DRAFT — PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
NOTIFICATION AND REPORT FORM FOR CERTAIN MERGERS AND ACQUISITIONS
Hart-Scott-Rodino Antitrust Improvements Act of 1976 15 U.S.C. § 18a
ACQUIRING PERSON NOTIFICATION
Prepared for:
Ardent Capital Partners III LP 399 Park Avenue, 41st Floor New York, NY 10022
Prepared by:
Calderwood & Harkness LLP 600 Lexington Avenue New York, NY 10022
DRAFT — FOR INTERNAL REVIEW ONLY — NOT YET FILED
This form is being prepared for simultaneous filing with the acquired person's Notification and Report Form, which is being prepared by Greenvale Durneval LLP (Jonathan Felder, Partner) on behalf of Pinnacle Health Systems, Inc. and its Ultimate Parent Entity, Veltrano Equity Holdings LLC. The parties anticipate a target filing date of February 16, 2024. Coordination on consistency of transaction descriptions, NAICS code classifications, and aggregate transaction value is ongoing between Calderwood & Harkness LLP and Greenvale Durneval LLP. This draft has not been reviewed or approved by client for filing and remains subject to revision.
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ITEM 1 — IDENTIFICATION OF PERSONS FILING NOTIFICATION
1(a) — Name and Address of Person Filing Notification (Acquiring Person)
The person filing this Notification and Report Form is the acquiring person identified below:
Ardent Capital Partners III LP is a Delaware limited partnership formed for the purpose of making private equity investments. The partnership was established in connection with the final closing of commitments to Ardent Capital's third flagship fund, which occurred in November 2021. Ardent Capital Partners III LP is the entity that will directly acquire the voting securities of Pinnacle Health Systems, Inc. as described in Item 2 below.
Contact Person for this Notification:
Howard Bellamy, Esq. Calderwood & Harkness LLP 600 Lexington Avenue New York, NY 10022 Telephone: (212) 455-7800
Email: hbellamy@calderwoodharkness.com
Mr. Bellamy is designated as the contact person authorized to receive all communications from the Federal Trade Commission and the Antitrust Division of the Department of Justice with respect to this filing, in accordance with the instructions to this Notification and Report Form.
Person Authorized to Receive Correspondence:
Monica Reyes, Esq. Calderwood & Harkness LLP 600 Lexington Avenue New York, NY 10022 Telephone: (212) 455-7814
Email: mreyes@calderwoodharkness.com
Ms. Reyes is authorized to receive correspondence and communications on behalf of the acquiring person and may be contacted in the event that Mr. Bellamy is unavailable.
1(b) — Name and Address of Ultimate Parent Entity (UPE)
The Ultimate Parent Entity of the acquiring person is identified below:
Rationale for UPE Designation:
Ardent Capital Management LLC is a Delaware limited liability company and a registered investment adviser with the United States Securities and Exchange Commission (SEC File No. 801-119247). Ardent Capital Management LLC serves as the sole member of Ardent Capital GP III LLC, a Delaware limited liability company (EIN 86-2198403), which in turn serves as the sole general partner of Ardent Capital Partners III LP. In its capacity as investment manager, Ardent Capital Management LLC exercises sole authority over all investment and voting decisions of the Fund, including the decision to pursue, negotiate, and consummate the acquisition described herein. Ardent Capital Management LLC also has the contractual right and practical ability to direct the management and policies of Ardent Capital Partners III LP and its portfolio companies. Accordingly, Ardent Capital Management LLC constitutes the Ultimate Parent Entity of the acquiring person within the meaning of 16 C.F.R. § 801.1(a)(3), as the entity that is not controlled by any other entity and that controls the acquiring person.
No natural person or other entity exercises control over Ardent Capital Management LLC within the meaning of the HSR Act and its implementing regulations.
