MEMORANDUM
PRIVILEGED AND CONFIDENTIAL ATTORNEY WORK PRODUCT
TO: File — Matter No. 1001-00001
FROM: Howard Bellamy, Monica Reyes, Elliot Nguyen — Calderwood & Harkness LLP, Antitrust & Competition Practice Group
DATE: May 12, 2024
RE: Closing Memorandum — Antitrust Workstream Summary: Acquisition of Pinnacle Health Systems, Inc. by Ardent Capital Partners III LP
OFFICE: 600 Lexington Avenue, New York, NY 10022
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I. Executive Summary
This memorandum constitutes the internal closing memorandum of Calderwood & Harkness LLP (the "Firm") summarizing all activities performed by the Firm in connection with the antitrust and Hart-Scott-Rodino ("HSR") clearance workstream for the acquisition of 100% of the outstanding shares of Pinnacle Health Systems, Inc. ("Pinnacle" or "PHS") by Ardent Capital Partners III LP ("Ardent Capital" or "Fund III"). This memorandum is prepared for the Firm's internal records and for delivery to the client file and is protected by the attorney-client privilege and the attorney work product doctrine.
Transaction Overview. The transaction involved a 100% equity acquisition structured as a stock purchase of all outstanding shares of Pinnacle Health Systems, Inc. The enterprise value of the transaction was $952,000,000, with an equity value of $534,000,000, comprising cash consideration of $505,500,000 plus management rollover equity of approximately $28,500,000 from Dr. Marcus Ellsworth, Pinnacle's Chief Executive Officer. On an EV/EBITDA basis, the transaction was consummated at a multiple of approximately 9.7x, calculated on the basis of $952 million in enterprise value divided by $98.2 million in FY2023 adjusted EBITDA as determined by the quality of earnings report prepared by Apex Advisory Group LLC.
Equity Purchase Agreement. The Equity Purchase Agreement ("EPA") was executed on January 31, 2024, by and among Ardent Capital Partners III LP, as the acquirer, and Veltrano Equity Holdings LLC (the selling sponsor, holding approximately 62.3% of the pre-transaction equity), founder/management rollover holders (holding approximately 23.1% of the pre-transaction equity), and minority physician investors (holding approximately 14.6% of the pre-transaction equity).
HSR Clearance. HSR Notification Forms were filed on February 16, 2024, with both the Federal Trade Commission ("FTC") and the Antitrust Division of the United States Department of Justice ("DOJ"). The Firm requested early termination of the initial 30-day statutory waiting period. Early termination was granted on March 8, 2024, nine days ahead of the original March 17, 2024 expiration date. No Second Request was issued under 15 U.S.C. § 18a(e), and no substantive antitrust concerns were raised by FTC staff at any point during the review process. This outcome was consistent with the Firm's preliminary antitrust risk assessment, which had concluded that the transaction presented low antitrust risk given the absence of any horizontal overlaps in any relevant product or geographic market.
Closing. The transaction closed on May 12, 2024, well in advance of the EPA outside date of June 30, 2024. The reverse termination fee of $28,560,000 (calculated as $952 million multiplied by 3.0%) payable by Ardent Capital under EPA §7.3(b) in the event of an antitrust regulatory block was never triggered. Matter No. 1001-00001 is closed as of the date of this memorandum.
II. Engagement and Staffing
Engagement Letter. The Firm's engagement letter was executed on January 29, 2024, between Calderwood & Harkness LLP and Ardent Capital Partners III LP. The engagement letter was executed by Julian Desmond, Co-Founder and Managing Partner of Ardent Capital Management LLC, on behalf of Ardent Capital Partners III LP, and by Howard Bellamy, Partner, on behalf of the Firm.
Scope of Engagement. The scope of the Firm's engagement encompassed the following:
(a) preparation and filing of the acquiring person HSR premerger notification with the FTC and DOJ Antitrust Division pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, 15 U.S.C. § 18a, and the rules and regulations promulgated thereunder, 16 C.F.R. Parts 801–803;
(b) preparation and submission of a formal request for early termination of the statutory waiting period;
(c) substantive antitrust analysis of the transaction's competitive implications in relevant healthcare services markets, including horizontal overlap analysis, HHI concentration analysis, vertical relationships analysis, and portfolio company overlap analysis;
(d) preparation of a voluntary submission letter (white paper) to FTC staff in support of early termination;
(e) coordination with target's antitrust counsel, Greenvale Durneval LLP, regarding consistent filing positions, NAICS code classifications, simultaneous filing logistics, and other matters relating to the HSR notification process; and
(f) monitoring and management of the HSR waiting period, including communication with FTC and DOJ staff as necessary.
Matter Administration. The matter was opened on February 1, 2024, under Calderwood & Harkness's internal Matter Number 1001-00001. The matter is closed as of May 12, 2024, the date on which the transaction closed.
Engagement Team. The following professionals staffed the engagement:
Howard Bellamy served as the Responsible Partner and Billing Partner for the engagement, providing strategic oversight, directing the substantive antitrust analysis, managing all regulatory interactions with FTC staff, and supervising all work product prepared by the associate team. Monica Reyes served as Lead Associate, with primary responsibility for preparing the HSR notification form, the voluntary submission white paper, the antitrust risk assessment memorandum, the vertical relationships analysis, the market definition and competitive analysis, and all client and counterparty counsel correspondence. Elliot Nguyen served as Working Associate, with primary responsibility for the HHI concentration analysis workpapers, the portfolio company overlap analysis, the state regulatory and certificate of need analysis, the competitor identification and market participant chart, and various filing logistics and document management tasks.
