CALDERWOOD & HARKNESS LLP Attorneys at Law
600 Lexington Avenue New York, NY 10022 Telephone: (212) 558-4000 Facsimile: (212) 558-3588 www.calderwoodharkness.com
February 16, 2024
Bureau of Competition Federal Trade Commission 600 Pennsylvania Avenue, NW Washington, DC 20580
Attention: Premerger Notification Office
Re: HSR Transaction No. 20241487 — Voluntary Submission in Support of Request for Early Termination of Waiting Period
Dear Sir or Madam:
VOLUNTARY SUBMISSION (WHITE PAPER) IN SUPPORT OF REQUEST FOR EARLY TERMINATION OF THE HSR ACT WAITING PERIOD
Introduction
Calderwood & Harkness LLP serves as antitrust counsel to Ardent Capital Partners III LP ("Ardent Capital" or the "Acquiring Person") in connection with its proposed acquisition of 100% of the outstanding equity of Pinnacle Health Systems, Inc. ("Pinnacle" or the "Acquired Person," and together with Ardent Capital, the "Parties"). This letter is submitted by Howard Bellamy, Partner, and Monica Reyes, Associate, of the firm's Antitrust & Competition Practice Group.
This voluntary submission accompanies the Acquiring Person's Hart-Scott-Rodino Notification and Report Form (the "HSR Form"), filed simultaneously with this letter on February 16, 2024, with the Federal Trade Commission (the "Commission") and the Antitrust Division of the United States Department of Justice (the "Division") pursuant to Section 7A of the Clayton Act, 15 U.S.C. § 18a, and the rules promulgated thereunder, 16 C.F.R. Parts 801–803.
The purpose of this submission is to provide the Bureau of Competition with a comprehensive competitive analysis demonstrating that the proposed transaction raises no antitrust concerns whatsoever — whether horizontal, vertical, or otherwise — and to support the Parties' request for early termination of the initial thirty (30) day waiting period under the HSR Act. As set forth in detail below, the proposed acquisition is a financial sponsor-to-financial sponsor transaction in which a private equity fund (Ardent Capital) is acquiring a healthcare services platform (Pinnacle) from another private equity sponsor (Veltrano Equity Holdings LLC). Ardent Capital does not own, operate, or control any ambulatory surgical center or physician practice management entity anywhere in the United States. Accordingly, the transaction produces no horizontal overlap, no meaningful vertical concern, and no change in market concentration in any relevant market.
We respectfully submit that early termination is clearly warranted and would allow the Parties to proceed to closing without unnecessary delay or administrative burden.
Transaction Summary. The proposed transaction (the "Transaction") involves the acquisition by Ardent Capital Partners III LP of 100% of the outstanding shares of capital stock of Pinnacle Health Systems, Inc. pursuant to the terms of an Equity Purchase Agreement (the "Purchase Agreement") executed on January 31, 2024. The material terms of the Transaction are as follows:
• Transaction Structure: 100% stock purchase — Ardent Capital Partners III LP will acquire all outstanding shares of common and preferred stock of Pinnacle Health Systems, Inc.
• Enterprise Value: $952 million.
• Equity Value: $534 million, consisting of approximately $505.5 million in cash consideration plus approximately $28.5 million in management rollover equity.
• EV/EBITDA Multiple: Approximately 9.7x, based on Pinnacle's fiscal year 2023 adjusted EBITDA of $98.2 million, as determined by a quality of earnings analysis conducted by Apex Advisory Group LLC.
• Seller: Veltrano Equity Holdings LLC (acting through Veltrano Equity Partners Fund V LP), which holds approximately 62.3% of Pinnacle's pre-transaction equity. The remaining pre-transaction equity is held by founder and management holders (approximately 23.1%) and minority physician investors (approximately 14.6%). All holders are selling in the Transaction, subject to the rollover described below.
• Management Rollover: Dr. Marcus Ellsworth, Pinnacle's Chief Executive Officer and Chairman, will roll over approximately $28.5 million in equity into the post-closing capital structure, representing approximately 3.0% of post-closing equity. The rollover is intended to align Dr. Ellsworth's interests with those of Ardent Capital and to ensure continuity of management and physician relationships.
• Debt Financing: The Transaction will be financed in part through (i) a $410 million Senior Secured First Lien Term Loan B facility and a $55 million Senior Secured Revolving Credit Facility, each provided by Provident National Bank, N.A., as administrative agent and lead arranger, and (ii) a $95 million Second Lien Term Loan provided by Atlas Credit Opportunities Fund LP. Commitment letters for each facility have been executed and are not subject to conditions that would impair the certainty of financing.
HSR Threshold Analysis
The Transaction satisfies the applicable HSR Act notification thresholds, and the Acquiring Person is filing a Notification and Report Form as required. Specifically:
• Size-of-Transaction Test: The aggregate total amount of voting securities and assets to be acquired exceeds $111.4 million (the 2024 adjusted threshold under 15 U.S.C. § 18a(a)(2)(B)(i) and 16 C.F.R. § 801.1(h)). The enterprise value of the Transaction is $952 million, which far exceeds the applicable threshold.
• Size-of-Person Test (Acquiring Person): Ardent Capital Partners III LP has total assets of approximately $4.8 billion, exceeding the $22.3 million threshold under the 2024 adjusted thresholds.
• Size-of-Person Test (Acquired Person): Pinnacle Health Systems, Inc. reported fiscal year 2023 annual net sales of $637.4 million and total assets of approximately $812 million, each exceeding the $22.3 million threshold.
• Filing Fee: Based on the aggregate total value of the Transaction ($952 million), which falls within the $500 million to $999.9 million tier under the 2024 FTC filing fee schedule, the applicable filing fee is $280,000. Payment of such fee accompanies the filing.
I. Description of the Parties
A. The Acquiring Person — Ardent Capital Partners III LP
Ardent Capital Partners III LP is a Delaware limited partnership formed for the purpose of making private equity investments. Its principal office is located at 399 Park Avenue, 41st Floor, New York, NY 10022.
The general partner of Ardent Capital Partners III LP is Ardent Capital GP III LLC, a Delaware limited liability company. The sole member of Ardent Capital GP III LLC is Ardent Capital Management LLC, a Delaware limited liability company that serves as the investment adviser to, and manager of, Ardent Capital Partners III LP and its affiliated funds. Ardent Capital Management LLC is a registered investment adviser with the United States Securities and Exchange Commission (SEC File No. 801-119247) and constitutes the Ultimate Parent Entity ("UPE") for purposes of the HSR Act and the Commission's premerger notification rules.
