure in a network of deal parties and advisors. The M&A lawyer is typically the main point of contact for all involved parties, overseeing every aspect of the transaction to ensure it reaches a successful close. Often, an M&A lawyer is an external specialist from a law firm, though some companies rely on in-house counsel. This role requires a wide array of skills, including: - Strategic thinking - Negotiation - Multitasking - Delegation - Organization - Complex drafting - Precision and attention to detail - Speed and efficiency While grounded in corporate, contract, and fiduciary duty law, the M&A lawyer's work also intersects with areas such as securities, tax, environmental law, labor, executive compensation, real estate, antitrust, intellectual property and more. Key Responsibilities in an M&A Transaction An M&A lawyer plays a role in nearly every stage of a transaction, from initial strategy to finalization. Some of the primary tasks include: - Preparing the Target for Sale: Ensuring that corporate formalities are in order, vendor and supplier relationships are formalized, and any areas of potential risk are addressed. - Drafting Preliminary Agreements: Drafting and negotiating key preliminary documents like the engagement letter, letter of intent, and confidentiality agreements. - Structuring the Deal: Collaborating with tax and financial advisors to shape the transaction’s structure in a way that benefits all parties. - Conducting Legal Due Diligence: Leading the due diligence process to review the target’s contracts, permits, organizational documents, and other relevant materials. Due diligence findings are typically summarized in a memorandum for the buyer. - Developing an Implementation Checklist: Creating a detailed list of actions and required documents, helping keep the transaction on track. - Drafting and Negotiating the Main Transaction Agreement: Drafting and negotiating the principal agreement, including representations, warranties, covenants, and closing conditions, all tailored to the findings of the due diligence process. - Advising on Fiduciary Duties and Shareholder Rights: Advising directors and management on fiduciary responsibilities, minority shareholder rights, and identifying any conflicts of interest that may warrant heightened scrutiny. - Reviewing Financial Adviser Materials: Reviewing the fairness opinion and other materials presented to the board to ensure compliance with fiduciary obligations. - Disclosure and Compliance with Securities Laws: Managing disclosure requirements under federal securities laws and exchange standards, and preparing necessary documentation, such as Form 13Ds, press releases, proxy statements, Form 8-Ks, tender offers, and registration statements. - Negotiation Support: Providing strategic guidance to the client during negotiations. - Coordinating with Specialist Attorneys: Integrating feedback from various specialists (e.g., tax, environmental, and labor attorneys) into the transaction agreements. - Drafting Ancillary Documents: Preparing ancillary transaction documents, including exclusivity agreements, legal opinions, bills of sale, assignments, escrow agreements, and transition services agreements. - HSR Filings and Antitrust Compliance: Working with antitrust counsel to prepare and submit Hart-Scott-Rodino (HSR) filings. - Managing Hostile Takeovers and Activist Interference: Advising on strategies to deter hostile takeovers or activist shareholder disruptions, which may involve drafting shareholder rights plans (poison pills) or advising on proxy contests. - Securing Third-Party Consents: Identifying any necessary third-party approvals and coordinating with client representatives to obtain them. The M&A lawyer’s broad expertise and strategic leadership are essential for guiding a transaction from inception through to its conclusion, aligning the deal team’s efforts with the client’s goals and mitigating risks to ensure a smooth closing. Raetzer PLLC Read the full article

[gregmh-blog]