Client Contacts. The Firm's primary client contacts for this engagement were:
Julian Desmond, Co-Founder & Managing Partner, Ardent Capital Management LLC Priya Chandrasekar, Co-Founder & Managing Partner, Ardent Capital Management LLC 399 Park Avenue, 41st Floor New York, NY 10022
All substantive client communications were directed to Mr. Desmond and Ms. Chandrasekar, with copies provided to David Ostrander of Whitfield & Crane LLP, transaction counsel to the acquirer, as appropriate and as authorized by the client.
III. Transaction Overview
A. Parties to the Transaction
Acquiring Person / Ultimate Parent Entity. Ardent Capital Partners III LP is a Delaware limited partnership. Its general partner is Ardent Capital GP III LLC, a Delaware limited liability company (EIN 86-2198403). The investment manager and fund sponsor is Ardent Capital Management LLC, a Delaware limited liability company (EIN 84-5567312; SEC File No. 801-119247), which is registered as an investment adviser with the United States Securities and Exchange Commission. Ardent Capital Partners III LP (EIN 87-3421098) has its principal office at 399 Park Avenue, 41st Floor, New York, NY 10022. The fund held its final close in November 2021 with total committed capital of $4.8 billion.
For purposes of the HSR filing, Ardent Capital Management LLC was identified as the Ultimate Parent Entity ("UPE") of the acquiring person, as it controls Ardent Capital GP III LLC, which in turn is the sole general partner of Fund III. The determination of the UPE was made in accordance with 16 C.F.R. § 801.1(a)(3), and is consistent with the FTC's longstanding guidance regarding the treatment of private equity fund structures in HSR notifications.
Acquired Person / Target. Pinnacle Health Systems, Inc. is a Delaware corporation (EIN 56-4389201) with its principal office at 2200 Lakeshore Boulevard, Suite 500, Charlotte, NC 28202. The registered agent for the corporation is National Registered Agents of Delaware, Inc., 160 Greentree Drive, Suite 101, Dover, DE 19904. Pinnacle was founded in 2009 and is led by Dr. Marcus Ellsworth, Chief Executive Officer, and Sandra Trevino, Chief Financial Officer.
Pinnacle operates a platform of 42 ambulatory surgical centers ("ASCs") and 31 affiliated physician practice management entities across nine states: North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. As of the date of transaction signing, Pinnacle employed approximately 4,700 individuals across its platform. The company's operations fall within the following North American Industry Classification System ("NAICS") codes: 621111 (Offices of Physicians) and 621493 (Freestanding Ambulatory Surgical and Emergency Centers).
For the fiscal year ended December 31, 2023, Pinnacle reported total revenue of $637.4 million as reflected in the audited financial statements prepared by Harland & Marsh CPAs LLP, adjusted EBITDA of $98.2 million as determined by the quality of earnings report prepared by Apex Advisory Group LLC, and total assets of approximately $812 million.
Selling Sponsor. Veltrano Equity Holdings LLC is a Delaware limited liability company (EIN 75-6012389) with its principal office at 1400 Elm Street, Suite 3200, Dallas, TX 75201. Theodore "Ted" Hargrove serves as Managing Member and Senior Partner. Veltrano holds its interest in Pinnacle through Veltrano Equity Partners Fund V LP, a $3.2 billion fund. Veltrano originally acquired Pinnacle in 2017 for an enterprise value of approximately $340 million and subsequently funded 19 add-on acquisitions during its period of ownership, growing the platform from 11 ASCs at acquisition to 42 ASCs at the time of the transaction.
Management Rollover. Dr. Marcus Ellsworth, CEO of Pinnacle, is rolling over approximately $28,500,000 in equity, representing approximately 3.0% of post-closing equity in the surviving entity. The rollover equity will be held directly by Dr. Ellsworth in the post-closing equity structure, and the terms of his continued employment and equity incentive arrangements are governed by a separate Management Services Agreement and Rollover Subscription Agreement executed contemporaneously with the EPA.
B. Transaction Structure and Consideration
The transaction is structured as a 100% stock purchase of all outstanding shares of Pinnacle Health Systems, Inc. The key economic terms of the transaction are as follows:
The transaction is being financed through a combination of equity contributed by Fund III, management rollover equity, and third-party debt financing. The debt financing package was arranged as follows:
Senior Secured First Lien Facilities — Provident National Bank, N.A. (Lead Arranger and Administrative Agent): $410,000,000 Senior Secured First Lien Term Loan B and $55,000,000 Revolving Credit Facility.
Second Lien Facility — Atlas Credit Opportunities Fund LP: $95,000,000 Second Lien Term Loan.
Total Commitments: $560,000,000.
Funded at Close: $505,000,000 ($410,000,000 under the First Lien Term Loan B plus $95,000,000 under the Second Lien Term Loan). Net debt at close was approximately $418,000,000 after giving effect to transaction adjustments, including the payoff of Pinnacle's existing credit facilities, transaction-related expenses, and working capital adjustments.
