A Return to Traditional M&A? Insights from First Merger Challenge of Trump Administration’s Federal Trade Commission

In the first merger challenge of the Trump Administration, the U.S. Federal Trade Commission (FTC) recently moved to block the $627 million acquisition of cardiovascular devicemaker Surmodics by private equity firm GTCR BC Holdings (GTCR).   While the lawsuit confirms the continuation of aggressive antitrust enforcement under Trump, it appears to break from the Biden Administration’s focus on private equity buyers, proceeding instead along a path focused on more traditional theories of antitrust harm.

Background

The GTCR/Surmodics transaction involves the combination of two leading providers of hydrophilic coatings in the United States.  Hydrophilic coatings are typically used by medical device manufacturers and are applied to lifesaving medical devices such as catheters and guidewires, enabling those devices to more easily maneuver within the body without damaging sensitive tissue or other structures.  Though they are a small part of the overall cost of a medical device, hydrophilic coatings nevertheless play a critical role in a device’s safety and performance.  While some medical device original equipment manufacturers (OEMs) make hydrophilic coatings inhouse, most OEMs allegedly purchase them from third parties like Surmodics and Biocoat (majority-owned by GTCR).

Surmodics and GTCR entered into a definitive agreement for GTCR to acquire Surmodics in May 2024, and the parties initially expected the deal to close in the second half of 2024.[1]  At the time of the deal announcement, GTCR touted itself as an “ideal partner for Surmodics, given its extensive history and deep domain expertise in the Healthcare sector,” and promised to partner with the Surmodics team to “continue to expand the company’s offering and broaden its reach.”[2]  But the parties subsequently faced an extensive multi-month FTC investigation, culminating with the Commission unanimously voting to file suit to block the merger in early March 2025.[3]

FTC Theories of Harm

The FTC lawsuit centers around allegations that the combination of GTCR and Surmodics will result in substantially increased concentration in the relevant market, leading to a loss of competition and ultimate consumer harm.   According to the complaint, Surmodics is the largest provider of outsourced hydrophilic coatings in the United States, and Biocoat is the second largest.  Only two other large manufacturers of outsourced hydrophilic coatings allegedly remain (along with some “fringe players”), but they sell only a specific type of UV-cured coating that the FTC claims is not preferred by the majority of customers.  The complaint alleges that a combined GTCR/Surmodics would have greater than 50% market share, resulting in a post-merger HHI exceeding 3,500 and a change in HHI of over 1,000.  These levels substantially surpass the concentration thresholds set forth in the 2023 Merger Guidelines, which conclude that mergers are presumptively unlawful if they result in a combined market share of 30% and a post-merger HHI of 1,800 with a change in HHI above 100.[4]  Notably, the post-merger HHI figures alleged in GTCR/Surmodics would have also exceeded the higher thresholds in earlier versions of the agencies’ Horizontal Merger Guidelines.

The FTC’s complaint also relies extensively on ordinary course business documents – like board presentations, internal communications, and strategic and business planning documents – to underscore the alleged closeness of competition between the merging parties.  Direct bidding evidence also allegedly shows that the parties frequently go up against each other to win OEM business, with their “fierce competition” allegedly resulting in better quality and services as well as competitive pricing and innovation, ultimately benefiting both medical device OEMs and patients.  The complaint notes that the relevant market has high entry barriers, including substantial regulatory requirements and customer qualification processes as well as long R&D timelines that make it difficult for potential new entrants.   Finally, the complaint highlights alleged customer concern about the transaction, a frequent feature of many FTC merger challenges.

Key Takeaways

The FTC’s challenge appears to signal a return to more traditional antitrust theories, at least for now.  As noted above, the complaint is heavily focused on market concentration and the potential for anticompetitive effects, with the FTC arguing that the merger would eliminate direct head-to-head competition between the two leading players in the industry.  Focusing on the horizontal combination of two direct competitors with high combined market shares in an allegedly concentrated market is something we have seen repeatedly in prior Republican (and Democratic) administrations, so in that sense the complaint does not break new ground.   Additionally, given the market shares and concentration levels alleged in GTCR/Surmodics, the case does not skirt anywhere close to the more aggressive presumptions and HHI figures contained in the 2023 Merger Guidelines.

What appears clear, however, is that the Trump FTC takes a more neutral approach to private equity transactions, in contrast to the Biden administration’s heavy scrutiny of and hostility toward private equity-backed consolidation and “roll-up” strategies.  The FTC’s complaint in the GTCR/Surmodics case largely ignores the private equity element to the deal, focusing entirely on other aspects of the transaction.  Indeed, in the redacted complaint posted by the agency, the term “private equity” is mentioned just twice and is used simply to specify GTCR’s company type.  A concurring statement by now-fired Democratic Commissioners Rebecca Slaughter and Alvaro Bedoya did highlight the merger challenge as targeting a private equity roll-up acquisition, noting that the combination is “part of a widespread and problematic playbook in our economy” that can “come at substantial cost to the market and to consumers.”[5]  The Republican members of the FTC, however, who today comprise the entire membership of the FTC, have historically pushed back against the argument that private equity firms should receive heightened antitrust scrutiny.[6]  The treatment of private equity in GTCR/Surmodics appears to confirm that the Trump FTC is less focused on specifically targeting private equity transactions as an area of enforcement, though the Commission will continue to aggressively enforce the antitrust laws to stop harmful deals, regardless of the type of parties involved.

Finally, and unsurprisingly, the FTC’s case against GTCR/Surmodics is yet another example that transactions in the healthcare industry, in particular, continue to be a focus for antitrust enforcers regardless of which political party is in office.  The focus on healthcare has spanned several decades and reflects the importance of healthcare markets to the larger economy, as well as healthcare’s direct impact on patients, caregivers, and local communities.  We expect continued focus in this industry at both agencies in the years ahead.[7]