Ardent Capital Management LLC is managed by its Co-Founders and Managing Partners, Julian Desmond and Priya Chandrasekar, who together oversee the firm's investment activities, portfolio management, and strategic direction. The firm currently employs approximately 85 investment and operational professionals.
The relevant entity identification numbers are as follows:
• Ardent Capital Partners III LP — EIN: 87-3421098
• Ardent Capital Management LLC (UPE) — EIN: 84-5567312
• Ardent Capital GP III LLC — EIN: 86-2198403
Ardent Capital Partners III LP ("Fund III") held its final close in November 2021 with $4.8 billion in committed capital from a diversified base of institutional limited partners, including public pension funds, sovereign wealth funds, endowments, foundations, and fund-of-funds vehicles. Fund III is the third institutional fund raised by the Ardent Capital platform.
Ardent Capital's investment strategy focuses on middle-market private equity acquisitions in three core sectors: healthcare services, business services, and specialty industrials. The firm targets platform investments with enterprise values generally ranging from $300 million to $1.5 billion and pursues value creation through operational improvement, organic growth, and disciplined add-on acquisitions. Across all funds to date, Ardent Capital has completed 23 platform acquisitions and over 60 add-on acquisitions.
B. Ardent Capital's Existing Healthcare Portfolio Companies
As of the date hereof, Ardent Capital Management LLC, as UPE, controls two healthcare portfolio companies through Fund III. Each is described below, together with an explanation of why neither gives rise to any horizontal competitive concern in connection with the Transaction.
1. Marlowe Asset Management Rehabilitation Holdings LLC ("Marlowe Asset Management Rehab"). Marlowe Asset Management Rehabilitation Holdings LLC is a Delaware limited liability company headquartered at 8950 Westheimer Road, Suite 600, Houston, TX 77063. Marlowe Asset Management Rehab was acquired by Ardent Capital Partners III LP in April 2022 and has since completed seven add-on acquisitions.
Marlowe Asset Management Rehab is a provider of outpatient physical therapy, occupational therapy, and rehabilitation services. The company currently operates 74 outpatient physical therapy clinics across three states: Texas (41 clinics), Florida (22 clinics), and Georgia (11 clinics). Marlowe Asset Management Rehab's fiscal year 2023 revenue was approximately $156 million.
Marlowe Asset Management Rehab's services are exclusively non-surgical in nature. Its clinicians — licensed physical therapists, physical therapy assistants, and occupational therapists — provide rehabilitative and therapeutic services to patients recovering from injuries, surgeries, and chronic conditions. Marlowe Asset Management Rehab does not perform surgical procedures, does not operate ambulatory surgical centers, and does not provide physician practice management services.
As discussed in greater detail in Sections II and VI below, twelve (12) of Marlowe Asset Management Rehab's physical therapy clinic locations are co-located with or immediately adjacent to Pinnacle ASCs in Texas, Florida, and Georgia. This geographic proximity gives rise to a potential vertical referral relationship, which is analyzed in Section VI. However, outpatient physical therapy services constitute a distinct product market from ASC services and PPM services, and no horizontal overlap exists between Marlowe Asset Management Rehab and Pinnacle in any relevant product market.
2. Clearpath Diagnostics Inc. ("Clearpath"). Clearpath Diagnostics Inc. is a Delaware corporation headquartered at 1700 Market Street, Suite 3400, Philadelphia, PA 19103. Clearpath was acquired by Ardent Capital Partners III LP in September 2022.
Clearpath is an independent clinical laboratory services provider that performs diagnostic testing, including blood work, urinalysis, pathology, and other clinical laboratory analyses. The company operates three laboratory facilities and approximately 45 patient service centers (draw stations) in three states: Pennsylvania, New Jersey, and New York. Clearpath's fiscal year 2023 revenue was approximately $218 million.
Critically, Clearpath's operations are confined entirely to Pennsylvania, New Jersey, and New York. Pinnacle Health Systems operates exclusively in North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. There is no geographic overlap whatsoever between Clearpath and Pinnacle. Furthermore, clinical laboratory services constitute a separate and distinct product market from both ASC services and PPM services. Clearpath is therefore entirely irrelevant to any competitive analysis of the proposed Transaction, but is disclosed here for completeness in describing the Acquiring Person's healthcare portfolio.
C. The Acquired Person — Pinnacle Health Systems, Inc.
Pinnacle Health Systems, Inc. is a Delaware corporation with its principal office located at 2200 Lakeshore Boulevard, Suite 500, Charlotte, NC 28202. Pinnacle's employer identification number is 56-4389201.
Pinnacle was founded in 2009 by Dr. Marcus Ellsworth and a group of physician partners in Charlotte, North Carolina. From its inception, Pinnacle has been focused on the development and operation of ambulatory surgical centers and the provision of management services to affiliated physician practices in select surgical specialties. Under Dr. Ellsworth's leadership, Pinnacle has grown from a single ASC in Charlotte to a multi-state platform operating 42 ambulatory surgical centers and 31 affiliated physician practice management entities across nine states.
Pinnacle's operations span the following states: North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. The company's ASCs provide multi-specialty outpatient surgical services, with a particular focus on orthopedic surgery (including total joint arthroplasty, arthroscopic procedures, and spine surgery), gastroenterology (including colonoscopy and upper endoscopy), and ophthalmology (including cataract surgery and retinal procedures). Each ASC is licensed by its applicable state regulatory authority and certified by the Centers for Medicare & Medicaid Services ("CMS") as a freestanding ambulatory surgical center.
In addition to its ASC operations, Pinnacle operates 31 physician practice management entities organized under a management services organization ("MSO") model. Through these entities, Pinnacle provides administrative, operational, financial, and compliance management services to affiliated physician practices. The affiliated physicians retain full clinical autonomy and independent medical judgment, while Pinnacle's MSO entities manage the non-clinical business functions of the practices.
Pinnacle's relevant industry classifications are NAICS code 621493 (Freestanding Ambulatory Surgical and Emergency Centers) for its ASC operations and NAICS code 621111 (Offices of Physicians) for its physician practice management activities.
