Roll ups under the microscope: Welsh Carson sets a reminder for private equity investors

Market consolidation is a perennial issue of concern for competition regulators across the globe. In recent years, regulators in Australia and abroad have paid particularly close attention to the way that minor or creeping acquisitions contribute to market consolidation. 

Increasingly, regulators are concerned about the way that bolt on or “roll up” schemes impact the competitiveness of markets. That is, acquisitions by which firms make a series of smaller acquisitions and combine them into one large industry player with concentrated market power. In particular, transactions by private equity firms which may be perceived as part of a broader roll up strategy are squarely in the global regulatory spotlight. 

While private equity investors were traditionally seen as competitively benign, competition regulators around the world are increasingly scrutinising the involvement that these firms have in anti-competitive acquisitions, especially within essential and consumer-facing industries. We previously discussed the hardened stance taken by US, UK and EU regulators on PE-backed mergers in an earlier article. 

Recent developments in these investigations, including the finalisation of the enquiry into Welsh, Carson, Anderson & Stowe (Welsh Carson), have shown that now more than ever, firms need to understand the competition risks associated with their acquisitions and the strategies needed to readily navigate regulatory processes. 

Update: roll ups in healthcare 

In 2023, the Federal Trade Commission (FTC) accused private equity firm Welsh Carson and its portfolio company U.S. Anesthesia Partners (USAP) of engaging in a decade-long roll up strategy to consolidate anaesthesia services in Texas. The FTC claimed that Welsh Carson and USAP systematically acquired almost every large anaesthesia practice in Texas to suppress competition and increase prices, leveraging the essentialness of anaesthesia services. 

The FTC approved final consent orders with Welsh Carson in May to resolve its antitrust investigation and a potential administrative case against the firm. Under the consent order, Welsh Carson will be required to limit its involvement with USAP, and notify and receive approval from the FTC for specified future acquisitions and investments in anaesthesia and other hospital-based physician practices. The agreement will remain in effect for 10 years. A separate proceeding against USAP continues in the Federal Court.

The case is unique in that the FTC has targeted both the acquiring company and its private equity sponsor, notwithstanding that Welsh Carson has held a minority shareholding in USAP since 2017. 

The Australian perspective 

We expect that the ACCC is, and will continue to, take a similarly rigorous approach to acquisitions by private equity firms. 

Under the new mandatory merger regime, set to commence on 1 January 2026, the ACCC will target serial acquisitions by assessing the cumulative effect of all transactions made by the merger parties within the previous three years. Small acquisitions made by very large firms will also be flagged under the new notification thresholds. Market consolidation will be addressed through the expansion of the “substantial lessening of competition” test to capture mergers that create, strengthen or entrench a position of substantial market power. The ACCC has announced it will pay particular attention to deals within consumer-facing industries, as well as the acquisition of small pet, veterinary and medical businesses. 

What this means for your deal 

Lessons for private equity firms include:

• Private equity firms can expect roll ups to be scrutinised by the ACCC
• Funds should not assume they can protect themselves from the anti-competitive activity of their portfolio companies

Merger reform is imminent – see our article, ‘Merger reform: will you need to notify your deal under the new regime? Will it get blocked?’