Notice2022-13584
JAB/SAGE Veterinary; Analysis of Agreement Containing Consent Orders To Aid Public Comment
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 27, 2022
Issuing agencies
Federal Trade Commission
Abstract
The consent agreement in this matter settles alleged violations of federal law prohibiting unfair methods of competition. The attached Analysis of Proposed Consent Orders to Aid Public Comment describes both the allegations in the complaint and the terms of the consent orders--embodied in the consent agreement--that would settle these allegations.
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<title>Federal Register, Volume 87 Issue 122 (Monday, June 27, 2022)</title>
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[Federal Register Volume 87, Number 122 (Monday, June 27, 2022)]
[Notices]
[Pages 38153-38158]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-13584]
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FEDERAL TRADE COMMISSION
[File No. 211 0140]
JAB/SAGE Veterinary; Analysis of Agreement Containing Consent
Orders To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement; request for comment.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair methods of competition.
The attached Analysis of Proposed Consent Orders to Aid Public Comment
describes both the allegations in the complaint and the terms of the
consent orders--embodied in the consent agreement--that would settle
these allegations.
DATES: Comments must be received on or before July 27, 2022.
ADDRESSES: Interested parties may file comments online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Please write: ``JAB/SAGE
Veterinary; File No. 211 0140'' on your comment and file your comment
online at <a href="https://www.regulations.gov">https://www.regulations.gov</a> by following the instructions on
the web-based form. If you prefer to file your comment on paper, please
mail your comment to the following address: Federal Trade Commission,
Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610,
(Annex D), Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Mike Barnett (202-326-2362), Bureau of
Competition, Federal Trade Commission, 400 7th Street SW, Washington,
DC 20024.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34,
notice is hereby given that the above-captioned consent agreement
containing a consent order to cease and desist, having been filed with
and accepted, subject to final approval, by the Commission, has been
placed on the public record for a period of thirty (30) days. The
following Analysis of Agreement Containing Consent Orders to Aid Public
Comment describes the terms of the consent agreement and the
allegations in the complaint. An electronic copy of the full text of
the consent agreement package can be obtained from the FTC website at
this web address: <a href="https://www.ftc.gov/news-events/commission-actions">https://www.ftc.gov/news-events/commission-actions</a>.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before July 27, 2022.
Write ``JAB/SAGE Veterinary; File No. 211 0140'' on your comment. Your
comment--including your name and your state--will be placed on the
public record of this proceeding, including, to the extent practicable,
on the <a href="https://www.regulations.gov">https://www.regulations.gov</a> website.
Due to protective actions in response to the COVID-19 pandemic and
the agency's heightened security screening, postal mail addressed to
the Commission will be delayed. We strongly encourage you to submit
your comments online through the <a href="https://www.regulations.gov">https://www.regulations.gov</a> website.
If you prefer to file your comment on paper, write ``JAB/SAGE
Veterinary; File No. 211 0140'' on your comment and on the envelope,
and mail your comment to the following address: Federal Trade
Commission, Office of the Secretary, 600 Pennsylvania Avenue NW, Suite
CC-5610, (Annex D), Washington, DC 20580.
Because your comment will be placed on the publicly accessible
website at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, you are solely responsible for
making sure your comment does not include any sensitive or confidential
information. In particular, your comment should not include sensitive
personal information, such as your or anyone else's Social Security
number; date of birth; driver's license number or other state
identification number, or foreign country equivalent; passport number;
financial account number; or credit or debit card number. You are also
solely responsible for making sure your comment does not include
sensitive health information, such as medical records or other
individually identifiable health information. In addition, your comment
should not include any ``trade secret or any commercial or financial
information which . . . is privileged or confidential''--as provided by
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2),
16 CFR 4.10(a)(2)--including competitively sensitive information such
as costs, sales statistics, inventories, formulas, patterns, devices,
manufacturing processes, or customer names.
Comments containing material for which confidential treatment is
requested must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular,
the written request for confidential treatment that accompanies the
comment must include the factual and legal basis for the request and
must identify the specific portions of the comment to be withheld from
the public record. See FTC Rule 4.9(c). Your comment will be kept
confidential only if the General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted on <a href="https://www.regulations.gov">https://www.regulations.gov</a>--as legally required by FTC
Rule 4.9(b)--we cannot redact or remove your comment from that website,
unless you submit a confidentiality request that meets the
[[Page 38154]]
requirements for such treatment under FTC Rule 4.9(c), and the General
Counsel grants that request.
Visit the FTC website at <a href="https://www.ftc.gov">https://www.ftc.gov</a> to read this document
and the news release describing this matter. The FTC Act and other laws
the Commission administers permit the collection of public comments to
consider and use in this proceeding, as appropriate. The Commission
will consider all timely and responsive public comments it receives on
or before July 27, 2022. For information on the Commission's privacy
policy, including routine uses permitted by the Privacy Act, see
<a href="https://www.ftc.gov/site-information/privacy-policy">https://www.ftc.gov/site-information/privacy-policy</a>.