For the fiscal year ended December 31, 2023, Pinnacle reported audited revenue of $637.4 million (as audited by Harland & Marsh CPAs LLP, Pinnacle's independent auditor) and adjusted EBITDA of $98.2 million (as determined in a quality of earnings analysis prepared by Apex Advisory Group LLC in connection with the Transaction). As of December 31, 2023, Pinnacle had total assets of approximately $812 million and employed approximately 4,700 individuals, including clinical and administrative personnel.
Pinnacle's growth trajectory has been significantly enhanced by private equity sponsorship. In 2017, Veltrano Equity Holdings LLC, acting through Veltrano Equity Partners Fund V LP, acquired a controlling interest in Pinnacle for an enterprise value of approximately $340 million. Under Veltrano's ownership, Pinnacle completed 19 add-on acquisitions, expanding its geographic footprint from three states to nine and growing its ASC count from 12 to 42. The Transaction represents Veltrano's exit from its investment in Pinnacle after approximately seven years of ownership.
D. The Selling Sponsor — Veltrano Equity Holdings LLC
Veltrano Equity Holdings LLC is a Delaware limited liability company with its principal office at 1400 Elm Street, Suite 3200, Dallas, TX 75201. Veltrano is selling its interest in Pinnacle through Veltrano Equity Partners Fund V LP, a private equity fund with approximately $3.2 billion in committed capital. The Managing Member and Senior Partner of Veltrano Equity Holdings LLC is Theodore "Ted" Hargrove. Veltrano's employer identification number is 75-6012389.
Veltrano is a seller in the Transaction and, following the closing, will have no continuing ownership interest in Pinnacle. Veltrano is not a party to the HSR filing as a reportable person; however, Pinnacle, as the acquired person, is filing its own Notification and Report Form through its antitrust counsel, Greenvale Durneval LLP.
II. Relevant Product Markets
A proper competitive analysis of the Transaction requires identification of the relevant product markets in which the Parties participate. As demonstrated below, neither Ardent Capital nor any entity within its control participates in the same product markets as Pinnacle. The analysis below first defines the relevant product markets for Pinnacle's operations and then confirms that Ardent Capital's portfolio companies operate in entirely distinct product markets.
A. Ambulatory Surgical Center (ASC) Services
Pinnacle's core business is the operation of 42 freestanding ambulatory surgical centers providing outpatient surgical procedures. For purposes of this competitive analysis, the relevant product market for Pinnacle's ASC operations is the provision of outpatient surgical services in freestanding ambulatory surgical centers. This market is classified under NAICS code 621493 (Freestanding Ambulatory Surgical and Emergency Centers).
ASC services constitute a distinct relevant product market, distinguishable from surgical services provided in hospital inpatient settings and hospital outpatient departments ("HOPDs"), for several independently sufficient reasons:
Distinct Regulatory Framework. Freestanding ASCs are subject to a specific and distinct regulatory framework. ASCs must obtain state licensure as freestanding ambulatory surgical facilities (separate from hospital licensure) and must obtain Medicare certification under 42 C.F.R. Part 416 as ASCs (separate from hospital Medicare provider certification). These distinct regulatory requirements define ASCs as a separate category of healthcare facility recognized by federal and state law.
Distinct Reimbursement Structure. Medicare reimburses ASCs under the ASC Payment System, which establishes ASC-specific payment rates for covered surgical procedures under 42 C.F.R. § 416.171 et seq. These rates are substantially lower than the rates paid to HOPDs under the Hospital Outpatient Prospective Payment System ("OPPS"). Similarly, commercial payors typically negotiate separate fee schedules and reimbursement rates for ASC procedures that are distinct from, and generally lower than, HOPD rates. This distinct reimbursement framework reflects the fundamentally different cost structures and competitive dynamics of ASCs as compared to hospital-based outpatient surgery.
Demand-Side Substitutability. From the perspective of patients and payors — the relevant consumers for purposes of market definition — ASCs represent a distinct, lower-cost alternative to hospital-based outpatient surgery. Patients scheduled for qualifying outpatient procedures generally have a choice between an ASC setting and an HOPD setting. However, the significant cost differential between these two settings (ASC procedures typically cost 40–60% less than comparable HOPD procedures), combined with increasing payor incentives to steer patients toward lower-cost sites of service, creates a distinct competitive dynamic for ASCs. Payors increasingly require or incentivize the use of ASCs for qualifying procedures, further differentiating the competitive conditions facing ASCs from those facing HOPDs.
Agency Precedent. The Commission and the Division have consistently recognized ASC services — or, more broadly, outpatient surgical services provided in non-hospital settings — as constituting a relevant product market or analytically meaningful sub-market in healthcare merger investigations. This treatment is consistent with the distinct regulatory, reimbursement, and competitive characteristics of ASCs described above.
Pinnacle's 42 ASCs offer multi-specialty ambulatory surgical services across three primary specialties: orthopedic surgery, gastroenterology, and ophthalmology. Within these specialties, Pinnacle's ASCs perform a broad range of procedures, including but not limited to total and partial joint arthroplasty, arthroscopic knee and shoulder surgery, spinal decompression and fusion, colonoscopy, upper endoscopy, cataract extraction with intraocular lens implantation, and vitreoretinal procedures. The ASCs are staffed by credentialed surgeons (many of whom are affiliated with Pinnacle through its physician practice management entities) as well as anesthesiologists, certified registered nurse anesthetists, surgical technologists, and nursing personnel.
On the supply side, entry into the ASC services market requires state licensure, Medicare certification, and, in several states in which Pinnacle operates, Certificate of Need ("CON") approval (discussed in greater detail in Section VIII below). These regulatory requirements represent meaningful barriers to entry, although they are not insurmountable for well-resourced entrants such as hospital systems and other private equity-backed platforms. Existing hospital systems can establish outpatient surgery departments (HOPDs), but these facilities face fundamentally different cost structures, reimbursement dynamics, and competitive pressures than freestanding ASCs, further supporting the delineation of ASC services as a distinct product market.
B. Physician Practice Management (PPM) Services
Pinnacle's second line of business is the provision of physician practice management services through 31 affiliated MSO entities. For purposes of this competitive analysis, PPM services constitute a separate relevant product market from ASC services, although the two are vertically related (physician practices affiliated with Pinnacle's MSO entities refer patients for surgical procedures at Pinnacle's ASCs).