FTC erects additional administrative barriers to hospital mergers

FTC erects additional administrative barriers to hospital mergers https://ift.tt/BKmeq1r Last week, the Federal Trade Commission (FTC) increased their required premerger reporting requirements for any healthcare providers such as hospitals. Healthcare Dive reports: Thursday’s update marks the first time the FTC has revised its Hart-Scott-Rodino Act premerger notification form in nearly 50 years. The law is intended to alert officials of companies’ intent to merge and offer them a short window to determine whether to conduct a more extensive antitrust review. The FTC proposedincreasing documentation for the premerger notification process in June 2023. At the time, the FTC said it was necessary to glean a “basic understanding of key facts” as mergers becameincreasingly complex. Both the FTC and AHA said the final rule, which is set to go into effect 90 days after publication in the Federal Register, is less aggressive compared to the proposed rule. However, the FTC estimates companies will still need to log 105 hours per response to comply with the final rule — an increase of 68 hours compared to current averages. In June, the agency estimated its proposal would require approximately 107 hours per response. Provider groups said the new documentation load would unnecessarily burden companies looking to merge.  Unsurprisingly, the American Hospital Association does not like the rule. Fierce Healthcare reports: The American Hospital Association immediately pushed back on the proposal…saying the increased paperwork would comprise “more information than the agencies could feasibly review in 30 days” and would “function as little more than a tax on mergers.” The full final rule–weighing in at 460 pages–can be found here. What do you think about the FTC’s final rule? via Healthcare Economist https://ift.tt/X8ImoR9 October 16, 2024 at 12:59AM

[theenergyconnection]

Noble Corp. and Diamond Offshore Drilling Inc. announced the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 for their pending merger.

[tsasocial]

Berry And Glatfelter announce additional regulatory milestone in proposed transaction for spin-off and merger of Berry’s health, hygiene and specialties global nonwovens and films business with glatfelter

Berry Global Group, Inc. (NYSE: BERY) and Glatfelter Corporation (NYSE: GLT) announced today the achievement of an additional regulatory milestone in the proposed transaction involving the combination of a majority of Berry’s Health, Hygiene and Specialties segment to include its Global Nonwovens and Films business (“HHNF”) with Glatfelter. In addition to the previously announced expiration of the required waiting period under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act, the parties have now received all other approvals and clearances under competition and foreign direct investment laws which were conditions to the consummation of the transaction.

As previously announced on February 7, 2024, Berry and Glatfelter entered into a definitive agreement under which Berry will spin-off and merge its HHNF business with Glatfelter in a Reverse Morris Trust transaction. The transaction will create a leading, publicly-traded company in the specialty materials industry. The transaction is expected to close in the second half of calendar 2024 and is subject to approval by Glatfelter shareholders and completion of the remaining customary closing conditions.

Cautionary Statement Concerning Forward-Looking Statements

Statements in this release that are not historical, including statements relating to the expected timing, completion and effects of the proposed transaction between Berry Global Group, Inc., a Delaware corporation (“Berry”), and Glatfelter Corporation, a Pennsylvania corporation (“Glatfelter” or the “Company”), are considered “forward-looking” within the meaning of the federal securities laws and are presented pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “should,” “would,” “could,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “projects,” “outlook,” “anticipates” or “looking forward,” or similar expressions that relate to strategy, plans, intentions, or expectations. All statements relating to estimates and statements about the expected timing and structure of the proposed transaction, the ability of the parties to complete the proposed transaction, benefits of the transaction, including future financial and operating results, executive and Board transition considerations, the combined company’s plans, objectives, expectations and intentions, and other statements that are not historical facts are forward-looking statements. In addition, senior management of Berry and Glatfelter, from time to time may make forward-looking public statements concerning expected future operations and performance and other developments.

