Serial Acquisitions Are Every Bit As Corrosive As Big, High Profile Mergers

December 15, 2022 Press Release

Washington, D.C. — The American Economic Liberties Project released a new report, “The Roll-up Economy: The Business of Consolidating Industries With Serial Acquisitions,” today, which examines how repeated small acquisitions lead to industry consolidation and can harm consumers, suppliers, workers and competition itself. The report lays out the historical context behind the rise of this business strategy — used by private equity and public companies alike — and urges antitrust enforcers to address this under-the-radar method of industry consolidation.

“Big, high-profile mergers get most of the media attention, but industry consolidation through small, serial mergers can often have equally negative implications for consumers and workers. And they occur in the regulatory shadows — without oversight.” said Denise Hearn, Senior Fellow at the American Economic Liberties Project. “For too long, firms — public companies and private equity alike — have been buying up fragmented industries through repeated, piecemeal acquisitions, kneecapping competition, service quality, and wages in the process. As the Federal Trade Commission and Department of Justice reevaluate merger guidelines, reexamining the thresholds for merger scrutiny should be a key consideration.”

“From hospitals to comedy clubs, newspapers to nursing homes, few industries are safe from serial mergers and acquisitions,” said Krista Brown, Senior Policy Analyst at American Economic Liberties Project. “For entrepreneurs and workers, watching their industry get rolled up by well-financed firms can be death sentence for any remaining innovation and bargaining power. And for consumers, these roll ups often suck the soul out of main street, leaving faceless corporate entities with jacked up prices and poor working conditions.”

As the Federal Trade Commission and Department of Justice conduct a wholesale review of both the strength of current merger guidelines and agency enforcement practices, the report lays out why serial acquisitions should be an area of particular attention. The scale of the problem is still likely underappreciated, given that neither regulatory nor public attention has focused on the issue. At the same time, while private equity roll-up strategies are a primary area of concern, the business strategy of consolidation through many small transactions has grown beyond PE, and it is now being deployed by startups and even publicly traded companies in a range of industries.

The report notes that in 2021 there were 21,994 total merger transactions (both public and private) in the United States, yet under 20% – only 4,130 – were reported to the FTC. Similarly, in 2020 there was a total of 16,723 transactions, and only 1,637 – under 10% – were reported.

Despite their expanding prevalence in many industries, serial acquirers fly under the regulatory radar into an antitrust twilight zone. Because merger filing thresholds under the Hart-Scott-Rodino Act (HSR) only require that companies report transactions to the FTC if they are valued at over $101 million, serial acquirers rolling up industries with many small transactions are never seen or reviewed by antitrust enforcers. Federal Trade Commission Chair Lina Khan and Department of Justice Antitrust Division’s Jonathan Kanter have both expressed the need to examine the impact of repeated small scale acquisitions and buyouts on market competition in recent speeches.

To investigate and address this harmful strategy, the report provides a wide range of potential recommendations, including: reinvigorating the Clayton Act’s incipiency standard, removing “Safe Harbor” provisions from merger Guidelines, revamping investigative criteria for serial acquisitions, and more.

Read “The Roll-up Economy: The Business of Consolidating Industries With Serial Acquisitions,” here.

Learn more about Economic Liberties here.

The American Economic Liberties Project works to ensure America’s system of commerce is structured to advance, rather than undermine, economic liberty, fair commerce, and a secure, inclusive democracy. Economic Liberties believes true economic liberty means entrepreneurs and businesses large and small succeed on the merits of their ideas and hard work; commerce empowers consumers, workers, farmers, and engineers instead of subjecting them to discrimination and abuse from financiers and monopolists; foreign trade arrangements support domestic security and democracy; and wealth is broadly distributed to support equitable political power.