Under Pinnacle's MSO model, the 31 affiliated practice management entities provide comprehensive administrative, operational, and financial management services to physician practices in orthopedics, gastroenterology, and ophthalmology. These management services include, among other things, revenue cycle management and medical billing, practice accounting and financial reporting, human resources administration for non-clinical staff, facilities management and lease administration, information technology infrastructure, regulatory compliance support, payor contracting and credentialing, and marketing and patient acquisition. Physician practices affiliated with Pinnacle's MSO entities retain complete clinical autonomy, including independent medical decision-making, treatment protocols, and patient care standards.
PPM services are classified under NAICS code 621111 (Offices of Physicians), reflecting the physician practice setting in which these management services are deployed. The PPM market is characterized by significant fragmentation, with hundreds of management services organizations, physician-owned management companies, and health system-affiliated management entities competing for physician practice management engagements across the country. Competition for PPM services is largely local in nature, as physician practices typically engage management services organizations with operational capabilities and market knowledge in their specific geographic area.
C. Products/Services of Ardent Capital Portfolio Companies — Not in the Same Product Markets
Having defined the relevant product markets for Pinnacle's operations, we now confirm that neither of Ardent Capital's existing healthcare portfolio companies participates in either of these product markets.
Marlowe Asset Management Rehabilitation Holdings LLC — Outpatient Physical Therapy Services. Marlowe Asset Management Rehab provides outpatient physical therapy, occupational therapy, and rehabilitation services — services that are entirely distinct from ASC services and PPM services. Physical therapy is a non-surgical, rehabilitative service provided by licensed physical therapists to patients recovering from injuries, surgeries, or chronic musculoskeletal conditions. Physical therapy services are not substitutable for ambulatory surgical procedures, either from the patient's perspective or from the payor's perspective. A patient requiring surgery cannot substitute physical therapy for that surgical procedure, and a patient requiring post-surgical rehabilitation cannot substitute an ambulatory surgical procedure for physical therapy. Physical therapy services are classified under a separate NAICS code (NAICS 621340 — Offices of Physical, Occupational and Speech Therapists, and Audiologists), are subject to separate licensure requirements, and are reimbursed under separate payment methodologies. Accordingly, Marlowe Asset Management Rehab does not participate in the ASC services product market or the PPM services product market, and no horizontal overlap exists between Marlowe Asset Management Rehab and Pinnacle.
Clearpath Diagnostics Inc. — Independent Clinical Laboratory Services. Clearpath provides independent clinical laboratory services, including blood work, urinalysis, pathology, and other diagnostic testing. Clinical laboratory services are complementary to, but not substitutable for, either surgical services or practice management services. Laboratory testing is a fundamentally different service, involving the analysis of biological specimens for diagnostic purposes, and it is classified under a separate NAICS code (NAICS 621511 — Medical Laboratories), governed by separate regulatory requirements (including CLIA certification under 42 U.S.C. § 263a), and reimbursed under the Clinical Laboratory Fee Schedule established by CMS. Accordingly, Clearpath does not participate in the ASC services product market or the PPM services product market, and no horizontal overlap exists between Clearpath and Pinnacle.
In sum, none of Ardent Capital's controlled portfolio companies operates in the same product market as Pinnacle. The Transaction does not combine competitors in any relevant product market.
III. Relevant Geographic Markets
A. Framework for Geographic Market Definition
ASC services and PPM services are inherently local in nature. Patients travel limited distances for outpatient surgical procedures — typically no more than 30 to 45 minutes in urban and suburban markets — and similarly select physicians and physician practices within a relatively circumscribed geographic area. The Commission and the Division have consistently defined geographic markets for hospital and outpatient services at the local level, typically corresponding to Metropolitan Statistical Areas ("MSAs") or, in some cases, smaller geographic areas.
Consistent with this well-established analytical framework, we define the relevant geographic markets in this Transaction as the MSAs in which Pinnacle operates ASCs and/or physician practice management entities. This approach is conservative in that it defines geographic markets broadly enough to capture all plausible areas of competitive interaction while remaining consistent with the realities of patient travel patterns and the local nature of healthcare services competition.
B. Identification of Nine Relevant MSAs
Pinnacle operates ASCs and/or affiliated physician practice management entities in the following nine MSAs, which we identify as the relevant geographic markets for purposes of this competitive analysis:
These nine MSAs constitute the entirety of Pinnacle's geographic footprint. Pinnacle does not operate any facilities or entities outside of these MSAs.
C. Ardent Capital's Presence in These Geographic Markets
Ardent Capital Management LLC (as UPE) has no existing ASC operations or physician practice management operations in any of the nine MSAs identified above. This fact is dispositive of the horizontal competitive analysis: because the Acquiring Person does not participate in either of the relevant product markets in any of the relevant geographic markets, the Transaction does not combine competitors and produces no change in the competitive landscape in any local market.
To be thorough, we address the geographic presence of each of Ardent Capital's healthcare portfolio companies:
Marlowe Asset Management Rehabilitation Holdings LLC operates outpatient physical therapy clinics in three states — Texas, Florida, and Georgia — which overlap geographically with three of the MSAs in which Pinnacle operates (specifically, the Dallas-Fort Worth MSA, the Tampa MSA, and the Atlanta MSA). However, as established in Section II above, outpatient physical therapy services constitute a separate and distinct product market from both ASC services and PPM services. The geographic co-presence of Marlowe Asset Management Rehab and Pinnacle in these three MSAs does not give rise to any horizontal overlap, because the two companies do not compete in the same product market. The vertical relationship between Marlowe Asset Management Rehab's PT services and Pinnacle's ASC operations is analyzed separately in Section VI below.
Clearpath Diagnostics Inc. operates exclusively in Pennsylvania, New Jersey, and New York. None of these states is among the nine states in which Pinnacle operates, and Clearpath has no presence in any of the nine relevant MSAs. Accordingly, there is no geographic overlap of any kind between Clearpath and Pinnacle.
Conclusion: There is zero horizontal overlap between Ardent Capital (including all entities within the control of its UPE, Ardent Capital Management LLC) and Pinnacle in any relevant geographic market. The Transaction does not combine competitors in any local market.