Analysis of Agreement Containing Consent Orders To Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted, subject
to final approval, an Agreement Containing Consent Orders (``Consent
Agreement'') with JAB Consumer Partners SCA SICAR (``JAB''), the owner
of Compassion-First Pet Hospitals and NVA Parent Inc. (collectively,
``Compassion-First/NVA''), and SAGE Veterinary Partners, LLC
(``SAGE''), which is designed to remedy the anticompetitive effects
that would result from Compassion First/NVA's proposed acquisition of
SAGE.
Pursuant to an Equity Purchase Agreement dated June 14, 2021,
Compassion-First/NVA proposes to acquire SAGE for approximately $1.1
billion (the ``Acquisition''). Both parties provide specialty and
emergency veterinary services in clinics located in the United States.
The Commission alleges in its Complaint that the Acquisition, if
consummated, would violate Section 7 of the Clayton Act, as amended, 15
U.S.C. 8, and Section 5 of the Federal Trade Commission Act, as
amended, 15 U.S.C. 45, by lessening competition in the markets for
certain specialty and emergency veterinary services in three different
localities in the United States. The Consent Agreement, which contains
the proposed Decision and Order (``D&O'') and Order to Maintain Assets,
will remedy the alleged violations by preserving the competition that
would otherwise be eliminated by the Acquisition. Specifically, under
the terms of the D&O, Compassion-First/NVA is required to divest six
clinics to United Veterinary Care, LLC (``UVC''), an operator of
specialty and emergency veterinary clinics elsewhere in the country. In
order to protect robust future competition in markets trending towards
increased consolidation, including due to acquisitions by JAB that may
or may not be reportable under the Hart-Scott-Rodino Premerger
Notification Act (``HSR''), the D&O provides for (1) a statewide prior
approval by the parties in Texas and California for acquisitions
proximate to existing and future NVA emergency and specialty clinics,
and (2) a nationwide prior notice for proposed acquisitions proximate
to existing and future NVA emergency and specialty clinics.
The Consent Agreement with the proposed D&O and the Order to
Maintain Assets has been placed on the public record for thirty days
for receipt of comments from interested persons. Comments received
during this period will become part of the public record. After thirty
days, the Commission will review the D&O as well as any comments
received, and decide whether it should withdraw, modify, or make the
D&O final. The Commission is issuing the Order to Maintain Assets when
the Consent Agreement is placed on the public record.
II. The Relevant Markets and Market Structures
The relevant lines of commerce in which to analyze the Acquisition
are individual specialty veterinary services and emergency veterinary
services. Specialty veterinary services are required in cases where a
general practitioner veterinarian does not have the expertise or
equipment necessary to treat the sick or injured animal. General
practitioner veterinarians commonly refer such cases to a specialist,
typically a doctor of veterinary medicine who is board-certified in the
relevant specialty. Individual veterinary specialties include internal
medicine, neurology, medical oncology, critical care, ophthalmology,
and surgery. Emergency veterinary services are those used in acute
situations where a general practice veterinarian is not available or,
in some cases, not trained or equipped to treat the patient's medical
problem.
The relevant areas for the provision of specialty and emergency
veterinary services are local in nature, delineated by the distance and
time that pet owners travel to receive treatment. The distance and time
customers travel for specialty services are highly dependent on local
factors, such as the proximity of a clinic offering the required
specialty service, appointment availability, population density,
demographics, traffic patterns, or specific local geographic
impediments like large bodies of water or other geographic impediments.
The Acquisition is likely to result in consumer harm in markets for
the provision of the following services in the following localities:
a. internal medicine, neurology, medical oncology, critical care,
and surgery veterinary specialty services and emergency veterinary
services in and around Austin, Texas;
b. internal medicine, neurology, ophthalmology, and surgery
veterinary specialty services and emergency veterinary services in and
around San Francisco, California; and
c. internal medicine, medical oncology, and surgery veterinary
specialty services in addition to emergency veterinary services in the
area in and between Oakland, Berkeley, and Concord, California.
All of these relevant markets are currently highly concentrated,
and the Acquisition would substantially increase concentration in each
market. In some cases, the combined firm would be the only provider
following the transaction. In other markets, consumers would only have
one remaining alternative to the combined firm following the
transaction.
III. Entry
Entry into the relevant markets would not be timely, likely, or
sufficient in magnitude, character, and scope to deter or counteract
the anticompetitive effects of the Acquisition. For de novo entrants,
obtaining financing to build a new specialty or emergency veterinary
facility and acquiring or leasing necessary equipment can be expensive
and time consuming. The investment is risky for specialists that do not
have established practices and bases of referrals in the area. Further,
to become a licensed veterinary specialist requires extensive education
and training, significantly beyond that required to become a general
practitioner veterinarian. Consequently, veterinary specialists are
often in short supply, and recruiting them to move to a new area
frequently takes more than two years, making timely expansion by
existing specialty clinics particularly difficult.