Managing Partners:
Julian Desmond — Co-Founder & Managing Partner Priya Chandrasekar — Co-Founder & Managing Partner
Mr. Desmond and Ms. Chandrasekar are the co-founders and co-managing partners of Ardent Capital Management LLC and share management responsibilities for the firm. Neither individual, however, constitutes a separate UPE, as neither individual independently controls Ardent Capital Management LLC within the meaning of 16 C.F.R. § 801.1(a)(3).
1(c) — Name and Address of the Acquired Person
The acquired person in this transaction is identified below:
Pinnacle Health Systems, Inc. is a Delaware corporation that serves as the parent entity and operating holding company for a portfolio of ambulatory surgical centers and physician practice management entities, as further described in Item 4 below. Pinnacle was founded in 2009 and is headquartered in Charlotte, North Carolina.
1(d) — Identification of Other Persons Required to File
The acquired person filing its own Notification and Report Form simultaneously with this filing is:
Veltrano Equity Holdings LLC is a Delaware limited liability company that serves as the Ultimate Parent Entity of the acquired person. Veltrano Equity Holdings LLC holds a controlling 62.3% equity interest in Pinnacle Health Systems, Inc. through its controlled fund, Veltrano Equity Partners Fund V LP. Veltrano accordingly constitutes the Ultimate Parent Entity of the acquired person within the meaning of 16 C.F.R. § 801.1(a)(3).
The acquired person's Notification and Report Form is being prepared by Greenvale Durneval LLP and is expected to be filed simultaneously with the acquiring person's filing on or about February 16, 2024.
ITEM 2 — DESCRIPTION OF THE ACQUISITION
2(a) — Type of Transaction
This Notification and Report Form is being filed in connection with a proposed acquisition of voting securities — specifically, a stock/equity acquisition in which Ardent Capital Partners III LP will acquire 100% of the outstanding shares of common stock of Pinnacle Health Systems, Inc., a Delaware corporation.
The acquisition will be consummated pursuant to that certain Equity Purchase Agreement, dated as of January 31, 2024 (the "EPA"), by and among Ardent Capital Partners III LP (as the Buyer), Veltrano Equity Holdings LLC (as the Seller Representative), Veltrano Equity Partners Fund V LP, Dr. Marcus Ellsworth, and the other equity holders of Pinnacle Health Systems, Inc. identified on Annex A thereto (collectively, the "Sellers"), and Pinnacle Health Systems, Inc. (the "Company").
Upon consummation of the transaction, Ardent Capital Partners III LP will hold 100% of the outstanding equity interests of Pinnacle Health Systems, Inc. and will thereby acquire a controlling interest in the Company and all of its subsidiaries, including 42 ambulatory surgical centers and 31 affiliated physician practice management entities. The transaction therefore constitutes an acquisition of voting securities resulting in control of the acquired person within the meaning of Section 7A(a)(2) of the Clayton Act, as amended, 15 U.S.C. § 18a(a)(2).
2(b) — Aggregate Total Value of Voting Securities / Assets to be Acquired
The aggregate total value of the voting securities to be acquired is as follows:
The enterprise value of $952,000,000 reflects the agreed-upon purchase price as set forth in EPA Schedule A. The equity value of $534,000,000 represents the sum of (i) cash consideration of $505,500,000 payable at closing to the Sellers (other than Dr. Ellsworth with respect to his rollover equity) and (ii) the value of the management rollover equity being contributed by Dr. Ellsworth (approximately $28,500,000, representing approximately 3.0% of post-closing equity in the acquiring entity or a newly formed holding company).
The net debt figure of approximately $418,000,000 represents existing indebtedness of Pinnacle Health Systems, Inc. and its subsidiaries that will either be assumed or refinanced in connection with the closing. The aggregate total value for purposes of determining the applicable HSR filing fee and size-of-transaction threshold is $952,000,000, based on the total enterprise value.
The implied EV/EBITDA transaction multiple is approximately 9.7x, calculated as $952,000,000 divided by Pinnacle's fiscal year 2023 adjusted EBITDA of $98,200,000 (as determined by the Apex Advisory Group LLC quality of earnings report).