Actual results may differ materially from those that are expected due to a variety of factors, including without limitation: the occurrence of any event, change or other circumstances that could give rise to the termination of the proposed transaction; the risk that Glatfelter shareholders may not approve the transaction proposals; the risk that the necessary regulatory approvals may not be obtained or may be obtained subject to conditions that are not anticipated or may be delayed; risks that any of the other closing conditions to the proposed transaction may not be satisfied in a timely manner; risks that the anticipated tax treatment of the proposed transaction is not obtained; risks related to potential litigation brought in connection with the proposed transaction; uncertainties as to the timing of the consummation of the proposed transaction; unexpected costs, charges or expenses resulting from the proposed transaction; risks and costs related to the implementation of the separation of the business, operations and activities that constitute the global nonwovens and hygiene films business of Berry (the “HHNF Business”) into Treasure Holdco, Inc., a Delaware corporation and a wholly owned subsidiary of Berry (“Spinco”), including timing anticipated to complete the separation; any changes to the configuration of the businesses included in the separation if implemented; the risk that the integration of the combined company is more difficult, time consuming or costly than expected; risks related to financial community and rating agency perceptions of each of Berry and Glatfelter and its business, operations, financial condition and the industry in which they operate; risks related to disruption of management time from ongoing business operations due to the proposed transaction; failure to realize the benefits expected from the proposed transaction; effects of the announcement, pendency or completion of the proposed transaction on the ability of the parties to retain customers and retain and hire key personnel and maintain relationships with their counterparties, and on their operating results and businesses generally; and other risk factors detailed from time to time in Glatfelter’s and Berry’s reports filed with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other documents filed with the SEC. These risks, as well as other risks associated with the proposed transaction, will be more fully discussed in the registration statements, proxy statement/prospectus and other documents that will be filed with the SEC in connection with the proposed transaction. The foregoing list of important factors may not contain all of the material factors that are important to you. New factors may emerge from time to time, and it is not possible to either predict new factors or assess the potential effect of any such new factors. Accordingly, readers should not place undue reliance on those statements. All forward-looking statements are based upon information available as of the date hereof. All forward-looking statements are made only as of the date hereof and neither Berry nor Glatfelter undertake any obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

[united-states-on-grafa]

Encore Wire (NASDAQ:WIRE) advances merger with Prysmian after HSR expiry

Full story: https://grafa.com/news/encore-wire--nasdaq-wire--advances-merger-with-prysmian-after-hsr-expiry-228476

Encore Wire Corporation (NASDAQ:WIRE) has announced a major advancement towards its merger with Prysmian, with the expiration of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 waiting period on May 28, 2024.

This development marks a critical milestone in the merger process, setting the stage for Encore Wire to become a wholly-owned subsidiary of Prysmian.

The necessary notifications had been filed with the appropriate regulatory authorities on April 26, 2024, indicating both companies' commitment to fulfilling all legal prerequisites for the merger.

This latest progress signals a smooth transition towards finalizing the agreement.

[ennovance]

DOJ to probe private equity firms attempting to ‘game the system,’ special counsel says

The Justice Department is investigating whether some private equity companies may have intentionally withheld information in previous mergers, a senior official said Wednesday. Richard Mosier, special counsel for private equity in the DOJ’s antitrust division, said the agency has “renewed focus” on making sure that private equity firms comply with the federal law that requires companies to notify antitrust enforcers of their transactions, known as the Hart-Scott-Rodino or HSR Act.

Companies that “try to game the system, they run the risk of having that HSR and perhaps prior HSRs scrutinized. The person who signs the form opens themselves up to liability,” said Mosier, speaking at a conference in Washington. 

https://fortune.com/2024/04/10/doj-probe-private-equity-firms-special-counsel/?fbclid=IwAR0IyiGeqvbYnUOM9pc_iNRkV3kK3NvhN9p5BRv5gOHHXSb-Pc4mZL09Lqw_aem_AWTFoym40VJHCBjEqswtTFm408CWaRncD3scp9ZUqGQB0Hzk-7zZlGdzoOh1bLViHnk #doj #ftc #merger #PrivateEquity #lbo #deals #buyouts #ACG

🇺🇸https://x.com/mohossain/status/1705030333450588196?s=46&t=GtuOmoaTjOwevz2JidiiDQ

[leanstooneside]