IV. Effects of the Acquisition
The Acquisition, if consummated, may substantially lessen
competition in each of the relevant markets by eliminating close, head-
to-head competition between Compassion-First/NVA and SAGE for the
provision of specialty and emergency veterinary services. In some
markets, the Acquisition will result in a merger to monopoly. The
Acquisition increases the likelihood that Compassion First will
unilaterally exercise market power and cause customers to pay higher
[[Page 38155]]
prices for, or receive lower quality, relevant services.
V. The Proposed Decision and Order
The proposed D&O remedies the Acquisition's anticompetitive effects
in each market by requiring the parties to divest six facilities \1\ to
UVC. The divestitures will preserve competition between the divested
clinics and the combined firm's clinics. UVC is a qualified acquirer of
the divested assets because it has experience acquiring, integrating,
and operating specialty and emergency veterinary clinics. UVC does not
currently operate or have plans to operate any specialty and emergency
veterinary clinics in the relevant markets.
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\1\ The divested clinics include (1) SAGE's Central Texas
Veterinary Specialty & Emergency Hospital (North, South, and Round
Rock facilities) in Austin, Texas; and (2) Compassion-First/NVA's
North Peninsula Veterinary Emergency Clinic (San Mateo), PETS
Referral Center (Berkeley), and Solano-Napa Pet Emergency Clinic
(Fairfield) in and around San Francisco, Berkeley, Oakland, and
Concord, California. The divestitures include all assets, including
equipment and intellectual property, necessary to compete
effectively in each relevant market.
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The D&O requires the divestiture of all regulatory permits and
approvals, confidential business information, including customer
information, and other assets associated with providing specialty and
emergency veterinary care at the divested clinics. To ensure the
divestiture is successful, the D&O also requires Compassion-First/NVA
and SAGE to secure all third-party consents, assignments, releases, and
waivers necessary to conduct business at the divested clinics.
The D&O also requires Compassion-First/NVA and SAGE to provide
reasonable financial incentives to certain employees to encourage them
to stay in their current positions. Such incentives may include
guaranteed retention bonuses for specialty veterinarians at divestiture
clinics. These incentives will encourage veterinarians to continue
working at the divestiture clinics, which will ensure that UVC is able
to continue operating the clinics in a competitive manner.
Finally, the D&O contains other provisions to ensure that the
divestitures are successful. For example, Compassion-First/NVA will be
required to provide transitional services for a period of up to one
year to ensure UVC continues to operate the divested clinics
effectively as it implements its own quality care, billing, and supply
systems.
Additionally, because of the growing trend towards consolidation in
specialty and emergency veterinary services markets across the country,
as well as the likelihood of future acquisitions by JAB in these
markets, many of which may be non-HSR reportable, the D&O includes (1)
a statewide prior approval by the parties in Texas and California for
acquisitions proximate to existing and future NVA emergency and
specialty clinics, and (2) a nationwide prior notice for proposed
acquisitions proximate to existing and future NVA emergency and
specialty clinics. These provisions are effective for ten years. UVC
will also be required to obtain prior approval from the Commission
before transferring any of the divested assets to any buyer for a full
ten years after UVC acquires the divestiture assets, except in the case
of a sale of all or substantially all of UVC's business.
The Commission will appoint Dr. Michael Cavanaugh, DVM, to act as
an independent Monitor to oversee the Respondents' compliance with the
requirements of the Order, and to keep the Commission informed about
the status of the transfer of the divested clinics to UVC. The D&O
requires Compassion-First/NVA and SAGE to divest the clinics no later
than ten business days after the consummation of the Acquisition.
The purpose of this analysis is to facilitate public comment on the
Consent Agreement. It is not intended to constitute an official
interpretation of the Consent Agreement or to modify its terms in any
way.
By direction of the Commission.
April J. Tabor,
Secretary.
Statement of Chair Lina M. Khan Joined by Commissioner Rebecca Kelly
Slaughter and Commissioner Alvaro M. Bedoya
In June 2021, JAB Consumer Partners SCA SICAR (``JAB'') proposed to
buy SAGE Veterinary Partners, LLC (``SAGE''). JAB is a $55 billion
private equity fund whose investments span a host of consumer-facing
businesses, from Keurig, Dr. Pepper, and Panera Bread to Krispy Kreme
and Bally.\1\ In recent years, JAB has expanded into pet care and pet
health services. JAB's proposed transaction here would combine its
existing holdings of Compassion-First Pet Hospitals and National
Veterinary Associates (``NVA'') with SAGE to form an entity that
controls nearly 100 specialty and emergency clinics throughout the
country. After conducting a thorough investigation here, the Commission
determined it had reason to believe this deal--JAB's proposed
acquisition of SAGE--was illegal, alleging in its complaint the deal
would have enabled the firm to establish a dominant position in key
markets for specialty and emergency veterinary services in California
and Texas.