C. Transaction Counsel and Other Advisors
The following law firms and financial advisory firms were engaged in connection with the transaction:
Legal Advisors:
Financial Advisors and Other Professionals:
IV. HSR Filing: Threshold Analysis and Filing Details
A. Jurisdictional Threshold Analysis
The Firm conducted a threshold analysis to determine whether the transaction required the filing of HSR premerger notification forms under Section 7A of the Clayton Act, 15 U.S.C. § 18a. The analysis addressed both the size-of-transaction test and the size-of-person test as set forth in the FTC's annual adjusted threshold values for calendar year 2024.
Size-of-Transaction Test. The 2024 as-adjusted size-of-transaction threshold is $111.4 million. The transaction value of $952,000,000 well exceeds this threshold. Accordingly, the size-of-transaction test is satisfied.
Size-of-Person Test (Acquiring Person). The 2024 as-adjusted size-of-person threshold requires that one person to the transaction have total assets or annual net sales of at least $222.7 million and the other have total assets or annual net sales of at least $22.3 million. Ardent Capital Partners III LP has total committed capital (treated as total assets for this purpose) of $4.8 billion, which exceeds the $22.3 million threshold. Furthermore, because the transaction value exceeds $445.5 million (the 2024 threshold above which the size-of-person test need not be satisfied), the size-of-person test is technically inapplicable; however, both tests are satisfied in any event.
Size-of-Person Test (Acquired Person). Pinnacle Health Systems, Inc. has annual net sales of $637.4 million and total assets of approximately $812 million, each of which exceeds the $22.3 million threshold.
Conclusion. Both the size-of-transaction test and the size-of-person test are satisfied. HSR notification was required under 15 U.S.C. § 18a prior to the consummation of the transaction.
B. Filing Fee
Under the 2024 FTC filing fee schedule, the applicable filing fee is determined by the value of the transaction. A transaction value of $952,000,000 falls within the $500,000,000 to $999,999,999 tier, which carries a filing fee of $280,000.
The filing fee of $280,000 was paid by Ardent Capital Partners III LP as the acquiring person, in accordance with EPA §5.4(a), which provides that all regulatory filing fees associated with HSR compliance are to be borne by the acquirer. The filing fee was transmitted via wire transfer, and confirmation of receipt was obtained on February 14, 2024. A filing fee wire instructions letter was transmitted to the client on that date, together with the wire transfer confirmation from the receiving financial institution.
C. EPA Regulatory Filing Provisions
The following provisions of the Equity Purchase Agreement are relevant to the HSR notification and antitrust clearance process:
EPA §5.4(a) — Filing Obligation and Timing. The EPA obligated both parties to file their respective HSR notifications within 15 business days of the January 31, 2024 EPA execution date. Applying the 15-business-day computation, the contractual filing deadline was February 22, 2024. The actual filing date of February 16, 2024 was six business days ahead of this contractual deadline.
EPA §5.4(b) — Cooperation Obligations. Section 5.4(b) required the parties to cooperate in the preparation of HSR filings, to promptly provide supplemental information as requested by the FTC or DOJ, and provided that the acquirer would bear all filing fees and related expenses.
EPA §5.4(c) — Efforts Standard. Section 5.4(c) required Ardent Capital to use "reasonable best efforts" to obtain HSR clearance, but expressly stated that Ardent Capital would not be obligated to accept, agree to, or offer any divestiture, hold-separate order, or behavioral remedy of any kind as a condition of obtaining regulatory clearance. This "no-remedies" limitation on the efforts standard is typical in private equity acquisition agreements and reflects the parties' negotiated allocation of antitrust regulatory risk.
EPA §6.1(c) — Closing Condition. Section 6.1(c) established the expiration or early termination of the HSR waiting period as a mutual condition to the obligation of each party to consummate the closing. This condition was satisfied on March 8, 2024, upon the FTC's grant of early termination.
EPA §7.1(b)(ii) — Termination Right. Section 7.1(b)(ii) provided that either party could terminate the EPA if HSR clearance had not been obtained by the outside date of June 30, 2024. Because early termination was granted on March 8, 2024, this termination right was never exercisable.
EPA §7.3(b) — Reverse Termination Fee. Section 7.3(b) provided that Ardent Capital would be required to pay a reverse termination fee of $28,560,000 (calculated as $952,000,000 multiplied by 3.0%) to the selling equityholders in the event that the transaction failed to close due to an antitrust regulatory block — specifically, in the event that the EPA was terminated pursuant to Section 7.1(b)(ii) and the failure to satisfy the condition set forth in Section 6.1(c) was the proximate cause of such termination. Because HSR clearance was obtained, this reverse termination fee was never triggered.
V. Chronological Timeline of Antitrust Workstream
This section provides a detailed chronological record of all activities undertaken by Calderwood & Harkness LLP during the course of the antitrust workstream, organized by phase.
A. Pre-Filing Phase (January 29 – February 15, 2024)
January 28, 2024. The Firm's internal conflicts check memorandum was prepared and cleared. No conflicts were identified with respect to Pinnacle Health Systems, Inc., Veltrano Equity Holdings LLC, Fendowell Thornton LLP, Greenvale Durneval LLP, or any other transaction party. The conflicts check encompassed all current matters and all matters closed within the prior two years, including an analysis of the Firm's existing relationships with entities in Ardent Capital's portfolio, Veltrano Equity Partners' portfolio, and the physicians and practice groups affiliated with Pinnacle's ASC and practice management platform. No conflicts or potential conflicts were identified.
January 29, 2024. The engagement letter was executed between Calderwood & Harkness LLP and Ardent Capital Partners III LP, as described in Section II above.