ESTIMATED PROPHET

1. BUSH

2. PETER

3. BOB

4. CARA

5. REPS

6. MARCUS

7. LANE

8. LIEBERMAN

9. MAC

10. DAVID

11. PAUL

12. LINDNER'S

13. PHELAN

14. BURTON

15. IRWIN

16. RODINO

17. JUDGE

18. SCOTT

19. VAN

20. LAUREL'S

21. GUBER

22. RICHARD

23. IRA

24. HOLLIS

25. HUGO

26. JACOBS

27. CAMPBELL

28. CHANDLER

29. MORGAN

30. SPIEGEL'S

31. R

32. SCOTCH

33. MR

34. KANE

35. GROUP

36. LURIE

37. J

38. FREDDIE

39. GREEN'S

40. HART

41. BRONFMAN

42. NEWHOUSE

43. SCHMIDT

44. ELISA

45. PROPOSAL

46. TAYLOR

47. RIDLEY

48. JOHN

49. ADDISON

50. SPIELVOGEL

51. ACT

52. AL

53. GORBACHEV

54. MAY

55. HURRICANE

56. DOCTOR'S

57. PETERS

58. MEHL

59. JUNIOR

60. CAR

61. ACHENBAUM

62. PRESIDENT'S

63. LESSON

64. CRYSTAL

65. BERNSTEIN'S

66. MCGUIGAN

67. GEORGE

68. O'KICKI

69. STOLL

[nationallawreview]

FTC Finalizes Major Rewrite of HSR Filing Requirements

Last week, the Federal Trade Commission (FTC) voted unanimously to issue a final rule that implements significant changes to the Hart-Scott-Rodino (HSR) premerger notification form and accompanying instructions. While the final rule includes numerous modifications from the draft proposal that was announced in June 2023 (see our previous client alert), this still represents the most substantial…

[joeraetzer]

Documents Needed to Buy or Sell a Business

The documents required to buy or sell a business depend on the structure, complexity, and specific terms of the deal. While each transaction varies, most deals involve a principal transaction agreement that governs the core deal: - Merger Agreement for mergers where two companies combine - Stock Purchase Agreement ("SPA") for stock purchases where the target company's shares are being acquired - Asset Purchase Agreement ("APA") for asset sales where the entire target company is not being purchased These agreements may have slight variations in their titles (e.g., "Agreement and Plan of Merger" or "Securities Purchase Agreement"), but these differences are generally superficial and don’t imply substantive distinctions. 1. Merger Agreements Merger agreements are used when one company merges into another, resulting in a change of control. Commonly employed in public M&A deals, they address: - Cancellation of the target company’s shares and their conversion into the purchase price. - Mechanics for tendering cancelled shares and distributing the purchase price to shareholders. - Filing of required state documents (e.g., certificates of merger). - Representations and warranties about each party’s ability to complete the transaction. - Regulatory filings, third-party consents, permits, and shareholder approvals. - Termination provisions for specified events, such as material adverse effects. - Indemnification clauses (more common in private M&A deals). In public transactions, additional protections may include no-shop clauses, break-up fees, and compliance with securities laws. 2. Stock Purchase Agreements (SPAs) SPAs are the primary agreement for stock purchases, facilitating the transfer of ownership without a merger. Key provisions include: - Terms for transferring stock, including physical delivery of stock certificates if applicable. - Representations and warranties about the target’s business and shares. SPAs are similar to merger agreements, but are rarely used in 100% acquisitions of public companies. 3. Asset Purchase Agreements (APAs) APAs govern transactions where assets (rather than stock) are sold. These agreements cover: - Enumeration of transferred assets and liabilities. - Legal instruments to facilitate the transfer (e.g., bills of sale, intellectual property assignments). - Representations about the sufficiency of acquired assets to operate the business. - Special provisions for shared assets used by both the seller and acquired business. Documents Signed Before the Principal Transaction Agreement 1. Confidentiality Agreement / Non-Disclosure Agreement (NDA) These agreements protect the confidentiality of discussions, deal terms, and sensitive information shared during negotiations. 2. Letters of Intent (LOIs) LOIs outline the preliminary terms of a deal, such as purchase price, structure, and contingencies. Though largely non-binding, they simplify negotiations by clarifying key terms early. 3. Exclusivity Agreements Buyers often request exclusivity agreements to ensure the seller won’t negotiate with other potential buyers for a specified period. Documents Attached to the Principal Transaction Agreement Disclosure Schedules These schedules provide detailed disclosures about the parties involved and qualify specific representations and warranties in the principal agreement. Documents Needed Between Signing and Closing 1. HSR Filings Under the Hart-Scott-Rodino Act, certain transactions must be reported to the FTC and DOJ for antitrust review before closing. 2. Third-Party Consents Some agreements require third-party consent (e.g., from landlords, lenders, or customers) before the transaction can proceed. Documents Delivered at Closing 1. Legal Opinions Legal opinions, though less common today, may confirm the accuracy of certain representations, such as a target’s legal standing or compliance with securities laws. 2. Stock Certificates For stock purchases, signed stock certificates are delivered at closing. 3. Bills of Sale In asset sales, bills of sale transfer ownership of personal property. 4. Assignment and Assumption Agreements These agreements transfer contracts, permits, and other assets while assigning related liabilities to the buyer. 5. Escrow Agreements Escrow agreements secure a portion of the purchase price to cover post-closing indemnification obligations. 6. Transition Services Agreements (TSAs) TSAs outline temporary support services provided by the seller post-closing, such as IT, logistics, or finance, to ensure a smooth transition for the acquired business. Other Potential Documents Depending on the transaction’s complexity, additional documents may include regulatory filings, employment agreements, non-compete clauses, real estate documents, lien releases, and fairness opinions. By understanding the role of these documents, buyers and sellers can better navigate the complexities of M&A transactions. Raetzer PLLC Read the full article Joseph J Raetzer