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\1\ JAB Holding Co., Annual Report, at 4 (2021), <a href="https://www.jabholco.com/documents/2/JAB_Holding_Company_S.%C3%A0.r.l.-Annual_Report_2021.pdf">https://www.jabholco.com/documents/2/JAB_Holding_Company_S.%C3%A0.r.l.-Annual_Report_2021.pdf</a>.
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This is not the first time that JAB and its entities have proposed
a deal the Commission alleged was unlawful. In 2020, the FTC brought an
action against an earlier acquisition by JAB's entities when JAB first
acquired NVA.\2\ In the complaint issued in that action, the FTC
alleged that JAB's combined ownership of Compassion-First Pet and NVA
violated the antitrust laws and ordered JAB to divest three clinics.
The entities before us have repeatedly proposed acquisitions that the
Commission has had reason to believe would violate the antitrust laws.
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\2\ Press Release, Fed. Trade Comm'n, FTC Requires Veterinary
Service Providers Compassion First and National Veterinary
Associates to Divest Assets in Three Local Markets (Feb. 14, 2020),
<a href="https://www.ftc.gov/newsevents/news/press-releases/2020/02/ftc-requires-veterinary-service-providers-compassion-first-national-veterinaryassociates-divest">https://www.ftc.gov/newsevents/news/press-releases/2020/02/ftc-requires-veterinary-service-providers-compassion-first-national-veterinaryassociates-divest</a>.
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As is routine in Commission actions, the FTC's proposed relief
would require a host of divestitures in both states. Critically,
however, the proposed order here goes further, addressing not only the
allegedly unlawful aspects of this specific acquisition but also
establishing key safeguards against future dealmaking that may also
prove unlawful. These extra protections are warranted given that this
is the second Commission consent order against JAB, the rapid pace of
JAB/NVA's ongoing acquisitions of veterinary clinics throughout the
country, and the ongoing consolidation in the industry.\3\
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\3\ Ross Kelly, Pandemic Hastens Ongoing Trend in Veterinary
Consolidation, VINNEWS (Dec. 30, 2021) (``Frenetic merger activity
among veterinary hospitals in 2021 has lifted the market share of
corporate consolidators in the United States to close to 50% of all
companion animal practice revenue by at least one estimate, as the
pandemic spurs demand for pet-care services.''), <a href="https://news.vin.com/default.aspx?pid=210&Id=10652228">https://news.vin.com/default.aspx?pid=210&Id=10652228</a>. This rapid
consolidation is happening worldwide and gaining the attention of
antitrust enforcers in other countries, too. Ross Kelly, Competition
Watchdog Bares Teeth Again in Veterinary Realm, VINNEWS (May 4,
2022), <a href="https://news.vin.com/default.aspx?pid=210&catId=620&Id=10922952">https://news.vin.com/default.aspx?pid=210&catId=620&Id=10922952</a> (noting recent U.K.
Competition and Markets Authority challenges to veterinary mergers
there).
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Because the deal may illegally lessen competition in three local
markets in California and Texas--in and around Austin, Texas; San
Francisco, California; and the East Bay--the FTC's proposed order would
require JAB to divest clinics in these markets. This
[[Page 38156]]
type of relief is a staple of the FTC's merger enforcement program: the
agency identifies specific local markets where the merging parties have
overlapping assets and where the deal would therefore most directly
reduce competition, and it requires the merging companies to divest
those overlapping assets to a separate buyer.
This proposed order, however, has two additional key protections.
First, if JAB seeks to buy a specialty or emergency veterinary clinic
located within 25 miles of any JAB clinic anywhere in California or
Texas in the next 10 years, JAB will first have to seek the FTC's
affirmative approval for the purchase. By covering all future
acquisitions within a short driving distance of clinics that JAB
already owns in California and Texas, the order establishes heightened
protections that extend beyond the specific local markets at issue in
this transaction. Moreover, the heightened protections will cover not
just overlaps with clinics that JAB owns today, but also with any
clinics that JAB subsequently owns in California and Texas--a feature
of the order that helps future-proof the relief.
Second, the order will require JAB to provide 30-day advance
written notice before JAB (including its relevant operating companies,
Compassion-First Pet Hospitals and National Veterinary Associates)
attempts to acquire a specialty or emergency veterinary clinic within
25 miles of a JAB clinic anywhere in the United States that JAB owns
now or in the future. This provision--the first of its kind in a
Commission order--ensures that the FTC will have advance notice of any
unreported purchases that would ordinarily escape our review, providing
the agency with the opportunity to investigate those transactions
before they are consummated.