2(c) — Filing Fee Determination
Pursuant to Section 605 of the Consolidated Appropriations Act, 2023, and as adjusted for fiscal year 2024 by the Federal Trade Commission, the HSR Act filing fee tiers and corresponding fee amounts are set forth as follows:
The aggregate total transaction value of $952,000,000 falls within the $500,000,000 to $999,999,999 tier. Accordingly, the applicable filing fee is $280,000.
Pursuant to EPA §5.4(a), the filing fee shall be borne by Ardent Capital Partners III LP as the acquiring person. Wire transfer instructions for payment of the $280,000 filing fee are being prepared and will be transmitted to the client under separate cover.
2(d) — Threshold Being Met
This transaction is reportable under the HSR Act because both the size-of-transaction test and the size-of-person test are satisfied, as set forth below:
Size-of-Transaction Test:
The aggregate total value of the voting securities to be acquired is $952,000,000, which exceeds the 2024 size-of-transaction threshold of $111,400,000. The size-of-transaction test is therefore satisfied.
Size-of-Person Test (Acquiring Person):
Ardent Capital Partners III LP has total assets (measured by fund committed capital) of approximately $4,800,000,000. This amount exceeds the $22,300,000 threshold applicable under the 2024 HSR Act rules. The acquiring person therefore satisfies the applicable size-of-person threshold.
Size-of-Person Test (Acquired Person):
Pinnacle Health Systems, Inc. reported fiscal year 2023 annual net sales of $637,400,000 and total assets of approximately $812,000,000. Both figures exceed the $22,300,000 threshold applicable under the 2024 HSR Act rules. The acquired person therefore satisfies the applicable size-of-person threshold.
Because the aggregate total value of the transaction exceeds $111,400,000 and both the acquiring person and the acquired person exceed the applicable $22,300,000 size-of-person threshold, the transaction is reportable under the HSR Act and pre-merger notification is required.
2(e) — Expected Closing Date / Contract Details
The EPA provides that closing is conditioned upon, among other things, the expiration or early termination of the applicable waiting period under the HSR Act, 15 U.S.C. § 18a (EPA §6.1(c)). The parties intend to request early termination of the waiting period in connection with this filing.
Under EPA §7.1(b)(ii), either party may terminate the EPA if the closing shall not have occurred on or before the Outside Date of June 30, 2024, provided that the terminating party is not then in material breach of the agreement. EPA §5.4(a) requires that the acquiring person file this notification within 15 business days of execution of the EPA (i.e., by February 22, 2024). The acquiring person anticipates filing this notification on February 16, 2024, in advance of the contractual deadline.
ITEM 3 — IDENTITY OF PERSONS FILING AND THEIR ENTITIES
3(a) — Organizational Chart of the Acquiring Person / UPE
The acquiring person's organizational structure, from the Ultimate Parent Entity through the acquiring entity, is set forth below. A complete organizational chart is attached hereto as Exhibit A.
Organizational Structure:
Ardent Capital Management LLC (UPE) Delaware LLC
↓ 100% sole member of
Ardent Capital GP III LLC Delaware LLC
↓ Sole General Partner of
Ardent Capital Partners III LP (the "Fund" / Acquiring Entity) Delaware LP
Ardent Capital Partners III LP holds controlling interests in a number of portfolio companies organized across various sectors, including healthcare services, business services, and specialty industrials. These portfolio companies are identified in Item 3(b) below.
3(b) — Entities Controlled by the Acquiring Person's UPE
Set forth below is a listing of entities held or controlled by Ardent Capital Management LLC (the UPE), either directly or through Ardent Capital Partners III LP or predecessor funds, that are required to be disclosed pursuant to 16 C.F.R. § 803.2(a). The listing includes all entities in which the UPE holds voting securities conferring control (i.e., 50% or more of the outstanding voting securities of an issuer or, in the case of unincorporated entities, the right to 50% or more of the profits or assets upon dissolution).
