Dx Deals: New Premerger Regulations Could Slow Down Pace of Transactions
The new rules, which were approved by the FTC in October and will go into effect in mid-January, aim to put a damper on consolidation
Like many portions of the US healthcare sector, laboratories have been awash in deals ranging from smaller acquisitions to huge mergers and multimillion-dollar buyouts of hospital outreach businesses. Those deals are not likely to dwindle anytime soon. However, pending changes to premerger rules under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 are likely to bring new challenges to both acquirers and acquisition targets.
The US Federal Trade Commission (FTC) voted to approve the new rules in October, which focus on the forms two businesses engaged in a merger and acquisition must submit to the FTC under Hart-Scott-Rodino (HSR) prior to closing any transaction. They will go into effect in mid-January 2025.
The intent of the new rules can be boiled down to these sentences on page four of the 460-page document: “Simply put, the economy of 2024 is different than it was in 1978 or 2000 (the years when the rules were initially formulated and reformulated) and, in the [FTC and U.S. Department of Justice’s] experience, the HSR form has not kept pace with the realities of how businesses compete today…the focus of competitive interaction is not as obvious when companies that supply goods or services also generate revenues from other sources, such as data sales, and when even businesses in traditional sectors such as manufacturing generate significant revenues from the sale of associated services.”1
In other words, US businesses have become much more complicated conglomerates. As a result, the old rules were leading to significant gaps in information. The FTC and U.S. Department of Justice (DOJ) said these gaps were making it more challenging to conduct competent premerger reviews.
“Premerger review is a critical task for the antitrust agencies and to do it well, we need information about each deal’s potential antitrust risk,” said Shaoul Sussman, associate director for litigation of the FTC’s Bureau of Competition, in a press release. “This rulemaking is a much needed update to address changes in the marketplace that have undermined the agencies’ ability to detect and prevent illegal mergers, while at the same time creating a more efficient review process.”2
Those parties planning a merger or acquisition will have to send more information to the FTC and DOJ. These additional details include:1
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- A description of the rationale behind the proposed deal.
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- Descriptions of competitive overlaps among the two parties—both in the US and worldwide—along with North American Industry Classification System (NAICS) codes and sales data for all areas of overlap, and descriptions of customers in those overlapping areas, along with a list of top 10 customers.
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- Descriptions of products in each party’s research and development pipeline that could compete with one another, and the geographies in which they may overlap.
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- Descriptions of relationships with suppliers.
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- Disclosure of any subsidies coming from overseas or from overseas entities or governments within the past two years.
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- A list of customers in overlapping areas or in any vertical relationships.
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- Disclosures of all directors and officers involved in any interlocking directorates.
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- Disclosures from both parties of any relevant prior acquisitions from within five years of the HSR filing.
- For the acquiring party, a full organizational chart must be disclosed, even for private equity firms.
The rules are likely to be more time-consuming, both for the businesses and regulators. The Morgan, Lewis & Bockius law firm estimates that the requirements for the companies may take between one to three weeks, as opposed to two to three days under the old regulations. And the FTC has estimated that the time to review such deals will increase from an average of 37 hours under the old rules to 105 hours under the new ones.3
Jaya White, a Chicago-based partner in the health and life sciences practice group at Quarles & Brady, believes the new rules could chill some dealmaking.
“We anticipate…that it will slow down the overall deal timeline, and reduce the number or size of the transactions,” White said in an email.
White noted that in addition to the new rules at the federal level, many states are also expanding the scope of information they are seeking for such deals as well.
“It remains to be seen what changes will happen at the state level with a new [presidential] administration, though at this time, we continue to see an increase in these types of laws across the states,” White said.
Quest Enters into Testing Pacts with the CDC
In other deals-related news, Quest Diagnostics was awarded multiple contracts by the US Centers for Disease Control and Prevention (CDC) to assist the agency in two rising threats: avian flu and the Oropouche virus.4
Although the CDC has currently labeled the public health risks from avian flu as low, 55 human cases have been confirmed in the US as of November 27, of which slightly more than half have occurred in California, which has one of the largest agriculture industries in the world.5 Infections spread to humans through close contact with animals such as chickens and cows.
“Emerging diseases like avian influenza require close coordination between the commercial laboratory industry and the CDC and other federal and state agencies to monitor and mobilize a rapid response,” said Yuri Fesko, MD, Quest’s chief medical officer, in a press release. “We appreciate CDC’s commitment to improving preparedness for any potential future emergencies and the support these contracts will provide to enable us to maintain the infrastructure necessary to act quickly when needed to counteract future health threats.”4
Quest said it would immediately introduce a rapid response lab test to detect the A H5 variant of the avian influenza virus. The test may only be ordered by a prescription from a physician, and tests will be processed at Quest’s lab in San Juan Capistrano, CA. Quest executive scientific director Elizabeth Marlowe said the laboratory-developed test has a one- to three-day turnaround.
Oropouche is spread through insect bites and is mostly confined to South America and Caribbean nations. There is no cure, but symptoms can subside after several days.6 As part of its Oropouche-related contract with the CDC, Quest will develop a test to aid in detecting the virus.
Quest officials declined to discuss the dollar value of the contracts with the CDC.
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