January 31, 2024. The Equity Purchase Agreement was executed by all parties. The Firm received a fully executed copy of the EPA from David Ostrander of Whitfield & Crane LLP on the same date, together with all disclosure schedules and ancillary documents relevant to the antitrust workstream.
February 1, 2024. Matter No. 1001-00001 was formally opened at Calderwood & Harkness in the Firm's matter management system. All relevant billing and conflict codes were established, and the engagement team was confirmed.
February 2, 2024. Monica Reyes prepared the HSR Filing Checklist & Timeline Memorandum, which identified the contractual filing deadline of February 22, 2024 (15 business days from EPA execution) and established a target filing date of February 16, 2024 — six business days ahead of the contractual deadline. The memorandum set forth a detailed day-by-day work plan for the preparation and filing of the acquiring person HSR notification form, including the timeline for collection and review of Item 4(c) and Item 4(d) responsive documents, coordination with target counsel, preparation of the voluntary submission white paper, and payment of the filing fee.
February 4, 2024. A letter was sent to Ardent Capital, addressed to Julian Desmond and Priya Chandrasekar, providing detailed instructions for the collection of documents responsive to Items 4(c) and 4(d) of the HSR Notification Form. The letter described the scope of the document production obligation, the categories of documents that are responsive under the FTC's rules, and practical guidance for identifying and collecting such documents from the files of the acquirer and its controlled entities. The letter specifically addressed the need to review board minutes, investment committee memoranda, confidential information memoranda, presentations, and email correspondence for references to competition, competitors, market share, pricing, synergies, or the competitive effects of the proposed acquisition.
February 5, 2024. The Firm delivered the Preliminary Antitrust Risk Assessment Memorandum to Ardent Capital. This memorandum concluded that the transaction presented low antitrust risk and that there were strong prospects for obtaining early termination of the HSR waiting period. The assessment was based on the following key factors: (i) the absence of any horizontal overlap between Ardent Capital's existing portfolio companies and Pinnacle's ASC or physician practice management operations in any relevant geographic market; (ii) the limited and competitively insignificant nature of the only vertical relationship identified (referral patterns between co-located Marlowe Asset Management Rehabilitation Holdings LLC physical therapy clinics and Pinnacle ASCs); (iii) the unconcentrated to moderately concentrated nature of the relevant markets; and (iv) the absence of any recent FTC or DOJ enforcement actions or statements of interest suggesting heightened scrutiny of PE-backed ASC consolidation in the relevant MSAs.
On the same date, a coordination protocol letter was sent to Jonathan Felder of Greenvale Durneval LLP, antitrust counsel to the target/seller. The letter proposed a framework for coordination between buy-side and sell-side antitrust counsel, including procedures for ensuring consistency of transaction descriptions, NAICS code classifications, and market definitions across the acquiring person and acquired person filings, as well as logistics for simultaneous filing.
February 7, 2024. Elliot Nguyen completed the State Regulatory / Certificate of Need Analysis Memorandum. The memorandum analyzed certificate of need ("CON") requirements applicable to ASC operations in each of the nine states in which Pinnacle operates. The analysis determined that the following states have CON requirements applicable to ASCs or certain categories of ASC services: Virginia, North Carolina, Tennessee, Georgia, Alabama, and Ohio. The memorandum noted that South Carolina, Florida, and Texas do not currently impose CON requirements on ASC operations. The memorandum further noted that while CON requirements are relevant to the competitive analysis (because CON restrictions may function as barriers to entry and may affect the competitive dynamics in relevant geographic markets), the transaction itself did not implicate any change-of-ownership CON requirements that would require separate regulatory clearance, and the CON analysis was prepared solely for the purpose of informing the antitrust risk assessment.
February 8, 2024. Elliot Nguyen completed the Portfolio Company Overlap Analysis Memorandum. The memorandum analyzed the operations of Ardent Capital's two existing healthcare portfolio companies — Marlowe Asset Management Rehabilitation Holdings LLC and Clearpath Diagnostics Inc. — and assessed whether either company's operations created any horizontal overlap with Pinnacle's ASC or physician practice management services.
Marlowe Asset Management Rehabilitation Holdings LLC operates 74 outpatient physical therapy clinics in Texas, Florida, and Georgia, with its headquarters at 8950 Westheimer Road, Suite 600, Houston, TX 77063. Twelve of Marlowe Asset Management's PT clinics are co-located with or adjacent to Pinnacle ASCs in those three states. The memorandum concluded that outpatient physical therapy and ambulatory surgical center services constitute separate product markets, as they involve fundamentally different services (rehabilitative therapy versus surgical procedures), different provider types, different payor reimbursement structures, and different referral patterns. Accordingly, there is no horizontal overlap between Marlowe Asset Management and Pinnacle in any relevant product market.
Clearpath Diagnostics Inc. provides independent clinical laboratory services in Pennsylvania, New Jersey, and New York, with annual revenue of approximately $218 million and its headquarters at 1700 Market Street, Suite 3400, Philadelphia, PA 19103. Because Clearpath operates exclusively in the Mid-Atlantic region and Pinnacle's operations are concentrated in the Southeast, Midwest, and Texas, there is no geographic overlap between the two entities.
The memorandum concluded that neither of Ardent Capital's existing healthcare portfolio companies creates any horizontal overlap with Pinnacle in any relevant product or geographic market.