IV. Absence of Horizontal Overlap — Detailed Analysis
A. Summary Finding
The competitive analysis presented in Sections II and III above compels a straightforward and unambiguous conclusion: Ardent Capital and its controlled portfolio companies do not operate any ambulatory surgical centers or physician practice management entities anywhere in the United States. The proposed Transaction is a pure private equity acquisition in which a financial sponsor (Ardent Capital) is acquiring a healthcare services platform (Pinnacle) from another financial sponsor (Veltrano) as a new platform investment. The Transaction does not combine two competitors in any product market or any geographic market. No horizontal competitive concern arises.
This is among the most straightforward competitive profiles for a reportable HSR transaction: a financial buyer with no existing presence in the target's industry is acquiring a platform business. The acquisition will result in a change in the financial ownership and governance of Pinnacle — from Veltrano to Ardent Capital — but will produce no change whatsoever in the competitive conditions faced by any market participant, any payor, or any patient in any of the markets in which Pinnacle operates.
B. MSA-by-MSA Confirmation
To provide the Bureau with a complete record, we confirm below that for each of the nine relevant geographic markets, neither Ardent Capital Management LLC (as UPE) nor any entity within its control operates an ASC or PPM entity:
In every relevant geographic market, Ardent Capital has zero presence in the relevant product markets. The Transaction therefore produces no change in competitive conditions in any local market. Under any analytical framework — whether structural presumptions based on market concentration, competitive effects analysis, or assessment of unilateral or coordinated effects — the absence of horizontal overlap means the Transaction presents no horizontal competitive concern.
V. HHI Concentration Analysis
A. Methodology. Although the absence of horizontal overlap renders a Herfindahl-Hirschman Index ("HHI") analysis technically unnecessary — a transaction that does not combine competitors produces, by definition, zero incremental concentration — we have nonetheless prepared HHI calculations for the ASC services product market in each of the nine relevant MSAs. We provide this analysis to demonstrate affirmatively that the Transaction produces no structural change in any market and to assist the Bureau in its review.
Market shares for the HHI calculations were computed using two independent methodologies:
(i) Facility count basis: Market shares were calculated based on the number of licensed and Medicare-certified ASCs operating in each MSA, with each ASC counted as a single facility regardless of size or case volume. This methodology provides a transparent and easily verifiable approximation of competitive presence.
(ii) Estimated net patient revenue basis: Market shares were also calculated based on estimated net patient revenue generated by each ASC operator in the relevant MSA. Revenue estimates were derived from a combination of state health department utilization data, CMS provider enrollment and claims data, publicly available financial information (including audited financial statements and bond offering documents for hospital systems operating ASCs), and Pinnacle's internal management records.
Data sources for both methodologies include state health department licensure and utilization databases (including the North Carolina Division of Health Service Regulation, the Virginia Department of Health, the Tennessee Department of Health, and analogous agencies in each relevant state), CMS provider enrollment files, the CMS Provider of Services file, publicly available financial disclosures, and Pinnacle's internal financial and operational records.
B. Charlotte-Concord-Gastonia, NC-SC MSA — Detailed Analysis
We present a detailed HHI analysis for the Charlotte-Concord-Gastonia, NC-SC MSA, which is Pinnacle's largest market and the market in which Pinnacle operates the greatest number of ASCs. This MSA serves as a representative case study; the same analytical framework applies to each of the remaining eight MSAs, with the same result (zero change in HHI).
Market Participants. As of December 31, 2023, there were 67 licensed and Medicare-certified freestanding ASCs operating in the Charlotte-Concord-Gastonia, NC-SC MSA. These 67 facilities are operated by a diverse group of market participants, including:
• Pinnacle Health Systems, Inc. — 14 ASCs
• Ashford Industries (affiliated with Cobalt Ridge Group) — 8 ASCs
• Ridgeway Corporation — 6 ASCs
• Dunmore Enterprises (Penrose Holdings/Ostrander Group) — 4 ASCs
• Cascade Group (Ostrander Group) — 3 ASCs
• Independent physician-owned ASCs — 32 facilities operated by approximately 20 distinct physician groups or joint ventures
Market Shares.
Facility Count Basis: Pinnacle operates 14 of 67 ASCs in the Charlotte MSA, corresponding to an approximate facility share of 20.9%. No single operator holds a facility share exceeding 20.9%.
Revenue Basis: Based on estimated net patient revenue, Pinnacle's revenue share in the Charlotte MSA is approximately 18.3%. The slight variance between facility share and revenue share reflects differences in facility size, case mix, and acuity across operators.
HHI Calculations.
Pre-Transaction HHI: Approximately 1,280. Under the 2023 Merger Guidelines, a market with an HHI between 1,000 and 1,800 is considered "moderately concentrated." The Charlotte MSA's pre-transaction HHI of approximately 1,280 reflects a moderately concentrated market with a significant number of independent competitors.
Post-Transaction HHI: Approximately 1,280 — no change. Because Ardent Capital has no existing ASC presence in the Charlotte MSA (or anywhere in the United States), the Transaction does not combine two market participants. Ardent Capital's pre-transaction market share in the Charlotte MSA ASC services market is zero. The post-transaction HHI is therefore identical to the pre-transaction HHI.
Delta (Δ) HHI: 0. The Transaction produces zero incremental concentration in the Charlotte MSA.
Under the 2023 Merger Guidelines, transactions that produce no change in HHI present no structural presumption of competitive harm. A delta of zero is, by definition, below any threshold warranting further investigation based on market concentration.
C. Remaining Eight MSAs — Summary Analysis
The analysis for each of the remaining eight MSAs follows the same pattern and produces the identical result: because Ardent Capital has no pre-existing presence in any relevant product market in any relevant geographic market, the Transaction produces zero change in HHI in every market. The results are summarized in the following table:
As reflected in the table, the Transaction produces zero incremental concentration in every relevant geographic market. In no market does the Transaction alter competitive conditions, combine market participants, or change the HHI by any amount.
D. Conclusion on Concentration
The concentration analysis confirms what the qualitative competitive analysis in Sections II through IV already established: the Transaction has no impact on market concentration in any relevant market. The Transaction produces zero delta HHI across all nine relevant MSAs. No structural presumption of competitive harm arises under the 2023 Merger Guidelines or under any prior iteration of the Guidelines. The Transaction falls decisively below any threshold that would warrant further investigation based on concentration levels, and the Bureau can confidently conclude that no additional investigation into competitive effects is necessary.
