DOJ Enforcers Turn Up Heat on Healthcare Private Equity Fund Deals

Independent medical practices and hospitals are being swallowed up at a growing rate and the Biden administration doesn’t like it one little bit. On July 9, 2021, the president issued an Executive Order (EO) instructing the Department of Justice (DOJ), Federal Trade Commission (FTC), and other federal agencies to vigorously enforce antitrust laws across all markets, including health care. But a hostile government policy has done little to slow consolidation.

Enforcement Attention Shifts to Private Equity Funds

Along with big hospitals and health systems, private equity (PE) funds have been a driving force in healthcare consolidation. Globally, there were a record 14,730 PE-driven M&A deals worth $1.2 trillion in 2021; health care was the second leading sector for PE investments. So, the DOJ is now focusing its sights on PE. On June 3, the government ratcheted up the pressure when Deputy Assistant Attorney General Andrew Forman told lawyers attending the American Bar Association (ABA) Antitrust in Healthcare Conference in Washington that the DOJ is thinking about “enhancing antitrust enforcement” regarding PE activity in the healthcare sector.

While acknowledging PE’s potential to play “an important role in our economy,” Forman suggested that “certain private equity transactions and conduct suggest an undue focus on short-term profits and aggressive cost-cutting.” In the healthcare space, such an approach can create not only anti-competitive behavior but also “disastrous patient outcomes,” he said. Forman listed four areas of concern:

1. Roll-Ups

The DOJ will increase scrutiny of what are called PE “roll-ups,” a strategy of acquiring and merging multiple smaller companies in the same industry and then consolidating them into a large company. Critics of roll-ups see it as a sneaky strategy of eroding competition and building monopolies on a gradual and cumulative basis with no single transaction attracting attention.

2. Incentives

Another concern is whether PE transactions skew priorities and incentives by inducing firms that would otherwise act as market disruptors and mavericks to shelve innovation and focus on short-term, financial gain. After all, getting acquired by a PE fund is a good way for founders of small, innovative firms to get rich.

3. Interlocking Directorates

Interlocking directorates is a means of stifling competition by having the same person or different persons appointed by the same company, to serve as officers or directors of one or more competing companies. It’s also illegal under Section 8 of the Clayton Act. Forman said the DOJ intends to take “aggressive action” to enforce Section 8.

4. HSR Filing Violations

 A federal law called the Hart-Scott-Rodino Act (HSR) requires acquiring entities to file information about and get the DOJ and FTC to approve certain mergers, acquisitions, and joint ventures before the transaction closes. According to Forman, the DOJ has recently learned of “HSR filing deficiencies” relating to PE deals. The DOJ will take appropriate actions to ensure that PE funds are taking their HSR obligations “seriously enough,” he added. 

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Here’s a summary of the key new M&A diagnostic deals that were announced and/or closed in June 2022: 

Mergers, Acquisitions, & Asset Sales

Acquiring Company	Target(s)	Deal Summary
Fujirebio	ADx NeuroSciences	• Price: €40 million ($42.1 million) • Status: Expected to close in June • Acquisition of neurodegenerative disease diagnostic company positions Fujirebio to expand its global antibody supply business and contract development and manufacturing offerings in neurodegenerative field
Bio-Techne	Namocell	• Price: Undisclosed • Status: Expected to close in Q4 (Bio-Techne’s 2023 Q1) • Acquisition of single-cell sorting and dispensing firm offering multiple instruments, including Pala, a two-laser system with up to 11 fluorescent detection channels, and Hana, a single-laser system with 2 fluorescent detection channels
GBS	Intelligent Fingerprinting	• Price: Undisclosed • Status: Option to acquire IFP by end of 2022 • As part of deal, GBS entered into a bridge facility agreement and provided IFP a $500,000 loan that’s repayable by year-end or if IFP terminates the agreement • GBS gets option to acquire UK-based producer of Drug Screening System that analyzes fingerprint sweat using single-use disposable cartridges and a portable reader
Eurobio Scientific	Biomedical Diagnostics	• Price: Undisclosed • Status: Closed • Acquisition of Belgian distributor of quality control reagents and specialty tests and instruments for autoimmunity, infectious diseases, genetic disorders, and biotherapy surveillance
Guardant Health	Guardant Health AMEA	• Price: $177.8 million • Status: Closed • Guardant Health acquires full control of joint venture between itself and global investment firm SoftBank, which launched in 2018
StatLab Medical Products	CellPath	• Price: Undisclosed • Status: Closed • Acquisition of U.K.-based histology and cytology product manufacturer expands StatLab’s presence in Europe and adds injection-molding manufacturing capabilities
Medix Biochemica	Bioresource Technology	• Price: Undisclosed • Status: Closed • Finnish producer of in vitro diagnostics materials acquires US provider of base matrices and other raw materials for IVD manufacturing
Dovetail Genomics	Arc Bio	• Price: Undisclosed • Status: Closed • Merger of chromatin conformation capture assay developer with sibling company that offers metagenomic microbial detection technology to form new company called Cantata Bio
R-Biopharm	AusDiagnostics	• Price: Undisclosed • Status: Closed • Acquisition of Australian producer of multiplexing molecular assays and reagents broadens R-Biopharm’s molecular biology expertise
Kindbody	Phosphorus Labs	• Price: Undisclosed • Status: Closed • Fertility clinics provider acquires genetic testing firm
Quidel	Ortho Clinical Diagnostics	• Price: Former Ortho Clinical Diagnostics shareholders get $7.14 cash and 0.1055 shares of QuidelOrtho common stock for each Ortho common share; former Quidel stockholders get one share of QuidelOrtho common stock for each share of Quidel common stock • Status: Closed • Companies combine to create QuidelOrtho, with HQ in San Diego and approximately 6,000 employees to trade on Nasdaq under symbol QDEL