[mo-torious-mo-blog]

[mostlysignssomeportents]

The antitrust Twilight Zone

Funeral homes were once dominated by local, family owned businesses. Today, odds are, your neighborhood funeral home is owned by Service Corporation International, which has bought hundreds of funeral homes (keeping the proprietor’s name over the door), jacking up prices and reaping vast profits.

Funeral homes are now one of America’s most predatory, vicious industries, and SCI uses the profits it gouges out of bereaved, reeling families to fuel more acquisitions — 121 more in 2021. SCI gets some economies of scale out of this consolidation, but that’s passed onto shareholders, not consumers. SCI charges 42% more than independent funeral homes.

https://pluralistic.net/2022/09/09/high-cost-of-dying/#memento-mori

SCI boasts about its pricing power to its investors, how it exploits people’s unwillingness to venture far from home to buy funeral services. If you buy all the funeral homes in a neighborhood, you have near-total control over the market. Despite these obvious problems, none of SCI’s acquisitions face any merger scrutiny, thanks to loopholes in antitrust law.

These loopholes have allowed the entire US productive economy to undergo mass consolidation, flying under regulatory radar. This affects industries as diverse as “hospital beds, magic mushrooms, youth addiction treatment centers, mobile home parks, nursing homes, physicians’ practices, local newspapers, or e-commerce sellers,” but it’s at its worst when it comes to services associated with trauma, where you don’t shop around.

Think of how Envision, a healthcare rollup, used the capital reserves of KKR, its private equity owner, to buy emergency rooms and ambulance services, elevating surprise billing to a grotesque art form. Their depravity knows no bounds: an unconscious, intubated woman with covid was needlessly flown 20 miles to another hospital, generating a $52k bill.

https://pluralistic.net/2022/03/14/unhealthy-finances/#steins-law

This is “the health equivalent of a carjacking,” and rollups spread surprise billing beyond emergency rooms to anesthesiologists, radiologists, family practice, dermatology and others. In the late 80s, 70% of MDs owned their practices. Today, 70% of docs work for a hospital or corporation.

How the actual fuck did this happen? Rollups take place in “antitrust’s Twilight Zone,” where a perfect storm of regulatory blindspots, demographic factors, macroeconomics, and remorseless cheating by the ultra-wealthy has laid waste to the American economy, torching much of the US’s productive capacity in an orgy of predatory, extractive, enshittifying mergers.

The processes that underpin this transformation aren’t actually very complicated, but they are closely interwoven and can be hard to wrap your head around. “The Roll-Up Economy: The Business of Consolidating Industries with Serial Acquisitions,” a new paper from The American Economic Liberties Project by Denise Hearn, Krista Brown, Taylor Sekhon and Erik Peinert does a superb job of breaking it down:

http://www.economicliberties.us/wp-content/uploads/2022/12/Serial-Acquisitions-Working-Paper-R4-2.pdf

The most obvious problem here is with the MergerScrutiny process, which is when competition regulators must be notified of proposed mergers and must give their approval before they can proceed. Under the Hart-Scott-Rodino Act (HSR) merger scrutiny kicks in for mergers when the purchase price is $101m or more. A company that builds up a monopoly by acquiring hundreds of small businesses need never face merger scrutiny.