VI. Vertical Relationships Analysis
A. Identification of Vertical Relationship
While the Transaction presents no horizontal competitive concern of any kind, we recognize that a potential vertical relationship exists between one of Ardent Capital's existing portfolio companies — Marlowe Asset Management Rehabilitation Holdings LLC — and Pinnacle Health Systems. We address this vertical relationship proactively and in detail to demonstrate that it is competitively insignificant and does not give rise to any theory of anticompetitive harm.
The nature of the vertical relationship is as follows: patients who undergo surgical procedures at Pinnacle's ASCs may subsequently require post-surgical rehabilitation, including outpatient physical therapy. When such patients are treated at Pinnacle ASCs located in Texas, Florida, or Georgia, they may be referred to Marlowe Asset Management Rehab's physical therapy clinics for post-surgical rehabilitation. This referral pattern represents a downstream vertical relationship in which Pinnacle's ASCs are an upstream referral source and Marlowe Asset Management Rehab's PT clinics are a downstream service provider.
The vertical proximity between Marlowe Asset Management Rehab and Pinnacle is heightened by the fact that 12 of Marlowe Asset Management Rehab's 74 physical therapy clinic locations are co-located with or immediately adjacent to Pinnacle ASCs in three states:
• Texas: 5 Marlowe Asset Management PT clinics co-located with or adjacent to Pinnacle ASCs in the Dallas-Fort Worth MSA
• Florida: 4 Marlowe Asset Management PT clinics co-located with or adjacent to Pinnacle ASCs in the Tampa MSA
• Georgia: 3 Marlowe Asset Management PT clinics co-located with or adjacent to Pinnacle ASCs in the Atlanta MSA
This co-location is not the result of any pre-existing commercial relationship or coordination between Marlowe Asset Management Rehab and Pinnacle; rather, it reflects the common practice among healthcare service providers of clustering near high-volume surgical facilities to capture post-surgical referral volume.
B. Analysis of Competitive Significance
Despite the geographic proximity of certain Marlowe Asset Management Rehab and Pinnacle facilities, the vertical relationship between these two entities is competitively insignificant for the following independently sufficient reasons:
Minimal Referral Volume. Marlowe Asset Management Rehab's total physical therapy referral volume from Pinnacle ASCs — across all 12 co-located or adjacent clinics — represents less than 2% of Pinnacle's total ASC case volume in the affected MSAs (Dallas-Fort Worth, Tampa, and Atlanta). This de minimis referral share demonstrates that the vertical relationship between Marlowe Asset Management Rehab and Pinnacle is a minor and incidental aspect of each company's business, not a competitively significant linkage. Even if the Transaction were to result in some incremental increase in referrals from Pinnacle ASCs to Marlowe Asset Management Rehab PT clinics (which is neither planned nor certain), the volume involved would be far too small to have any meaningful competitive impact in either the ASC services market or the outpatient physical therapy services market.
Non-Exclusive Referrals. Post-surgical physical therapy referrals from Pinnacle ASC physicians are not exclusive to Marlowe Asset Management Rehab or any other single PT provider. Patients who undergo surgery at Pinnacle ASCs have the right to choose their own physical therapy provider under applicable federal and state law, including the Medicare patient freedom-of-choice provisions. Pinnacle ASC surgeons routinely refer patients to a range PT providers based on patient preference, insurance coverage, geographic convenience, and clinical considerations. Marlowe Asset Management Rehab is merely one of many PT providers to which Pinnacle-affiliated surgeons may refer patients. The Transaction will not alter this non-exclusive referral pattern.
No Foreclosure Concern — Input Foreclosure. A theory of input foreclosure would require a showing that the combined entity could profitably restrict rival PT providers' access to referrals from Pinnacle ASCs, thereby raising rivals' costs or reducing their competitive viability. This theory is implausible here because: (i) Pinnacle's ASCs represent a small share of total ASC case volume in each affected MSA, so rival PT providers have abundant alternative sources of post-surgical referrals; (ii) patients have freedom of choice among PT providers, limiting the combined entity's ability to steer referrals; (iii) the combined entity would have no economic incentive to restrict referrals, as doing so would alienate the independent surgeons who perform procedures at Pinnacle ASCs and who maintain their own independent referral relationships; and (iv) the Stark Law and Anti-Kickback Statute impose significant legal constraints on referral steering arrangements in healthcare.
No Foreclosure Concern — Customer Foreclosure. A theory of customer foreclosure would require a showing that the combined entity could restrict Marlowe Asset Management Rehab's PT clinics from receiving referrals from rival ASC operators, or could refuse to refer Marlowe Asset Management Rehab patients to rival ASCs for surgical procedures. This theory is equally implausible: Marlowe Asset Management Rehab's PT clinics receive referrals from a diverse range of sources (including primary care physicians, orthopedic surgeons not affiliated with Pinnacle, and self-referred patients), and the vast majority of Marlowe Asset Management Rehab's referral volume is entirely unrelated to Pinnacle. Marlowe Asset Management Rehab has no ability to foreclose rival ASCs from receiving surgical referrals, as the decision to perform surgery at a particular ASC is made by the surgeon, not by the PT provider.
Abundant Alternative Providers. In each of the three affected MSAs, there are numerous alternative outpatient physical therapy providers, including hospital-based rehabilitation programs, independent PT practices, and other private equity-backed PT platforms (such as Kestrel Enterprises, Severin Enterprises, and Beaumont Industries). There are also numerous alternative ASC operators in each affected MSA, as demonstrated by the facility counts presented in Section V above. The presence of abundant alternatives on both sides of the vertical relationship further confirms that no foreclosure theory is plausible.
C. Conclusion on Vertical Relationships
The vertical relationship between Marlowe Asset Management Rehab's physical therapy clinics and Pinnacle's ambulatory surgical centers is competitively insignificant. The referral volume involved is de minimis (less than 2% of Pinnacle's case volume in the affected MSAs), referrals are non-exclusive, and neither input foreclosure nor customer foreclosure is a plausible theory of harm on these facts. The vertical relationship does not give rise to any antitrust concern and should not impede the grant of early termination.
VII. Clearpath Diagnostics — No Overlap of Any Kind
For the avoidance of doubt, and to address the full scope of Ardent Capital's healthcare portfolio, we confirm that Clearpath Diagnostics Inc. presents no competitive concern of any kind in connection with the Transaction.