Healthcare Portfolio Companies
The following portfolio companies operate in the healthcare services sector and are accordingly of direct relevance to the overlap analysis conducted in connection with this filing:
1. Marlowe Asset Management Rehabilitation Holdings LLC ("Marlowe Asset Management Rehab")
Marlowe Asset Management Rehabilitation Holdings LLC provides outpatient rehabilitation services, including post-surgical physical therapy, orthopedic rehabilitation, and sports medicine therapy. Marlowe Asset Management Rehab's services are distinct from the ambulatory surgical center and physician practice management services provided by the target, Pinnacle Health Systems, Inc. Although Marlowe Asset Management Rehab and Pinnacle both operate within the broader healthcare services industry, they operate in separate product markets as defined by the applicable NAICS codes. As discussed in Item 7 below, certain Marlowe Asset Management Rehab clinic locations are co-located with or adjacent to Pinnacle ASC facilities in Texas, Florida, and Georgia, giving rise to a vertical referral relationship that is further analyzed therein.
2. Clearpath Diagnostics Inc. ("Clearpath")
Clearpath Diagnostics Inc. provides independent clinical laboratory testing services, including blood chemistry panels, hematology, microbiology, anatomic pathology, and molecular diagnostics. Clearpath's operations are limited to the tri-state area of Pennsylvania, New Jersey, and New York, and do not overlap geographically with the nine-state operating footprint of Pinnacle Health Systems, Inc. (NC, SC, VA, TN, GA, FL, AL, OH, TX). Furthermore, Clearpath operates in NAICS code 621511 (Medical Laboratories), which constitutes a separate product market from either of Pinnacle's primary NAICS codes (621111 and 621493).
Other Portfolio Companies
In addition to the healthcare portfolio companies described above, Ardent Capital Management LLC controls, through Ardent Capital Partners III LP and predecessor fund vehicles, a number of portfolio companies in the business services and specialty industrials sectors. A complete listing of these entities, including entity type, headquarters address, business description, and applicable NAICS codes, will be provided with the final filing in accordance with 16 C.F.R. § 803.2(a).
As a general matter, Ardent Capital has completed 23 platform acquisitions and over 60 add-on acquisitions across all fund vintages since the firm's founding. None of these portfolio companies, other than Marlowe Asset Management Rehabilitation Holdings LLC and Clearpath Diagnostics Inc., operate in healthcare-related NAICS codes or in industries that are adjacent to or overlapping with the business of Pinnacle Health Systems, Inc.
[Note to file: Complete listing of all non-healthcare portfolio companies to be inserted prior to finalization. Elliot Nguyen to compile from fund reporting materials and confirm with Ardent Capital's legal team.]
3(c) — Minority Holdings
Pursuant to the instructions to this form, the acquiring person has identified all minority holdings (i.e., holdings of 5% or more but less than 50%) held by the UPE, the acquiring person, or any entities controlled by the UPE in issuers that derive revenues in NAICS codes 621111 (Offices of Physicians) or 621493 (Freestanding Ambulatory Surgical and Emergency Centers), which are the two primary NAICS codes applicable to the acquired person.
Preliminary Conclusion: No minority holdings in entities operating in NAICS codes 621111 or 621493 have been identified. Neither the UPE, the acquiring person, nor any entity controlled by the UPE holds any equity interest of 5% or greater in any entity that competes with, or operates in the same NAICS codes as, Pinnacle Health Systems, Inc.
[Note to file: This conclusion is based on a review of fund portfolio records conducted as of February 10, 2024. To be confirmed prior to filing.]