These prior approval and nationwide prior notice provisions are one
way that the FTC can more closely monitor the potentially unlawful
dealmaking activities of companies like JAB/NVA that have repeatedly
attempted acquisitions the Commission alleged were unlawful. As we
explained last year when we reinitiated the agency's use of prior
approval and prior notice, the Commission must use all of its tools and
authorities to protect Americans from potentially unlawful deals--and
prior approval provisions in particular can help deter anticompetitive
deals and conserve scarce FTC resources.\4\ Indeed, the prior notice
provision in the earlier order involving JAB has had a beneficial
effect. And just recently, for example, the FTC conditioned a merger in
gasoline markets, in which one of the parties explicitly sought to
``try to take over'' the Utah gasoline marketplace, with a prior
approval requirement designed to thwart any such future efforts by the
parties to acquire market power and raise gas prices for the America
public.\5\
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\4\ Fed. Trade Comm'n, Statement of the Commission on Use of
Prior Approval Provisions in Merger Orders, <a href="https://www.ftc.gov/system/files/documents/public_statements/1597894/p859900priorapprovalstatement.pdf">https://www.ftc.gov/system/files/documents/public_statements/1597894/p859900priorapprovalstatement.pdf</a>.
\5\ Press Release, Fed. Trade Comm'n, FTC Requires ENCAP to Sell
Off EP Energy Corp.'s Entire Utah Oil Business amid Concerns that
Deal would Increase Pain at the Pump (Mar. 25, 2022), <a href="https://www.ftc.gov/news-events/news/press-releases/2022/03/ftc-requires-encap-sell-ep-energy-corps-entire-utah-oil-business-amid-concerns-deal-would-increase">https://www.ftc.gov/news-events/news/press-releases/2022/03/ftc-requires-encap-sell-ep-energy-corps-entire-utah-oil-business-amid-concerns-deal-would-increase</a>.
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Provisions like the ones in this matter will also allow the FTC to
better address stealth roll-ups by private equity firms like JAB/NVA
and serial acquisitions by other corporations. Antitrust enforcers must
be attentive to how private equity firms' business models may in some
instances distort incentives in ways that strip productive capacity,
degrade the quality of goods and services, and hinder competition.\6\
Private equity firms' playbook for purchasing or investing in companies
can include tactics such as leveraged buyouts, which saddle businesses
with debt and shift the burden of financial risk in ways that can
undermine long-term health and competitive viability.\7\ While private
equity firms can support capacity expansion and upgrades, firms that
seek to strip and flip assets over a relatively short period of time
are focused on increasing margins over the short-term, which can
incentivize unfair or deceptive practices and the hollowing out of
productive capacity. Meanwhile, serial acquisitions or ``buy-and-buy''
tactics can be used by private equity firms and other corporations to
roll up sectors, enabling them to accrue market power and reduce
incentives to compete, potentially leading to increased prices and
degraded quality.\8\
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\6\ See, e.g., Eileen Appelbaum & Rosemary Batt, Private Equity
At Work: When Wall Street Manages Main Street (2014).
\7\ Id.
\8\ Statement of Commissioner Rohit Chopra Regarding Private
Equity Roll-ups and the Hart-Scott Rodino Annual Report to Congress
(July 8, 2020), <a href="https://www.ftc.gov/system/files/documents/public_statements/1577783/p110014hsrannualreportchoprastatement.pdf">https://www.ftc.gov/system/files/documents/public_statements/1577783/p110014hsrannualreportchoprastatement.pdf</a>.
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Private equity firms have been particularly active in health care,
including anesthesiology, emergency medicine, hospice care, air
ambulances, and opioid treatment centers. A focus on short-term profits
in the health care context can incentivize practices that may reduce
quality of care, increase costs for patients and payors, and generate
appalling patient outcomes.\9\ Research and reporting suggests these
effects are especially pronounced in specialty practices, such as elder
care and disability care facilities. Research has shown that private
equity ownership of elder care facilities is correlated with increased
deaths at those nursing homes, potentially owing to cost-cutting
measures like staffing reductions.\10\ In another case, as one firm
consolidated ownership of group homes for people with disabilities,
media reporting revealed repeated failed inspections, overworked staff,
and even deaths.\11\
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\9\ Richard M. Scheffler et al., Soaring Private Equity
Investment in the Healthcare Sector: Consolidation Accelerated,
Competition Undermined, and Patients at Risk, Petris Ctr. on Health
Care Mkts. and Consumer Welfare 2 (May 18, 2021), <a href="https://publichealth.berkeley.edu/wp-content/uploads/2021/05/Private-Equity-I-Healthcare-Report-FINAL.pdf">https://publichealth.berkeley.edu/wp-content/uploads/2021/05/Private-Equity-I-Healthcare-Report-FINAL.pdf</a>. See also Melea Atkins, The Impact of
Private Equity on Nursing Home Care: Recommendations for
Policymakers, ROOSEVELT INST. 2 (Apr. 2021), <a href="https://rooseveltinstitute.org/wp-content/uploads/2021/04/RI_NursingHomesandPE_IssueBrief_202104.pdf">https://rooseveltinstitute.org/wp-content/uploads/2021/04/RI_NursingHomesandPE_IssueBrief_202104.pdf</a>.