Clearpath Diagnostics operates exclusively in three states — Pennsylvania, New Jersey, and New York — providing independent clinical laboratory services through three laboratory facilities and approximately 45 patient service centers. Pinnacle Health Systems operates exclusively in nine states — North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. There is no geographic overlap whatsoever between Clearpath and Pinnacle. Not a single Clearpath facility is located in any state in which Pinnacle operates, and not a single Pinnacle facility is located in any state in which Clearpath operates.
Moreover, as established in Section II above, clinical laboratory services and ASC services (and PPM services) are distinct product markets. Clinical laboratory testing — the analysis of blood, urine, tissue, and other biological specimens for diagnostic purposes — is a fundamentally different service from ambulatory surgery or physician practice management. These services are classified under different NAICS codes, regulated under different licensure and certification frameworks, reimbursed under different payment methodologies, and serve different functional roles in the healthcare delivery system.
Because there is neither geographic overlap nor product market overlap between Clearpath and Pinnacle, no horizontal concern, vertical concern, or competitive issue of any kind arises from the Clearpath portfolio holding. Clearpath is entirely irrelevant to the competitive analysis of the Transaction.
VIII. Barriers to Entry and Competitive Conditions
A. Certificate of Need (CON) Requirements
Several of the states in which Pinnacle operates maintain Certificate of Need programs or analogous licensure restrictions applicable to the establishment or expansion of ambulatory surgical centers. The CON landscape across Pinnacle's nine-state footprint is summarized below:
In the six states that maintain CON requirements applicable to ASCs (North Carolina, Virginia, Tennessee, Georgia, Alabama, and Ohio), the CON process creates meaningful barriers to de novo entry by new ASC operators. Applicants must demonstrate community need for the proposed facility, navigate a competitive review process, and obtain regulatory approval before commencing construction or operations. CON processes can take 12 to 24 months or longer and involve significant administrative and legal expense.
These CON barriers are relevant to the broader competitive landscape in certain of Pinnacle's markets, as they limit the pace of new entry and thereby contribute to the structural characteristics of the market. However, the existence of CON barriers does not give rise to any additional antitrust risk in this Transaction for two independent reasons: (i) the Transaction does not contemplate any divestitures, new facility construction, or capacity changes that would implicate CON requirements; and (ii) because the Transaction does not combine competitors, CON barriers are not a mechanism through which the Transaction could enhance or entrench market power. CON barriers, if anything, underscore the strategic value of Pinnacle's established and fully licensed platform, but they do not implicate any merger-specific competitive harm.
B. General Competitive Conditions in ASC Markets
The ASC industry in the United States is a large, growing, and competitively dynamic sector. According to data from the Ambulatory Surgery Center Association and CMS, there are approximately 6,100 Medicare-certified ASCs operating in the United States as of 2023, a number that has grown steadily over the past two decades. The industry generates estimated annual revenue in excess of $50 billion.
The competitive landscape for ASC services is characterized by significant fragmentation and diversity of ownership models:
• Private equity-backed platforms represent a growing segment of the ASC market. Major PE-backed ASC platforms include Cascade Group (owned by Ostrander Group/Penrose Holdings), Calderon & Co. (merged with Ashbury Enterprises), Bramwell Group (NYSE: SGRY), and numerous smaller regional platforms. These platforms typically pursue a strategy of physician partnership, operational improvement, and add-on acquisitions similar to Pinnacle's strategy.
• Hospital-affiliated ASC joint ventures represent another significant category. Major health systems — including Pinnacle Industries, Cobalt Ridge & Co., Westvale Corporation, and numerous regional and community hospital systems — operate ASCs both independently and through joint ventures with physician groups. Hospital systems bring capital, payor contracting leverage, and referral networks to these joint ventures.
• Independent physician-owned ASCs remain the most numerous ownership category, accounting for a substantial majority of the approximately 6,100 ASCs operating nationally. These facilities are typically owned and operated by small groups of surgeons or physician partnerships and serve the local communities in which their physician-owners practice.
The ASC industry is benefiting from a sustained secular trend toward the migration of surgical procedures from hospital inpatient and outpatient settings to freestanding ASCs — commonly referred to as the "site-of-service shift." This trend is driven by multiple factors, including the significantly lower cost of ASC procedures relative to hospital-based procedures, payor incentives to steer patients toward lower-cost sites of service, CMS policy changes expanding the list of procedures approved for ASC reimbursement (including the recent addition of total joint arthroplasty procedures to the ASC-approved list), technological advances enabling more complex procedures to be performed safely in outpatient settings, and patient preference for the convenience and efficiency of freestanding ASC facilities.
The robust competitive conditions prevailing in the ASC industry — characterized by a large number of competitors, diverse ownership models, active new entry (particularly in non-CON states), and strong secular growth trends — further confirm that the proposed Transaction raises no competitive concern. Pinnacle will continue to face the same competitive pressures from hospital systems, PE-backed platforms, and independent physician-owned ASCs under Ardent Capital's ownership as it does today under Veltrano's ownership. The Transaction will not alter the competitive dynamics in any market.
IX. Item 4(c) and 4(d) Document Production
A. Acquiring Person Documents
Ardent Capital Partners III LP, as the Acquiring Person, is producing seven (7) documents responsive to Items 4(c) and 4(d) of the HSR Notification and Report Form. These documents are as follows:
1. Confidential Information Memorandum — Pinnacle Health Systems, Inc. (Project "Summit"), prepared by Crestline Baird & Co. (sell-side financial advisor), dated October 2023 (152 pages).
2. Management Presentation Materials — Pinnacle Health Systems, Inc. (Project "Summit"), prepared by Crestline Baird & Co., dated November 2023 (84 pages).
3. Teaser — Project "Summit," prepared by Crestline Baird & Co., dated September 2023 (6 pages).
4. Ardent Capital Partners III LP — Investment Committee Memorandum: Pinnacle Health Systems, Inc., dated December 15, 2023 (47 pages).
5. Ardent Capital Partners III LP — Supplemental Investment Committee Memorandum: Pinnacle Health Systems, Inc. (Updated for Revised Bid), dated January 12, 2024 (23 pages).
6. Ardent Capital Partners III LP — Limited Partner Advisory Committee Presentation: Pinnacle Health Systems, Inc., dated January 22, 2024 (31 pages).