The high merger scrutiny threshold means that only a very few mergers are regulated: in 2021, out of 21,994 mergers, only 4,130 (<20%) were reported to the FTC. 2020 saw 16,723 mergers, with only 1.637 (>10%) being reported to the FTC.

Serial acquirers claim that the massive profits they extract by buying up and merging hundreds of businesses are the result of “efficiency” but a closer look at their marketplace conduct shows that most of those profits come from market power. Where efficiences are realized, they benefit shareholders, and are not shared with customers, who face higher prices as competition dwindles.

The serial acquisition bonanza is bad news for supply chains, wages, the small business ecosystem, inequality, and competition itself. Wherever we find concentrated industires, we find these under-the-radar rollups: out of 616 Big Tech acquisitions from 2010 to 2019, 94 (15%) of them came in for merger scrutiny.

The report’s authors quote FTC Commissioner Rebecca Slaughter: “I think of serial acquisitions as a Pac-Man strategy. Each individual merger viewed independently may not seem to have significant impact. But the collective impact of hundreds of smaller acquisitions, can lead to a monopolistic behavior.”

It’s not just the FTC that recognizes the risks from rollups. Jonathan Kanter, the DoJ’s top antitrust enforcer has raised alarms about private equity strategies that are “designed to hollow out or roll-up an industry and essentially cash out. That business model is often very much at odds with the law and very much at odds with the competition we’re trying to protect.”

The DoJ’s interest is important. As with so many antitrust failures, the problem isn’t in the law, but in its enforcement. Section 7 of the Clayton Act prohibits serial acquisitions under its “incipient monopolization” standard. Acquisitions are banned “where the effect of such acquisition may be to substantially lessen competition between the corporation whose stock is so acquired and the corporation making the acquisition.” This incipiency standard was strengthened by the 1950 Celler-Kefauver Amendment.

The lawmakers who passed both acts were clear about their legislative intention — to block this kind of stealth monopoly formation. For decades, that’s how the law was enforced. For example, in 1966, the DoJ blocked Von’s from acquiring another grocer because the resulting merger would give Von’s 7.5% of the regional market. While Von’s is cited by pro-monopoly extremists as an example of how the old antitrust system was broken and petty, the DoJ’s logic was impeccable and sorely missed today: they were trying to prevent a rollup of the sort that plagues our modern economy.

As the Supremes wrote in 1963: “A fundamental purpose of [stronger incipiency standards was] to arrest the trend toward concentration, the tendency of monopoly, before the consumer’s alternatives disappeared through merger, and that purpose would be ill-served if the law stayed its hand until 10, or 20, or 30 [more firms were absorbed].”

But even though the incipiency standard remains on the books, its enforcement dwindled away to nothing, starting in the Reagan era, thanks to the Chicago School’s influence. The neoliberal economists of Chicago, led by the Nixonite criminal Robert Bork, counseled that most monopolies were “efficient” and the inefficient ones would self-correct when new businesses challenged them, and demanded a halt to antitrust enforcement.

In 1982, the DoJ’s merger guidelines were gutted, made toothless through the addition of a “safe harbor” rule. So long as a merger stayed below a certain threshold of market concentration, the DoJ promised not to look into it. In 2000, Clinton signed an amendment to the HSR Act that exempted transactions below $50m. In 2010, Obama’s DoJ expanded the safe harbor to exclude “[mergers that] are unlikely to have adverse competitive effects and ordinarily require no further analysis.”

These constitute a “blank check” for serial acquirers. Any investor who found a profitable strategy for serial acquisition could now operate with impunity, free from government interference, no matter how devastating these acquisitions were to the real economy.

