Contract analysis

I. Executive Summary The purpose of this memorandum is to provide Ardent Capital Partners III LP ("Ardent Capital" or the "Fund") with a preliminary assessment of the antitrust risks associated with its proposed acquisition of one hundred percent (100%) of the outstanding equity interests of Pinnacle Health Systems, Inc. ("Pinnacle" or the "Target"). This assessment is based upon information provided to us by Ardent

II. Transaction Overview A. Parties to the Transaction

1. Acquiring Person / Ultimate Parent Entity The acquiring entity for purposes of the transaction is Ardent Capital Partners III LP, a Delaware limited partnership (EIN 87-3421098), which is the investment fund vehicle through which the acquisition will be consummated. Ardent Capital Partners III LP is managed by its general partner, Ardent Capital GP III LLC, a Delaware limited liability company (EIN 86-2198403). Ar

2. Acquired Person / Target The target entity is Pinnacle Health Systems, Inc., a Delaware corporation (EIN 56-4389201), headquartered at 2200 Lakeshore Boulevard, Suite 500, Charlotte, North Carolina 28202. Pinnacle was founded in 2009 by Dr. Marcus Ellsworth, a board-certified orthopedic surgeon, who continues to serve as the company's Chief Executive Officer. Sandra Trevino serves as Pinnacle's Chief Financial Off

3. Selling Sponsor The selling sponsor is Veltrano Equity Holdings LLC, a Delaware limited liability company (EIN 75-6012389), with its principal office at 1400 Elm Street, Suite 3200, Dallas, Texas 75201. Veltrano Equity Holdings LLC is the management company for the Veltrano Equity Partners family of private equity funds. The sale of Pinnacle is being conducted through Veltrano Equity Partners Fund V LP, a $3.2 bil

4. Pre-Transaction Ownership of Pinnacle The pre-transaction ownership of Pinnacle Health Systems, Inc. is as follows: All holders will sell their equity interests in the transaction, with the exception of Dr. Marcus Ellsworth, who will roll over approximately $28.5 million of equity into the post-closing capital structure of Pinnacle, representing approximately 3.0% of the post-closing equity. B. Transaction Structu

III. HSR Act Filing Requirement Analysis A. Applicability of the HSR Act The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, 15 U.S.C. § 18a, and the rules promulgated thereunder by the FTC (16 C.F.R. §§ 801–803), require that parties to certain mergers, acquisitions, and other transactions notify both the FTC and the Antitrust Division of the DOJ prior to consummation, and observe a statutory waiti

IV. Identification of Relevant Product Markets A threshold step in any merger antitrust analysis is the identification of the relevant product markets in which the merging parties participate. The relevant product market defines the arena of competition within which the competitive effects of the transaction are assessed. The standard methodology for product market definition, as articulated in the DOJ and FTC Merger

V. Identification of Relevant Geographic Markets A. Pinnacle's Geographic Footprint Pinnacle currently operates across nine states: North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. Within each state, Pinnacle's operations are concentrated in specific metropolitan areas. For ASC services and physician practice management, relevant geographic markets are typically defined

VI. Horizontal Overlap Analysis The core question in any merger antitrust review is whether the transaction will substantially lessen competition in a relevant market by combining competing firms. This analysis examines whether the acquiring person and the target currently compete, or could reasonably be expected to compete, in any relevant product and geographic market. A. ASC Services Ardent Capital does not curren

VII. Vertical Relationships Analysis Although the proposed transaction does not present any horizontal competitive overlaps, antitrust enforcers also examine whether a transaction may create or enhance vertical relationships that could harm competition through foreclosure, raising rivals' costs, or facilitating anticompetitive coordination. We have identified one potential vertical relationship arising from the trans

VIII. Potential Second Request Risk Assessment A. Factors Favoring Early Termination We have identified multiple factors that strongly support the expectation that this transaction will receive early termination of the HSR waiting period without the issuance of a Second Request for Additional Information and Documentary Material:

1. No horizontal overlaps. As demonstrated in Section VI above, there are no horizontal overlaps between Pinnacle's operations and any Ardent Capital portfolio company in any relevant product market or geographic market. This is the most critical factor in the Second Request risk calculus. The absence of any competitive overlap means that the transaction will not increase concentration in any market, will not elimina

2. Unchanged market concentration. HHI levels will be unchanged post-transaction in all nine MSAs where Pinnacle operates. The change in HHI attributable to the transaction is zero in every market. This fact alone is dispositive under the structural presumption analysis of the Merger Guidelines.

3. Sponsor-to-sponsor transaction. The transaction is structured as a straightforward financial sponsor-to-financial sponsor buyout — Veltrano Equity Partners Fund V LP is selling its controlling interest in Pinnacle to Ardent Capital Partners III LP. The change in financial sponsor ownership does not alter the competitive dynamics of any market. Pinnacle will continue to operate as a standalone entity under the same

4. Consistent with market practice. Healthcare services PE acquisitions that do not present horizontal overlaps routinely receive early termination of the HSR waiting period. Our firm has handled numerous HSR filings for non-overlapping healthcare services PE transactions in recent years, and in substantially all such cases, early termination was granted within 15 to 25 days of filing.