ITEM 4 — DESCRIPTION OF THE TRANSACTION AND RELATED ACTIVITY
4(a) — Background of Transaction
Description of the Transaction
Ardent Capital Partners III LP (the "Acquirer" or the "Fund"), acting through its general partner, Ardent Capital GP III LLC, and under the investment management authority of its investment manager, Ardent Capital Management LLC, proposes to acquire 100% of the outstanding shares of common stock of Pinnacle Health Systems, Inc. (the "Company" or "Pinnacle"), a Delaware corporation headquartered in Charlotte, North Carolina. The transaction will be effected pursuant to the Equity Purchase Agreement dated January 31, 2024 (the "EPA"), as further described in Item 4(b) below.
Upon consummation of the transaction, Ardent Capital Partners III LP will hold all of the outstanding equity of Pinnacle, and Pinnacle will become a portfolio company of Ardent Capital's third flagship private equity fund. The transaction represents a change-of-control acquisition in which the existing controlling shareholder group — led by Veltrano Equity Holdings LLC — will transfer its entire equity position in Pinnacle to the Acquirer.
Description of the Target
Pinnacle Health Systems, Inc. is a specialty healthcare services platform that was founded in 2009 by Dr. Marcus Ellsworth, a board-certified orthopedic surgeon. Since its founding, Pinnacle has grown into a leading operator of ambulatory surgical centers and affiliated physician practice management entities in the southeastern and south-central United States.
As of the date of this filing, Pinnacle operates:
• 42 ambulatory surgical centers ("ASCs") — freestanding surgical facilities that provide same-day (outpatient) surgical procedures across multiple specialties, including orthopedics, ophthalmology, gastroenterology, pain management, and general surgery.
• 31 affiliated physician practice management entities — management services organizations ("MSOs") that provide administrative, billing, compliance, and operational support services to physician practices affiliated with Pinnacle's ASC network.
Pinnacle's operations span nine states: North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. The Company employs approximately 4,700 individuals, including administrative personnel, clinical staff, and management professionals.
Key Financial Data (Fiscal Year 2023):
The Company's financial data has been subject to audit by Harland & Marsh CPAs LLP (Timothy Griggs, Engagement Partner) and quality of earnings analysis by Apex Advisory Group LLC (Christine Varga, Managing Director).
Management:
Description of the Sellers
The outstanding equity of Pinnacle is currently held by three groups of shareholders:
1. Veltrano Equity Holdings LLC (through Veltrano Equity Partners Fund V LP) — 62.3% of outstanding equity. Veltrano is a Dallas, Texas-based private equity firm. Veltrano acquired its controlling interest in Pinnacle in 2017 for an enterprise value of approximately $340,000,000. Since the initial acquisition, Veltrano has sponsored 19 add-on acquisitions to expand Pinnacle's ASC footprint and geographic reach. The managing member of Veltrano Equity Holdings LLC is Theodore "Ted" Hargrove.
2. Founder / Management Rollover Holders — 23.1% of outstanding equity. This group includes Dr. Marcus Ellsworth and certain other members of Pinnacle's senior management team who received or retained equity in connection with Veltrano's 2017 acquisition.
3. Minority Physician Investors — 14.6% of outstanding equity. This group consists of individual physicians who hold minority equity interests in Pinnacle or in individual ASC joint ventures. These physicians are typically surgeons who perform procedures at Pinnacle ASCs and who received equity interests as part of joint venture arrangements.
In connection with the proposed transaction, Veltrano will sell its entire 62.3% equity position for cash consideration. The minority physician investors will sell their entire 14.6% equity position for cash consideration. Dr. Marcus Ellsworth will sell a portion of his equity for cash consideration and will roll over approximately $28,500,000 of equity into the post-closing capital structure, representing approximately 3.0% of post-closing equity.