\10\ Atul Gupta et al., Does Private Equity Investment in
Healthcare Benefit Patients? Evidence from Nursing Homes 2 (Nat'l
Bureau of Econ. Rsch., Working Paper No. 28474, 2021), <a href="https://www.nber.org/system/files/working_papers/w28474/w28474.pdf">https://www.nber.org/system/files/working_papers/w28474/w28474.pdf</a>.
\11\ Kendall Taggart et al., The Private Equity Giant KKR Bought
Hundreds of Homes for People With Disabilities. Some Vulnerable
Residents Suffered Abuse And Neglect., BuzzFeed News (Apr. 25,
2022), <a href="https://www.buzzfeednews.com/article/kendalltaggart/kkr-brightspring-disability-private-equity-abuse">https://www.buzzfeednews.com/article/kendalltaggart/kkr-brightspring-disability-private-equity-abuse</a>.
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Commissioners Phillips and Wilson take issue with the scope of the
prior approval and prior notice in our proposed order, arguing that
these heightened protections are not warranted because this acquisition
by JAB raises no special concern, and that consolidation at a national
level is ``irrelevant'' and ``not inherently concerning.'' \12\ But
this critique is belied by both market realities and prevailing law.
For one, JAB has been rapidly acquiring veterinary clinics throughout
the country, and it would be unwise for enforcers to ignore how private
equity funds in particular can be incentivized to engage in roll-up
strategies. The law also grants the FTC discretion to order fencing-in
relief, particularly when confronting a repeat offender.\13\ Moreover,
the statement that
[[Page 38157]]
consolidation at a national level should play no role in our analysis
is also at odds with governing Supreme Court precedent, which states
that assessing general industry trends is a basic component of merger
analysis.\14\ Ignoring this mandate raises rule of law concerns.
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\12\ Concurring Statement of Commissioners Noah Joshua Phillips
and Christine S. Wilson, JAB Consumer Partners SCA SICAR/SAGE
Veterinary Partners, LLC (Comm'n File No. 2110140) (June 9, 2022).
\13\ Telebrands Corp. v. F.T.C., 457 F.3d 354, 358 (4th Cir.
2006) (noting that evidence of prior violations supports stronger
relief). FTC orders ``may prohibit not only the further use of the
precise practice found to have existed in the past, but also, the
future use of related and similar practices.'' Carter Prods., Inc.
v. F.T.C., 323 F.2d 523, 532-33 (5th Cir. 1963) (internal quotation
marks and citation omitted). The Commission has wide discretion to
fashion a remedy appropriate to the unlawful practices found. Jacob
Siegel Co. v. F.T.C., 327 U.S. 608, 612-13 (1946); accord Fed. Trade
Comm'n v. Cement Inst., 333 U.S. 683, 726 (1948); Carter Prods.,
Inc. v. F.T.C., 323 F.2d 523, 532-33 (5th Cir. 1963).
\14\ See, e.g., Brown Shoe Co. v. United States, 370 U.S. 294,
322 (1962) (``Congress indicated plainly that a merger had to be
functionally viewed, in the context of its particular industry. That
is, whether the consolidation was to take place in an industry that
was fragmented, rather than concentrated, that had seen a recent
trend toward domination by a few leaders, or had remained fairly
consistent in its distribution of market shares among the
participating companies . . . all were aspects, varying in
importance with the merger under consideration, which would properly
be taken into account.''). See id. at 332-33 (``Another important
factor to consider is the trend toward concentration in the
industry. . . [R]emaining vigor cannot immunize a merger if the
trend in that industry is toward oligopoly.''). Id. at 344-45
(``Other factors to be considered in evaluating the probable effects
of a merger in the relevant market lend additional support to the
District Court's conclusion that this merger may substantially
lessen competition. One such factor is the history of tendency
toward concentration in the industry.'').
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Strategic use of prior notice and prior approval provisions is one
way that the Commission can better track and prevent unlawful
acquisitions by private equity firms and other corporations. Our
revision of the merger guidelines provides an additional opportunity to
ensure our tools reflect current market realities, including the
expanding role of private equity in our economy.\15\ In the meantime,
we will continue to use our existing authorities to fully protect
Americans from unlawful transactions.
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\15\ Press Release, Fed. Trade Comm'n, Federal Trade Commission
and Justice Department Seek to Strengthen Enforcement Against
Illegal Mergers (Jan. 18, 2022), <a href="https://www.ftc.gov/news-events/news/press-releases/2022/01/federal-trade-commission-justice-department-seek-strengthen-enforcement-against-illegal-mergers">https://www.ftc.gov/news-events/news/press-releases/2022/01/federal-trade-commission-justice-department-seek-strengthen-enforcement-against-illegal-mergers</a>. See
also <a href="http://Regulations.gov">Regulations.gov</a>, Request for Information on Merger Enforcement,
FTC-2022-0003 (Jan. 18, 2022), <a href="https://www.regulations.gov/document/FTC-2022-0003-0001">https://www.regulations.gov/document/FTC-2022-0003-0001</a>.