5. De minimis vertical relationship. The vertical relationship between Marlowe Asset Management Rehab's physical therapy clinics and Pinnacle's ASCs is limited in scope and competitively insignificant, as discussed in Section VII above. This type of attenuated vertical relationship in adjacent healthcare services sectors is not the type of relationship that typically attracts agency scrutiny in the merger review cont

1. Heightened FTC focus on healthcare transactions. The FTC under Chair Lina Khan has been generally active in scrutinizing healthcare transactions, including acquisitions by private equity-backed platforms in the healthcare services sector. The FTC has publicly expressed concern about the effects of private equity investment on healthcare costs, quality, and access, and has launched several investigations and enforc

2. History of serial acquisitions. Pinnacle has grown through 19 add-on acquisitions during Veltrano's approximately seven-year ownership period. The FTC has expressed concern about "serial acquisition" strategies in healthcare, whereby a platform company achieves market power through a series of individually small acquisitions that may not have individually triggered HSR filing requirements. FTC staff may inquire ab

3. Charlotte MSA market share. Pinnacle's market share in its home market of Charlotte is approximately 18–21% (depending on the measure used — facility count versus net patient revenue). While this market share is moderate and well below the levels that would typically trigger competitive concern in a horizontal merger (the Merger Guidelines generally presume competitive harm at market shares above 30% and HHI level

IX. Item 4(c) and 4(d) Document Collection A. Scope of Required Production The HSR Notification and Report Form requires the production of certain categories of documents, most notably those responsive to Items 4(c) and 4(d) of the notification form. Item 4(c) requires the production of all documents that were prepared by or for any officer(s) or director(s) of the filing person (or, in the case of an unincorporated

1. Three (3) confidential information memoranda and/or teaser documents prepared by Crestline Baird & Co. (sell-side financial advisor) and received by Ardent Capital during the initial phase of the sale process. These documents are likely responsive to Item 4(d) as materials prepared by a third-party advisor that relate to the proposed acquisition.

2. Two (2) internal investment committee memoranda prepared by the Ardent Capital Management LLC deal team for presentation to the Fund III investment committee. These memoranda contain analysis of Pinnacle's market position, competitive dynamics, growth opportunities, and strategic rationale for the acquisition, and are responsive to Item 4(c).

3. One (1) board presentation prepared for and presented to Ardent Capital GP III LLC in connection with the GP's approval of the transaction. This document contains competitive analysis and market positioning information and is responsive to Item 4(c).

4. One (1) email chain among members of the Ardent Capital deal team discussing the competitive landscape for ASC services in Pinnacle's operating markets. This email chain contains analysis of competition and competitors and is responsive to Item 4(c). We emphasize that this preliminary identification is based on initial discussions and has not yet been confirmed through a comprehensive document collection process.

X. Coordination with Target's Antitrust Counsel Greenvale Durneval LLP (Jonathan Felder, Partner) has been engaged as antitrust counsel to Pinnacle Health Systems, Inc. and Veltrano Equity Holdings LLC for purposes of the acquired person HSR filing. Effective coordination between Calderwood & Harkness and Greenvale Durneval is essential to ensure the timely and consistent filing of both HSR notifications and the effi

1. Simultaneous filing. Both the acquiring person and acquired person HSR Notification and Report Forms will be filed simultaneously on the target filing date of February 16, 2024. We will coordinate the timing of electronic submission with Greenvale Durneval to ensure that both filings are transmitted to the FTC's premerger notification office on the same business day, which is a prerequisite for the commencement of

2. Consistency of transaction descriptions. We will coordinate with Greenvale Durneval to ensure that the transaction descriptions contained in each filing are materially consistent with respect to key transaction parameters, including the transaction structure, enterprise value, equity value, sources and uses of financing, and the identities of the parties. Inconsistencies between the acquiring person and acquired p

3. NAICS code classifications. Both filings will utilize consistent NAICS code classifications for Pinnacle's operations: 621493 (Freestanding Ambulatory Surgical and Emergency Centers) for ASC operations and 621111 (Offices of Physicians) for physician practice management operations. We will confirm these classifications with Greenvale Durneval.

4. Valuation figures. We will ensure that both filings report consistent transaction valuation figures, including enterprise value ($952 million), equity value ($534 million), and other financial metrics reported in the notification forms.

5. Early termination request. Both the acquiring person and acquired person filings will include a request for early termination of the statutory waiting period. We will coordinate the submission of early termination requests with Greenvale Durneval. A formal coordination protocol letter will be sent to Greenvale Durneval on or before February 5, 2024, to memorialize these arrangements and establish the procedural fr

XI. Key EPA Antitrust Provisions Summary We have reviewed the antitrust-related provisions of the Equity Purchase Agreement dated January 31, 2024, and summarize the key provisions below for reference: Given our assessment that the transaction presents low antitrust risk and that the probability of a Second Request is very low, we do not expect any of the termination provisions or the reverse break fee provision to b

XII. Regulatory Agency Jurisdiction Under the HSR Act, the FTC and the Antitrust Division of the DOJ share merger review authority. When an HSR filing is submitted, the two agencies engage in an interagency clearance process to determine which agency will assume primary responsibility for reviewing the transaction. This allocation is based on each agency's historical expertise with the relevant industry sector and th

XIII. Recommended Next Steps and Timeline Based upon our preliminary assessment, we recommend the following workplan and timeline for the HSR filing process: We will provide regular status updates to Julian Desmond and Priya Chandrasekar as the filing preparation progresses and upon each significant milestone. We are also available at any time to discuss the antitrust aspects of the transaction by telephone or in per

XIV. Conclusion Based upon our preliminary analysis, we conclude that the proposed acquisition of Pinnacle Health Systems, Inc. by Ardent Capital Partners III LP raises no substantive antitrust concerns. The key findings supporting this conclusion are as follows: • There are no horizontal overlaps between the parties in any relevant product market or geographic market. Ardent Capital does not own or operate any ambul