February 9, 2024. Monica Reyes completed the Vertical Relationships Analysis Memorandum. The memorandum examined the referral patterns between the 12 Marlowe Asset Management Rehabilitation Holdings LLC physical therapy clinics that are co-located with or adjacent to Pinnacle ASCs in Texas, Florida, and Georgia. The analysis determined that Marlowe Asset Management referrals represent less than 2% of Pinnacle's total ASC case volume in the affected MSAs. The memorandum further noted that post-surgical physical therapy referrals are neither exclusive nor foreclosing — patients are referred to Marlowe Asset Management PT clinics on a non-exclusive basis as one of multiple available PT providers, and Marlowe Asset Management PT clinics receive referrals from numerous ASC operators and hospital systems in addition to Pinnacle. The memorandum concluded that the vertical relationship between Marlowe Asset Management and Pinnacle is competitively insignificant and does not raise any foreclosure or raising-rivals'-costs concerns under the FTC/DOJ Merger Guidelines.
February 10, 2024. Monica Reyes and Elliot Nguyen jointly completed the Market Definition & Competitive Analysis Memorandum, which provided a comprehensive analysis of the relevant product and geographic markets in which Pinnacle operates. The memorandum identified two relevant product markets — (i) ambulatory surgical center services (multi-specialty) and (ii) physician practice management services (orthopedics, gastroenterology, and ophthalmology) — and nine relevant geographic markets defined at the MSA level.
On the same date, Elliot Nguyen completed the HHI Concentration Analysis Workpaper for all nine relevant MSAs, as well as the Competitor Identification and Market Participant Chart, which catalogued all known ASC operators and physician practice management organizations in each relevant MSA, including facility counts, estimated revenue, and estimated market shares.
February 11, 2024. Monica Reyes sent an email to Jonathan Felder of Greenvale Durneval LLP confirming the consistency of NAICS code classifications across the acquiring person and acquired person filings. Both parties agreed to classify Pinnacle's operations under NAICS codes 621111 (Offices of Physicians) and 621493 (Freestanding Ambulatory Surgical and Emergency Centers), and confirmed that no additional or alternative NAICS codes would be reported.
February 12, 2024. The draft Acquiring Person HSR Notification Form was completed and circulated internally for review by Howard Bellamy, Monica Reyes, and Elliot Nguyen. Internal review comments were consolidated and incorporated over the following day.
February 13, 2024. Monica Reyes sent an email to Jonathan Felder of Greenvale Durneval LLP coordinating logistics for simultaneous filing on February 16, 2024. The coordination covered the timing of FTC e-filing portal submissions, filing fee wire confirmation procedures, cross-referencing of transaction descriptions between the acquiring person and acquired person notifications, and confirmation that both filings would include requests for early termination of the statutory waiting period.
February 14, 2024. The HSR Filing Fee Wire Instructions Letter was sent to Ardent Capital, providing the bank account information and wire transfer instructions for the FTC filing fee. The wire transfer of $280,000 was initiated and confirmed on this date. The Firm obtained and retained a copy of the wire transfer confirmation for the file.
B. Filing Day (February 16, 2024)
The following activities occurred on the date of HSR filing:
Execution and Filing. The final execution version of the Acquiring Person HSR Notification Form was completed. The form was certified by Julian Desmond on behalf of Ardent Capital Management LLC, in its capacity as the Ultimate Parent Entity of the acquiring person. Both the acquiring person and acquired person HSR notification forms were filed simultaneously with the FTC and the DOJ via the FTC's electronic filing portal. The FTC assigned Transaction Number 20241487 to the filing.
Item 4(c)/4(d) Documents. The following responsive documents were produced in connection with the HSR filings:
Acquiring Person (7 documents):
• Three (3) confidential information memoranda and/or teasers relating to the Pinnacle transaction
• Two (2) internal investment committee memoranda prepared by Ardent Capital Management LLC in connection with the Pinnacle transaction
• One (1) board presentation prepared by or on behalf of Ardent Capital Management LLC discussing the proposed Pinnacle acquisition
• One (1) email chain among Ardent Capital professionals discussing the competitive landscape in the ASC sector
Acquired Person (11 documents, per Greenvale Durneval LLP):
• Four (4) strategic planning presentations prepared by or on behalf of Pinnacle management
• Three (3) board meeting minutes discussing Pinnacle's competitive positioning in its markets
• Two (2) consultant reports on ASC market growth and competitive dynamics
• Two (2) internal emails among Pinnacle management discussing competitor activity
Early Termination Request and Voluntary Submission. Early termination of the waiting period was requested in both the acquiring person and acquired person filings. A cover letter to the FTC Premerger Notification Office was transmitted with the acquiring person notification, and a formal Request for Early Termination of Waiting Period letter was submitted to both the FTC and the DOJ.
In addition, a Voluntary Submission Letter (White Paper) was filed simultaneously with the FTC Premerger Notification Office. The white paper provided a comprehensive competitive analysis in support of early termination, including a description of the relevant product and geographic markets, an explanation of the absence of any horizontal overlap between the acquiring person's portfolio and the target's operations, a summary of the HHI concentration analysis demonstrating zero change in concentration attributable to the transaction, and an analysis of the limited and competitively insignificant vertical relationship between Marlowe Asset Management Rehabilitation Holdings and Pinnacle.
Client Notification. A client update email was sent to Julian Desmond and Priya Chandrasekar confirming that the HSR notification forms had been filed, that the $280,000 filing fee had been received by the FTC, and that the initial 30-day statutory waiting period had commenced. The email noted that the 30-day waiting period would expire on March 17, 2024, absent the grant of early termination or the issuance of a Second Request.