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Concurring Statement of Commissioners Noah Joshua Phillips and
Christine S. Wilson
The proposed consent order announced today settles the Commission's
allegations that the proposed acquisition of SAGE Veterinary Partners,
LLC (``SAGE'') by JAB Consumer Partners SCA SICAR (``JAB''), the owner
of Compassion-First Pet Hospitals and NVA Parent Inc. (collectively,
``Compassion-First/NVA''), may substantially lessen competition for
individual specialty veterinary services and emergency veterinary
services in three local markets: (i) Austin, TX; (ii) in and around San
Francisco, CA; and (iii) in and between Oakland, Berkeley, and Concord,
CA. The proposed divestiture resolves all competitive overlaps between
Compassion-First/NVA and SAGE in the alleged relevant markets.
Because it does so, we voted to accept this proposed consent order
for public comment. But we write separately to object to the
Complaint's invocation of rhetoric unrelated to competition and the
order's apparent predication of remedies upon both that rhetoric and
the majority's evident distaste for private equity as a business model,
instead of the facts uncovered in the investigation.
The Complaint alleges a ``growing trend towards consolidation in
the emergency and specialty veterinary services markets across the
United States in recent years by large chains''.\1\ That allegation,
and Chair Khan's concurrently-released statement regarding private
equity as a business model,\2\ are the apparent bases for imposing
broad prior approval and prior notice requirements on the parties.\3\
Even though we found competitive problems in just the three local
markets discussed above, we are imposing prior approval requirements
across California and Texas, and prior notice requirements across the
entire United States.
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\1\ Complaint, In re JAB Consumer Partners SCA SICAR/SAGE
Veterinary Partners, LLC, File No. 2110140, paragraph 9 (June 2,
2022).
\2\ Commissioners Bedoya and Slaughter join the Chair in her
statement.
\3\ The parties are in the best position to evaluate whether the
benefits of a transaction and the certainty of a consent order
outweigh the costs. So, we do not necessarily oppose consents on the
grounds that they include provisions that are unnecessary, overly
broad, and counterproductive.
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The ``growing trend'' allegation, in isolation, is not an
appropriate basis for incremental remedies. First, our investigation
revealed that the relevant competition occurs at the local level,
driven by the distance and time that pet owners are willing to travel
to obtain each relevant veterinary service. That is why the Complaint
pleads local markets and the divestitures are designed to resolve
overlaps in three specific local areas--two across the Bay Bridge from
one another. For competition purposes, there is no national antitrust
market for emergency and specialty veterinary services. To the extent
there is consolidation on a national level, based on what the
Commission pleads in the Complaint, it is irrelevant.\4\ It is also not
inherently concerning. Our review of the evidence makes clear that the
bulk of emergency and specialty veterinary clinics nationwide are
independent, with larger ``aggregators'' like JAB and SAGE collectively
controlling a minority of clinics. Post-acquisition, JAB will hold
fewer than 100 clinics nationwide, a competitively meaningless share of
the purported national market. Cf. U.S. v. Von's Grocery Co. 384 U.S.
270 (1966). Second, we have seen no evidence that such a trend, if it
exists, is bad for purposes of competition. That is, there are no
discernible anticompetitive effects.
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\4\ Chair Khan's statement argues that our critique here is
belied by ``market realities.'' According to the Complaint and the
Analysis of Agreement Containing Consent Orders to Aid Public
Comment voted on by this Commission, however, the reality of
competition in the markets in question is that it is local.
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While untethered to any impact on competition, the allegation of
the purported trend in nationwide consolidation appears to form the
sole basis in the Complaint for imposing out-of-market prior approval
and prior notice requirements. Chair Khan's statement also argues that
the fact that JAB is a private equity firm requires additional
remediation, but neither the Complaint nor the Analysis of Agreement
Containing Consent Orders to Aid Public Comment--nor, in our view, the
evidence uncovered in the investigation--indicate any reason why this
fact about JAB makes this or any other private equity transaction more
likely to raise competition concerns.\5\ Imposing heightened legal
obligations on disfavored groups--including private equity--because of
who they are rather than what they have done raises rule of law
concerns.
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\5\ Chair Khan's statement points to buyouts by private equity
firms that ``saddle businesses with debt.'' Public companies also
sometimes choose to finance operations and acquisitions with debt.
See e.g., Frances Yoon, The World's Appetite for Debt Is Smashing
Records, Wall St. J. (Nov. 30, 2020), <a href="https://www.wsj.com/articles/the-world-is-bingeing-on-debtand-smashing-records-11606732203">https://www.wsj.com/articles/the-world-is-bingeing-on-debtand-smashing-records-11606732203</a>. See
also Franco Modigliani & Merton H. Miller, The Cost of Capital,
Corporation Finance and The Theory of Investment, 48 a.m. Econ. Rev
261 (1958).