Unfortunately for us, serial acquisitions are profitable. As an EY study put it: “the more acquisitive the company… the greater the value created…there is a strong pattern of shareholder value growth, correlating with frequent acquisitions.” Where does this value come from? “Efficiencies” are part of the story, but it’s a sideshow. The real action is in the power that consolidation gives over workers, suppliers and customers, as well as vast, irresistable gains from financial engineering.

In all, the authors identify five ways that rollups enrich investors:

I. low-risk expansion;

II. efficiencies of scale;

III. pricing power;

IV. buyer power;

V. valuation arbitrage.

The efficiency gains that rolled up firms enjoy often come at the expense of workers — these companies shed jobs and depress wages, and the savings aren’t passed on to customers, but rather returned to the business, which reinvests it in gobbling up more companies, firing more workers, and slashing survivors’ wages. Anything left over is passed on to the investors.

Consolidated sectors are hotbeds of fraud: take Heartland, which has rolled up small dental practices across America. Heartland promised dentists that it would free them from the drudgery of billing and administration but instead embarked on a campaign of phony Medicare billing, wage theft, and forcing unnecessary, painful procedures on children.

Heartland is no anomaly: dental rollups have actually killed children by subjecting them to multiple, unnecessary root-canals. These predatory businesses rely on Medicaid paying for these procedures, meaning that it’s only the poorest children who face these abuses:

https://pluralistic.net/2022/11/17/the-doctor-will-fleece-you-now/#pe-in-full-effect

A consolidated sector has lots of ways to rip off the public: they can “directly raise prices, bundle different products or services together, or attach new fees to existing products.” The epidemic of junk fees can be traced to consolidation.

Consolidators aren’t shy about this, either. The pitch-decks they send to investors and board members openly brag about “pricing power, gained through acquisitions and high switching costs, as a key strategy.”

Unsurprisingly, investors love consolidators. Not only can they gouge customers and cheat workers, but they also enjoy an incredible, obscure benefit in the form of “valuation arbitrage.”

When a business goes up for sale, its valuation (price) is calculated by multiplying its annual cashflow. For small businesses, the usual multiplier is 3–5x. For large businesses, it’s 10–20x or more. That means that the mere act of merging a small business with a large business can increase its valuation sevenfold or more!

Let’s break that down. A dental practice that grosses $1m/year is generally sold for $3–5m. But if Heartland buys the practice and merges it with its chain of baby-torturing, Medicaid-defrauding dental practices, the chain’s valuation goes up by $10–20m. That higher valuation means that Heartland can borrow more money at more favorable rates, and it means that when it flips the husks of these dental practices, it expects a 700% return.

This is why your local veterinarian has been enshittified. “A typical vet practice sells for 5–8x cashflow…American Veterinary Group [is] valued at as much as 21x cashflow…When a large consolidator buys a $1M cashflow clinic, it may cost them as little as $5M, while increasing the value of the consolidator by $21M. This has created a goldrush for veterinary consolidators.”

This free money for large consolidators means that even when there are better buyers — investors who want to maintain the quality and service the business offers — they can’t outbid the consolidators. The consolidators, expecting a 700% profit triggered by the mere act of changing the business’s ownership papers, can always afford to pay more than someone who merely wants to provide a good business at a fair price to their community.

To make this worse, an unprecedented number of small businesses are all up for sale at once. Half of US businesses are owned by Boomers who are ready to retire and exhausted by two major financial crises within a decade. 60% of Boomer-owned businesses — 2.9m businesses of 11 or so employees each, employing 32m people in all — are expected to sell in the coming decade.

If nothing changes, these businesses are likely to end up in the hands of consolidators. Since the Great Financial Crisis of 2008, private equity firms and other looters have been awash in free money, courtesy of the Federal Reserve and Congress, who chose to bail out irresponsible and deceptive lenders, not the borrowers they preyed upon.

A decade of zero interest rate policy (ZIRP) helped PE grow to “staggering” size. Over that period, America’s 2,000 private equity firms raised buyout warchests totaling $2t. Today, private equity owned companies outnumber publicly traded firms by more than two to one.