7. Internal email chain among Ardent Capital investment professionals (Julian Desmond, Priya Chandrasekar, and others), dated November 8–14, 2023, discussing competitive landscape and market dynamics in Pinnacle's operating markets (8 pages).
Counsel has reviewed each of these documents in detail. None of these documents identifies any competitive concern associated with the proposed Transaction. The Crestline Baird & Co. materials (documents 1–3) describe Pinnacle's market position, growth trajectory, and investment merits from the perspective of a sell-side financial advisor marketing the business to potential acquirers. The Ardent Capital investment committee memoranda and LPAC presentation (documents 4–6) discuss Pinnacle's competitive positioning, market dynamics, and growth opportunities in a manner fully consistent with the competitive analysis presented in this submission — specifically, they describe a fragmented, growing ASC market with favorable secular trends and identify Pinnacle as an attractive platform investment opportunity. The internal email chain (document 7) includes a discussion of the competitive landscape in Pinnacle's key markets and identifies the same major competitors noted in this submission (Cascade Group, Greaves Corporation, hospital-affiliated ASC joint ventures, and independent physician-owned ASCs) without suggesting that the Transaction would lessen competition in any market.
In sum, none of the Acquiring Person's Item 4(c)/4(d) documents suggests that the Transaction would have any anticompetitive effect.
B. Acquired Person Documents
Pinnacle Health Systems, Inc., as the Acquired Person, is producing eleven (11) documents responsive to Items 4(c) and 4(d), as identified by Greenvale Durneval LLP, antitrust counsel to Pinnacle. These documents include:
1. Four (4) strategic planning presentations prepared by Pinnacle management for the Pinnacle Board of Directors (covering the periods FY 2021, FY 2022, FY 2023, and FY 2024 budget cycle), each discussing Pinnacle's competitive positioning, market share, growth strategy, and competitive landscape in its operating markets.
2. Three (3) sets of Pinnacle Board of Directors meeting minutes containing discussions of competitive positioning, market share trends, and strategic responses to competitor activity (from meetings held in March 2023, June 2023, and September 2023).
3. Two (2) consultant reports on ASC market growth and site-of-service shift trends, prepared by an independent healthcare consulting firm retained by Pinnacle (dated April 2022 and January 2023).
4. Two (2) internal email communications among Pinnacle senior executives discussing competitor activity, including new ASC openings by competitors and competitive responses to payor contracting initiatives (dated August 2023 and November 2023).
Counsel has reviewed the Acquired Person's Item 4(c)/4(d) documents in coordination with Greenvale Durneval LLP. None of these documents identifies the proposed Transaction — or any transfer of Pinnacle to a private equity buyer — as potentially anticompetitive. The documents reflect normal-course competitive monitoring and strategic planning activities by a healthcare services company operating in a competitive industry. They describe the competitive landscape in terms consistent with the analysis presented herein: a fragmented, growing ASC market with multiple competitors in each of Pinnacle's operating MSAs.
X. Conclusion and Request for Early Termination
A. Summary of Competitive Analysis
Based on the foregoing analysis, we respectfully submit that the proposed acquisition of Pinnacle Health Systems, Inc. by Ardent Capital Partners III LP raises no antitrust concerns and warrants early termination of the HSR Act waiting period. The competitive analysis demonstrates the following:
1. The Transaction is a financial sponsor-to-financial sponsor transfer of a healthcare services platform, in which Veltrano Equity Holdings LLC is selling its controlling interest in Pinnacle to Ardent Capital Partners III LP. This is a change in financial sponsorship, not a combination of competitors.
2. Ardent Capital does not operate any ASCs or PPM entities anywhere in the United States. Neither Ardent Capital Management LLC (as UPE) nor any entity within its control participates in either of the relevant product markets — ASC services or PPM services — in any geographic market.
3. The Transaction produces zero change in HHI in every relevant geographic market. Because Ardent Capital has no pre-existing presence in any relevant product market, the Transaction does not combine market participants and generates no incremental concentration.
4. The only identified relationship between Ardent Capital's existing portfolio and Pinnacle is a competitively insignificant vertical referral pattern between 12 Marlowe Asset Management Rehab physical therapy clinics and co-located or adjacent Pinnacle ASCs in Texas, Florida, and Georgia. This vertical relationship involves less than 2% of Pinnacle's ASC case volume in the affected MSAs, referrals are non-exclusive, and no theory of vertical harm — whether input foreclosure, customer foreclosure, or raising rivals' costs — is plausible on these facts.
5. Clearpath Diagnostics has no geographic or product market overlap with Pinnacle. Clearpath operates exclusively in Pennsylvania, New Jersey, and New York, while Pinnacle operates in nine entirely different states.
6. No theory of competitive harm — horizontal, vertical, or otherwise — is supported by the facts of this Transaction. The Transaction will not substantially lessen competition or tend to create a monopoly in any relevant market.
7. Item 4(c)/4(d) documents produced by both the Acquiring Person and the Acquired Person are consistent with this competitive analysis and do not identify any competitive concern associated with the Transaction.
B. Request for Early Termination
For the reasons set forth above, Calderwood & Harkness LLP respectfully requests, on behalf of Ardent Capital Partners III LP, that the Bureau of Competition grant early termination of the initial thirty (30) day waiting period applicable to this Transaction under Section 7A(b)(1)(B) of the Clayton Act, 15 U.S.C. § 18a(b)(1)(B).
The Parties are fully prepared to close the Transaction promptly upon receipt of early termination. All conditions precedent to closing other than the expiration or early termination of the HSR Act waiting period have been satisfied or are expected to be satisfied prior to the anticipated closing date. Absent the grant of early termination, the initial waiting period would expire on or about March 17, 2024.
C. Availability of Counsel
Howard Bellamy and Monica Reyes of Calderwood & Harkness LLP remain available at all times to answer any questions, provide any additional information, or arrange any meetings that the Bureau may require in connection with its review of this Transaction. The Bureau should not hesitate to contact us directly:
Howard Bellamy, Partner Antitrust & Competition Practice Group Calderwood & Harkness LLP 600 Lexington Avenue, New York, NY 10022 Direct: (212) 558-4127
Email: hbellamy@calderwoodharkness.com
Monica Reyes, Associate Antitrust & Competition Practice Group Calderwood & Harkness LLP 600 Lexington Avenue, New York, NY 10022 Direct: (212) 558-4493
Email: mreyes@calderwoodharkness.com