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The parties are subject to statewide prior approval in Texas and
California and nationwide prior notice. The Commission's Prior Approval
Policy Statement (``Prior Approval Policy'') contemplates that the
Commission might impose a prior approval requirement that covers
product or geographic markets beyond the relevant
[[Page 38158]]
ones affected by the merger.\6\ Most of the bases for imposing out-of-
market remedies are not met here--for example, if ``the relevant market
alleged is already concentrated or has seen significant consolidation
in the previous ten years'' (emphasis added).\7\ The Complaint does not
allege that the three relevant geographic markets here have seen
significant consolidation.
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\6\ Statement of the Commission on Use of Prior Approval
Provisions in Merger Orders (Oct. 25, 2021), <a href="https://www.ftc.gov/system/files/documents/public_statements/1597894/p859900priorapprovalstatement.pdf">https://www.ftc.gov/system/files/documents/public_statements/1597894/p859900priorapprovalstatement.pdf</a> (hereinafter ``Prior Approval
Policy''). But see Dissenting Statement of Commissioners Christine
S. Wilson and Noah Joshua Phillips Regarding the Statement of the
Commission on Use of Prior Approval Provisions in Merger Orders
(Oct. 29, 2021), <a href="https://www.ftc.gov/system/files/documents/public_statements/1598095/wilson_phillips_prior_approval_dissentingstatement102921.pdf">https://www.ftc.gov/system/files/documents/public_statements/1598095/wilson_phillips_prior_approval_dissentingstatement102921.pdf</a>.
\7\ Prior Approval Policy, p. 2.
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The Chair also justifies the broad prior approval provision because
JAB previously acquired clinics and entered into a related consent
order. In that prior matter, JAB approached the Commission with a
proposed acquisition and worked with it to resolve competitive
overlaps, small parts of a much larger transaction.\8\ That process
enabled the FTC to ensure that overlapping assets were divested to an
acceptable buyer, which is critical to maintaining competition.\9\ The
effect of imposing broader prior approval requirements because of such
settlements will be to deter not mergers, but settlements. It will
deter parties from submitting for agency review the complete set of
assets subject to the deal, instead ``fixing it first'': selling what
they want to whom they want. The Commission has traditionally eschewed
this approach because it reduces our ability to ensure the robustness
of the divestiture and the quality of the buyer and because, without a
consent order, there is no accountability should parties fail to meet
their obligations. Fix-it-first transactions remove Commission
oversight and increase the likelihood that competition will not be
preserved and that consumers will be harmed.
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\8\ See Press Release, FTC Requires Veterinary Service Providers
Compassion First and National Veterinary Associates to Divest Assets
in Three Local Markets (Feb. 14, 2020), <a href="https://www.ftc.gov/news-events/news/press-releases/2020/02/ftc-requires-veterinary-service-providers-compassion-first-national-veterinary-associates-divest">https://www.ftc.gov/news-events/news/press-releases/2020/02/ftc-requires-veterinary-service-providers-compassion-first-national-veterinary-associates-divest</a>
(The FTC required divestiture of 3 out of over 70 clinics operated
by the parties).
\9\ See e.g., The FTC's Merger Remedies 2006-2012: A Report of
the Bureaus of Competition and Economics (Jan. 2017), <a href="https://www.ftc.gov/system/files/documents/reports/ftcs-merger-remedies-2006-2012-report-bureaus-competition-economics/p143100_ftc_merger_remedies_2006-2012.pdf">https://www.ftc.gov/system/files/documents/reports/ftcs-merger-remedies-2006-2012-report-bureaus-competition-economics/p143100_ftc_merger_remedies_2006-2012.pdf</a>.
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As we warned when the Commission (actually, two sitting
Commissioners and a zombie vote) issued the ill-advised Prior Approval
Policy, the broad and subjective factors enunciated in that policy lack
limiting principles and are almost certain to lead to the routine
imposition of prior approval provisions on geographic and product
markets beyond those at issue in any given merger. We acknowledge that
there are cases where the evidence supports the imposition of these
more onerous remedies.\10\ This does not appear to be one of those
cases.
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\10\ Decision, In re DaVita Inc./Total Rental Care, Inc., File
No. 2110013 (Oct. 25, 2021) <a href="https://www.ftc.gov/system/files/documents/cases/davita_order_9_24_final.pdf">https://www.ftc.gov/system/files/documents/cases/davita_order_9_24_final.pdf</a> (DaVita was subject to a
statewide prior provision, requiring prior approval from the
Commission before acquiring any new ownership interest in a dialysis
clinic in Utah.).
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We encourage comments during the public comment period regarding
the statewide prior approval and nationwide prior notice provisions
that appear in today's consent order. In addition, we encourage
comments on the implications of the agency's apparent shift to an
approach that incentivizes fix-it-firsts.
[FR Doc. 2022-13584 Filed 6-24-22; 8:45 am]
BILLING CODE 6750-01-P
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