Private equity is patient zero in the serial acquisition epidemic. The list of private equity rollup plays includes “comedy clubs, ad agencies, water bottles, local newspapers, and healthcare providers like hospitals, ERs, and nursing homes.”

Meanwhile, ZIRP left the nation’s pension funds desperate for returns on their investments, and these funds handed $480b to the private equity sector. If you have a pension, your retirement is being funded by investments that are destroying your industry, raising your rent, and turning the nursing home you’re doomed to into a charnel house.

The good news is that enforcers like Kanter have called time on the longstanding, bipartisan failure to use antitrust laws to block consolidation. Kanter told the NY Bar Association: “We have an obligation to enforce the antitrust laws as written by Congress, and we will challenge any merger where the effect ‘may be substantially to lessen competition, or to tend to create a monopoly.’”

The FTC and the DOJ already have many tools they can use to end this epidemic.

They can revive the incipiency standard from Sec 7 of the Clayton Act, which bans mergers where “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”

This allows regulators to “consider a broad range of price and non-price effects relevant to serial acquisitions, including the long-term business strategy of the acquirer, the current trend or prevalence of concentration or acquisitions in the industry, and the investment structure of the transactions”;

The FTC and DOJ can strengthen this by revising their merger guidelines to “incorporate a new section for industries or markets where there is a trend towards concentration.” They can get rid of Reagan’s 1982 safe harbor, and tear up the blank check for merger approval;

The FTC could institute a policy of immediately publishing merger filings, “the moment they are filed.”

Beyond this, the authors identify some key areas for legislative reform:

Exempt the FTC from the Paperwork Reduction Act (PRA) of 1995, which currently blocks the FTC from requesting documents from “10 or more people” when it investigates a merger;

Subject any company “making more than 6 acquisitions per year valued at $70 million total or more” to “extra scrutiny under revised merger guidelines, regardless of the total size of the firm or the individual acquisitions”;

Treat all the companies owned by a PE fund as having the same owner, rather than allowing the fiction that a holding company is the owner of a business;

Force businesses seeking merger approval to provide “any investment materials, such as Private Placement Memorandums, Management or Lender Presentations, or any documents prepared for the purposes of soliciting investment. Such documents often plainly describe the anticompetitive roll-up or consolidation strategy of the acquiring firm”;

Also force them to provide “loan documentation to understand the acquisition plans of a company and its financing strategy;”

When companies are found to have violated antitrust, ban them from acquiring any other company for 3–5 years, and/or force them to get FTC pre-approval for all future acquisitions;

Reinvigorate enforcement of rules requiring that some categories of business (especially healthcare) be owned by licensed professionals;

Lower the threshold for notification of mergers;

Add a new notification requirement based on the number of transactions;

Fed agencies should automatically share merger documents with state attorneys general;

Extend civil and criminal antitrust penalties to “investment bankers, attorneys, consultants who usher through anticompetitive mergers.”

[cannabisbusinessexecutive]

Big Trouble for Biglari Under the HSR Act – and Why Cannabis Operators Should Take Note

Big Trouble for Biglari Under the HSR Act – and Why Cannabis Operators Should Take Note

by Lisa Dunlop and Sam Sherman, Attorneys at Axxin Last December, investment fund operator Biglari Holdings Inc. agreed to pay a $1.4 million civil penalty to settle charges that it violated federal pre-merger filing requirements under the Hart-Scott-Rodino (HSR) Act. Biglari acquired shares that increased the value of voting securities it held in the Cracker Barrel restaurant chain from $155.1…

[chrisc-1966]

Under the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act), companies are required to report acquisitions of other companies if the size of that acquisition is greater than $94m (the exact figure has changed over time; in 2010 it was $60m). There are, however, exemptions that tech giants may have used to make larger acquisitions without reporting them.

As a result, dozens and possibly hundreds of market-altering purchases have never been made public – and that’s how the tech giants like it. They will often refuse to even acknowledge if they have bought a company. Many of the deals come with a non-compete clause, Simons noted, pointing to possible market interference.