FTC Acknowledgment. The FTC Premerger Notification Office issued a Confirmation of Filing Receipt, which was received by the Firm, annotated with the FTC-assigned Transaction Number 20241487, and retained for the file.
C. Waiting Period Phase (February 17 – March 7, 2024)
February 20, 2024. Howard Bellamy sent an email to Sarah Whitman, Attorney, Bureau of Competition, Mergers IV Division, FTC, offering the Firm's availability to answer any questions that FTC staff might have regarding Transaction No. 20241487 and the voluntary submission white paper filed on February 16, 2024. Ms. Whitman was identified as the assigned FTC staff attorney in the PNO's confirmation letter.
February 29, 2024. Bi-Weekly Status Report #1 was delivered to Ardent Capital. The report confirmed that no questions or requests for additional information had been received from FTC staff during the first two weeks of the waiting period. The report further confirmed that the statutory waiting period was running and set to expire on March 17, 2024, absent the grant of early termination or the issuance of a Second Request.
During the entirety of the waiting period, the Firm received no Second Request, no informal requests for additional information, no "pull and refile" requests, no voluntary access letters, and no communications of any kind from FTC staff indicating substantive concerns regarding the transaction. The interagency clearance process between the FTC and DOJ was resolved during this period, with the DOJ Antitrust Division granting clearance to the FTC to conduct the substantive review of the transaction, consistent with the FTC's traditional jurisdiction over transactions in the healthcare sector.
D. Early Termination and Post-Clearance (March 8 – May 12, 2024)
March 8, 2024. The FTC granted early termination of the HSR waiting period. The Early Termination Notice was issued under Notice Number 20240683, terminating the waiting period nine calendar days ahead of the original 30-day expiration date of March 17, 2024. The grant of early termination constituted the satisfaction of the closing condition set forth in EPA §6.1(c).
On the same date, the following communications were transmitted:
(i) A client update email was sent to Julian Desmond and Priya Chandrasekar confirming the grant of early termination and the satisfaction of EPA §6.1(c).
(ii) An email was sent to David Ostrander of Whitfield & Crane LLP (transaction counsel to the acquirer) advising that the FTC had granted early termination, that no Second Request had been issued, and that transaction counsel could proceed toward closing without further antitrust conditions or restrictions.
March 11, 2024. A letter was sent to Catherine "Kate" Yardley of Fendowell Thornton LLP (transaction counsel to the target/seller) confirming the grant of early termination and the satisfaction of the regulatory closing condition set forth in EPA §6.1(c).
March 12, 2024. The FTC's early termination notice was published in the Federal Register. Elliot Nguyen prepared an internal memorandum confirming the publication and citing the specific Federal Register entry. A copy of the Federal Register notice was downloaded and retained for the file.
March 14, 2024. Bi-Weekly Status Report #2 was delivered to Ardent Capital. The report confirmed the grant of early termination, the publication of the early termination notice in the Federal Register, and the substantial completion of the antitrust workstream. The report advised the client that an HSR Clearance Certificate in the form of an officer's certificate would be prepared for delivery as a closing deliverable at the time of transaction closing.
May 12, 2024. The transaction closed on this date. The HSR Clearance Certificate, in the form of an Officer's Certificate, was executed by Julian Desmond on behalf of Ardent Capital Management LLC. The certificate certified the grant of early termination of the HSR waiting period and the satisfaction of the closing condition set forth in EPA §6.1(c). The certificate was delivered as a closing deliverable in the closing set.
VI. Substantive Antitrust Analysis Summary
This section summarizes the key elements of the substantive antitrust analysis performed by the Firm in connection with the transaction. The detailed analysis is set forth in the internal memoranda and workpapers referenced herein.
A. Relevant Product Markets
The Firm identified two relevant product markets for purposes of the competitive analysis:
Market 1: Ambulatory Surgical Center Services (Multi-Specialty). Pinnacle operates 42 ASCs offering multi-specialty outpatient surgical procedures, including procedures in orthopedics, gastroenterology, ophthalmology, pain management, and general surgery. The relevant product market for ASC services is defined as the provision of outpatient surgical and procedural services in licensed ambulatory surgical centers, as distinct from inpatient hospital surgical services and office-based procedures. This market definition is consistent with the FTC's prior enforcement actions and staff analyses in the ASC sector, and reflects the distinct regulatory, reimbursement, and operational characteristics of freestanding ASCs relative to hospital outpatient departments and physician offices.
Market 2: Physician Practice Management Services. Pinnacle operates 31 affiliated physician practice management entities, providing management and administrative services to physician practices specializing in orthopedics, gastroenterology, and ophthalmology. The relevant product market for physician practice management services is defined as the provision of management, administrative, and operational support services to affiliated physician practices under management services agreements and related contractual arrangements.
Both product market definitions were developed consistent with the analytical framework set forth in the 2023 FTC/DOJ Merger Guidelines, including the hypothetical monopolist test and the analysis of reasonable interchangeability and cross-elasticity of demand.