Financial Advisors. The following financial advisory firms are engaged in connection with the transaction:
4(b) — Agreements and Contracts
Equity Purchase Agreement
The definitive agreement governing the proposed acquisition is the Equity Purchase Agreement dated as of January 31, 2024 (the "EPA"), by and among Ardent Capital Partners III LP, Veltrano Equity Holdings LLC, Veltrano Equity Partners Fund V LP, Dr. Marcus Ellsworth, the other equity holders identified on Annex A thereto, and Pinnacle Health Systems, Inc. An executed copy of the EPA (or relevant excerpts thereof, as permitted by the filing rules) is attached hereto as Exhibit B.
The following provisions of the EPA are of particular relevance to this HSR Act notification:
EPA §5.4(a) — Regulatory Filings. The EPA requires the Acquirer to file, or cause to be filed, a Notification and Report Form under the HSR Act within 15 business days of execution of the EPA. The 15th business day following January 31, 2024 is February 22, 2024. The filing fee is to be borne by the Acquirer.
EPA §5.4(b) — Cooperation. Each party to the EPA agrees to cooperate with the other parties in connection with preparing and filing all necessary applications, notices, and submissions with any governmental authority, and in responding promptly to any requests for additional information or documentary material ("Second Requests") issued by the Federal Trade Commission or the Antitrust Division of the Department of Justice.
EPA §5.4(c) — Efforts Standard. The Acquirer is required to use "reasonable best efforts" to obtain antitrust clearance for the transaction, including by taking all actions reasonably necessary to secure the expiration or early termination of the HSR Act waiting period. However, the EPA expressly provides that the Acquirer shall have no obligation to accept, agree to, or propose any divestiture, hold-separate order, or behavioral remedy as a condition to obtaining clearance.
EPA §6.1(c) — Closing Condition. The obligation of each party to consummate the closing of the transaction is conditioned upon, among other things, the expiration or early termination of the applicable waiting period under the HSR Act, 15 U.S.C. § 18a.
EPA §7.1(b)(ii) — Termination. Either party may terminate the EPA if the closing shall not have occurred on or before June 30, 2024 (the "Outside Date"), provided that the terminating party is not then in material breach of the EPA. The Outside Date may be extended by mutual written agreement of the parties.
EPA §7.3(b) — Reverse Termination Fee. In the event that the EPA is terminated because the transaction cannot be consummated due to antitrust regulatory action (including the entry of an injunction or the failure to obtain HSR Act clearance by the Outside Date where such failure is attributable to antitrust concerns), the Acquirer shall pay to the Seller Representative a reverse termination fee of $28,560,000, calculated as 3.0% of the enterprise value ($952,000,000 × 3.0%).
Debt Financing Commitments
The acquisition will be funded through a combination of equity contributions from Ardent Capital Partners III LP and third-party debt financing. The following debt financing commitments have been obtained:
Senior Secured First Lien Facilities:
Second Lien Facility:
Summary of Debt Financing:
The revolving credit facility is expected to be undrawn at closing. The funded debt at closing, consisting of the Term Loan B and the Second Lien Term Loan, is expected to total approximately $505,000,000 and will be used, together with equity contributions from the Fund, to finance the acquisition, refinance existing indebtedness, and pay transaction fees and expenses.
4(c) — Documents Responsive to Item 4(c)
Pursuant to Item 4(c) of the Notification and Report Form and 16 C.F.R. § 803.1(b), the acquiring person is required to produce all documents that were prepared by or for any officer(s) or director(s) of the acquiring person for the purpose of evaluating or analyzing the proposed acquisition with respect to market shares, competition, competitors, markets, potential for sales growth, or expansion into product or geographic markets.
The acquiring person has conducted a reasonable search of relevant files and records and has identified seven (7) documents that are responsive to Item 4(c). These documents are described in the preliminary document log set forth below. A detailed document index, including complete metadata for each document, is being maintained as a separate spreadsheet and will be attached to the final filing as Exhibit C — Item 4(c)/4(d) Document Index.
