May 14, 2024 - Business

Private equity escapes major antitrust lawsuit

Illustration of an open briefcase holding a gavel.

Illustration: Annelise Capossela/Axios

Private equity is breathing easier this morning, after a federal judge in Texas dismissed what could have been a landmark antitrust lawsuit against Welsh Carson Anderson & Stowe.

Why it matters: The Biden administration took a big swing against private equity. And it missed.

Catch up quick: The Federal Trade Commission last year sued both WCAS and one of its portfolio companies for suppressing competition and driving up prices of anesthesiology services in Texas.

  • WCAS in 2012 had formed U.S. Anesthesia Partners (USAP), a platform to acquire anesthesia services groups.
  • The FTC claimed that WCAS and USAP bought up "nearly every large anesthesia practice in Texas," in order to form a dominant provider, and then forged price-setting agreements with providers that had remained independent.
  • WCAS currently holds just a 23% stake in USAP, but the FTC argued that the private equity firm remained in effective control of an ongoing antitrust violation.

Why it matters: This was the FTC's first direct swing at private equity, and an effort to shove a dagger through the corporate veil.

  • Had it succeeded, private equity firms could have feared liability for the actions of portfolio companies. Moreover, it could have been a death knell for the industry's popular roll-up strategies.

The latest: Judge Kenneth Hoyt dismissed WCAS as a defendant, although allowed the case to proceed against USAP.

  • Hoyt reasoned that the FTC didn't "cite any authority for the proposition that receiving profits from an entity that may be violating antitrust laws is itself a violation of antitrust laws."
  • He added that the FTC didn't meet its burden in proving that WCAS continues to be in control of USAP, given its minority equity stake a minority representation on the USAP board, no matter how "hands-on" WCAS may be. That does seem to provide FTC with some wiggle room if it brings a future case against a control investor, but not here.
  • Finally, Hoyt determined that the FTC's more appropriate antitrust attack against WCAS was on its initial acquisition of an anesthesiology practice in Texas, rather than in the subsequent purchases that were technically done by USAP. Again, a lesson for future FTC litigation.

What WCAS is saying: "We are gratified that the court dismissed the FTC's case against Welsh Carson in its entirety. As we have said from the beginning, this case was without factual or legal basis."

Go deeper