B. Relevant Geographic Markets
Nine relevant geographic markets were analyzed at the MSA level, corresponding to the metropolitan statistical areas in which Pinnacle operates ASCs and/or physician practice management entities:
1. Charlotte-Concord-Gastonia, NC-SC MSA
2. Raleigh-Cary, NC MSA
3. Richmond, VA MSA
4. Nashville-Davidson-Murfreesboro-Franklin, TN MSA
5. Atlanta-Sandy Springs-Alpharetta, GA MSA
6. Tampa-St. Petersburg-Clearwater, FL MSA
7. Birmingham-Hoover, AL MSA
8. Columbus, OH MSA
9. Dallas-Fort Worth-Arlington, TX MSA
The MSA-level market definition reflects the localized nature of ASC and physician practice management competition, which is driven by patient travel patterns, physician referral networks, and payor contracting patterns. The use of MSA boundaries is consistent with the FTC's standard approach to geographic market definition in healthcare services markets.
C. Horizontal Overlap Analysis
The Firm conducted a comprehensive horizontal overlap analysis to determine whether the transaction would result in any increase in concentration in any relevant product and geographic market. The analysis yielded the following conclusions:
Ardent Capital Partners III LP has no existing ASC operations or physician practice management operations in any of the nine relevant MSAs. Fund III's existing healthcare portfolio consists of two companies, neither of which operates in any product or geographic market that overlaps with Pinnacle's operations:
Marlowe Asset Management Rehabilitation Holdings LLC. Marlowe Asset Management operates 74 outpatient physical therapy clinics in Texas, Florida, and Georgia, with its headquarters at 8950 Westheimer Road, Suite 600, Houston, TX 77063. Physical therapy services and ASC services constitute separate product markets. Outpatient physical therapy involves rehabilitative care — exercise therapy, manual therapy, modality-based treatments, and functional restoration — that is fundamentally distinct from the surgical and procedural services provided in ASCs. The two services are not reasonably interchangeable from the perspective of either patients or payors, and they involve different provider licensing requirements, different facility standards, and different reimbursement methodologies. Accordingly, there is no horizontal overlap between Marlowe Asset Management and Pinnacle in any relevant product market.
Clearpath Diagnostics Inc. Clearpath provides independent clinical laboratory services in Pennsylvania, New Jersey, and New York, with annual revenue of approximately $218 million and its headquarters at 1700 Market Street, Suite 3400, Philadelphia, PA 19103. Clearpath operates exclusively in the Mid-Atlantic region and has no operations in any of the nine states in which Pinnacle operates. Accordingly, there is no geographic overlap between Clearpath and Pinnacle.
Conclusion. There are no horizontal overlaps in any relevant product or geographic market as a result of the transaction.
D. HHI Concentration Analysis
Elliot Nguyen performed detailed Herfindahl-Hirschman Index ("HHI") calculations for each of the nine relevant MSAs. The HHI is the standard measure of market concentration used by the FTC and DOJ in merger review, calculated as the sum of the squares of the market shares of all competitors in the relevant market.
The Charlotte-Concord-Gastonia, NC-SC MSA represents Pinnacle's largest market. In this MSA, Pinnacle operates 14 of the 67 total ASCs, representing an approximate 20.9% facility share. On a revenue-weighted basis, Pinnacle accounts for approximately 18.3% of ASC net patient revenue in the Charlotte MSA. The pre-transaction HHI in the Charlotte MSA is approximately 1,280 points. Because Ardent Capital has no existing ASC operations in the Charlotte MSA (or in any of the other eight relevant MSAs), the post-transaction HHI is also approximately 1,280 points — there is no change (i.e., zero delta) in market concentration attributable to the transaction.
The same result obtains across all nine relevant MSAs. In each case, the pre-transaction and post-transaction HHI values are identical, because the acquiring person has no existing presence in any relevant product or geographic market. All markets remain unconcentrated to moderately concentrated, with HHI values below 2,500 in all cases. Under the 2023 FTC/DOJ Merger Guidelines, markets with HHI values between 1,000 and 1,800 are considered "moderately concentrated," and markets with HHI values below 1,000 are considered "unconcentrated." A transaction that produces zero change in HHI does not raise any presumption of competitive harm under the Guidelines.
E. Vertical Relationships Analysis
The Firm identified one limited vertical relationship warranting analysis: the referral patterns between 12 Marlowe Asset Management Rehabilitation Holdings LLC physical therapy clinics that are co-located with or adjacent to Pinnacle ASCs in Texas, Florida, and Georgia.
The analysis examined whether the common ownership of Marlowe Asset Management and Pinnacle under the Ardent Capital platform could create incentives or the ability to foreclose rival ASCs from access to post-surgical PT referrals, or conversely, to foreclose rival PT providers from access to post-surgical referrals from Pinnacle ASCs. The Firm concluded that the vertical relationship is competitively insignificant for the following reasons:
(i) Marlowe Asset Management PT referrals represent less than 2% of Pinnacle's total ASC case volume in the affected MSAs. The volume of referral traffic between the two entities is de minimis.
(ii) Post-surgical PT referrals from Pinnacle ASCs to Marlowe Asset Management PT clinics are not exclusive. Patients are referred to multiple available PT providers in each relevant market, and Marlowe Asset Management is only one of numerous PT clinic operators available to receive post-surgical referrals.
(iii) Marlowe Asset Management PT clinics receive referrals from numerous ASC operators and hospital systems in addition to Pinnacle. Marlowe Asset Management is not dependent on Pinnacle referrals for any material portion of its patient volume.
(iv) There are no contractual or other arrangements between Pinnacle and Marlowe Asset Management that would create exclusive referral obligations or restrict the ability of either party to refer to or receive referrals from third parties.
The Firm concluded that the vertical relationship does not raise any foreclosure or raising-rivals'-costs concern and is competitively insignificant under the analytical framework of the 2023 FTC/DOJ Merger Guidelines.
F. Conclusion
Based on the totality of the substantive antitrust analysis, the Firm concluded that the transaction presents no substantive antitrust risk. There are no horizontal overlaps in any relevant product or geographic market. The only vertical relationship identified — referral patterns between co-located Marlowe Asset Management PT clinics and Pinnacle ASCs — is competitively insignificant. The HHI concentration analysis demonstrates zero change in market concentration attributable to the transaction in all nine relevant MSAs. Early termination of the HSR waiting period was expected and was obtained, consistent with the Firm's preliminary antitrust risk assessment delivered on February 5, 2024.
VII. Regulatory Interactions
This section summarizes all interactions with the FTC and DOJ during the course of the HSR review process.
FTC Bureau of Competition, Premerger Notification Office. The FTC Premerger Notification Office processed the acquiring person and acquired person HSR notification forms filed on February 16, 2024. The FTC assigned Transaction Number 20241487 to the filing. The PNO issued a Confirmation of Filing Receipt on February 16, 2024, which was received by the Firm and annotated for the file.
FTC Staff Contact (Substantive). The assigned FTC staff attorney for substantive review was Sarah Whitman, Attorney, Bureau of Competition, Mergers IV Division. Ms. Whitman was identified as the assigned staff attorney in the PNO's confirmation letter. On February 20, 2024, Howard Bellamy sent an email to Ms. Whitman offering the Firm's availability to answer any questions regarding the transaction and the voluntary submission white paper. No response or follow-up was received from Ms. Whitman or any other FTC staff member.
DOJ Antitrust Division. The DOJ Antitrust Division participated in the standard interagency clearance process and granted clearance to the FTC to conduct the substantive review of the transaction. No direct communications were received from the DOJ Antitrust Division.
Absence of Substantive Review Activity. Throughout the entirety of the HSR waiting period, the Firm received no informal questions or requests for additional information from FTC staff, no "pull and refile" requests under 16 C.F.R. § 803.12, no voluntary access letters or requests for voluntary production of additional documents, and no communications of any kind from FTC or DOJ staff indicating substantive concerns regarding the competitive effects of the transaction. No Second Request was issued under 15 U.S.C. § 18a(e).
Early Termination. The FTC granted early termination of the HSR waiting period on March 8, 2024, under Early Termination Notice Number 20240683. The early termination notice was published in the Federal Register on March 12, 2024.
VIII. Key Deliverables Produced
The following is a complete index of all memoranda, filings, correspondence, and work product produced by Calderwood & Harkness LLP during the course of Matter No. 1001-00001.
A. Internal Memoranda and Analysis
1. Conflicts Check Memorandum — January 28, 2024
2. Matter Opening Memorandum — February 1, 2024
3. HSR Filing Checklist & Timeline Memorandum — February 2, 2024 (Reyes)
4. Preliminary Antitrust Risk Assessment Memorandum — February 5, 2024 (Bellamy, Reyes, Nguyen)
5. State Regulatory / Certificate of Need Analysis Memorandum — February 7, 2024 (Nguyen)
6. Portfolio Company Overlap Analysis Memorandum — February 8, 2024 (Nguyen)
7. Vertical Relationships Analysis Memorandum — February 9, 2024 (Reyes)
8. Market Definition & Competitive Analysis Memorandum — February 10, 2024 (Reyes, Nguyen)
9. HHI Concentration Analysis Workpaper — February 10, 2024 (Nguyen)
10. Competitor Identification and Market Participant Chart — February 10, 2024 (Nguyen)
11. Internal Memo re: FTC Federal Register Notice of Early Termination — March 12, 2024 (Nguyen)
B. HSR Filing Documents
12. Acquiring Person HSR Notification Form — Draft — February 12, 2024 (Reyes, Nguyen)
13. Acquiring Person HSR Notification Form — Final Execution Version — February 16, 2024 (Reyes, Nguyen; certified by Julian Desmond)
14. Item 4(c)/4(d) Document Log — Acquiring Person — February 16, 2024 (7 documents indexed)
C. FTC/DOJ Filings and Correspondence
15. Cover Letter to FTC Premerger Notification Office — February 16, 2024 (Bellamy)
16. Request for Early Termination of Waiting Period — February 16, 2024 (Bellamy)
17. Voluntary Submission Letter (White Paper) to FTC Staff — February 16, 2024 (Bellamy, Reyes)
18. Email to FTC Staff (Sarah Whitman) re: Availability for Questions — February 20, 2024 (Bellamy)
D. Client Correspondence
19. Letter re: Item 4(c)/4(d) Document Collection Instructions — February 4, 2024 (Reyes)
20. HSR Filing Fee Wire Instructions Letter — February 14, 2024 (Reyes)
21. Client Update Email — HSR Forms Filed — February 16, 2024 (Bellamy)
22. Bi-Weekly Status Report #1 — February 29, 2024 (Reyes)
23. Client Update Email — Early Termination Granted — March 8, 2024 (Bellamy)
24. Bi-Weekly Status Report #2 — March 14, 2024 (Reyes)
E. Counterparty Counsel Correspondence
25. Letter to Greenvale Durneval LLP re: Coordination Protocol — February 5, 2024 (Bellamy)
26. Email to Greenvale Durneval LLP re: NAICS Code Consistency — February 11, 2024 (Reyes)