Preliminary Document Log — Item 4(c) Responsive Documents:
Note: Privilege review is in progress as of the date of this draft. Certain of the above-identified documents or portions thereof may be subject to the attorney-client privilege and/or the work-product doctrine. A privilege log and/or redaction log will be prepared and included with the final filing to the extent that any documents or portions thereof are withheld or redacted on grounds of privilege. The privilege review is expected to be completed by February 15, 2024.
Note: The acquiring person's deal team and legal counsel are continuing to search for additional potentially responsive documents. Ardent Capital Management LLC will confirm that no additional responsive documents exist prior to finalization of this filing.
Documents numbered 1 through 3 are marketing materials prepared by Crestline Baird & Co., the sell-side financial advisor, and provided to the acquiring person in connection with the sale process. These documents contain information relating to market shares, competitive dynamics, growth opportunities, and market positioning of Pinnacle and are therefore responsive to Item 4(c).
Documents numbered 4 and 5 are internal investment committee memoranda prepared by members of the Ardent Capital Management LLC deal team. These memoranda were prepared for the purpose of presenting the proposed acquisition to the firm's investment committee for review and approval and contain analysis of competitive dynamics, market positioning, and growth potential.
Document number 6 is a presentation prepared for the board of directors (or equivalent governing body) of Ardent Capital GP III LLC and contains analysis relevant to the evaluation of the proposed acquisition, including competitive and market analysis.
Document number 7 is an email chain among members of the Ardent Capital Management LLC deal team discussing the competitive landscape in the ambulatory surgical center industry.
4(d) — Documents Responsive to Item 4(d)
In addition to their responsiveness to Item 4(c), certain of the seven documents identified above also discuss synergies, efficiencies, or other competitive benefits expected to result from the proposed acquisition. To the extent any document is responsive to both Item 4(c) and Item 4(d), it will be so designated in the detailed document index attached as Exhibit C.
The overlap between Item 4(c) and Item 4(d) responsive documents has been noted and will be reflected in the final document index. No additional documents responsive solely to Item 4(d) — i.e., documents discussing synergies or efficiencies that do not also discuss market shares, competition, or competitors — have been identified at this time.
ITEM 5 — NAICS CODE INFORMATION
5(a) — Revenues by NAICS Code (Acquiring Person / UPE)
Pursuant to Item 5 of the Notification and Report Form, the acquiring person is required to provide revenue data for the UPE and all entities controlled by the UPE, broken out by applicable 6-digit North American Industry Classification System ("NAICS") codes. Set forth below are the NAICS codes and corresponding revenue data for the healthcare-related portfolio companies controlled by Ardent Capital Management LLC.
Healthcare-Related Portfolio Companies — NAICS Code Revenue Data:
Revenue data for non-healthcare portfolio companies in the business services and specialty industrials sectors, together with their applicable NAICS codes, will be included in the final filing in accordance with the applicable instructions. These portfolio companies operate in industries that are unrelated to the business of Pinnacle Health Systems, Inc. and do not give rise to any horizontal overlap.
Critical Note Regarding Overlap: The acquiring person's UPE and the entities controlled by the UPE do not currently derive any revenues in either of the two primary NAICS codes applicable to the acquired person:
• NAICS 621111 — Offices of Physicians (Except Mental Health Specialists)
• NAICS 621493 — Freestanding Ambulatory Surgical and Emergency Centers
Accordingly, there is no NAICS code overlap between the acquiring person's existing portfolio and the acquired person. The competitive significance of this conclusion is further analyzed in Item 5(c) below and in Item 7.
5(b) — NAICS Codes of the Acquired Person (Pinnacle Health Systems, Inc.)
Pinnacle Health Systems, Inc. and its subsidiaries derive revenues in the following NAICS codes:
Pinnacle's total fiscal year 2023 revenue was $637,400,000. The specific revenue allocation between NAICS codes 621111 and 621493 is in the process of being confirmed with Pinnacle's management (CFO Sandra Trevino) and will be coordinated with Greenvale Durneval LLP to ensure consistency between the acquiring person's and the acquired person's filings.
[Note to file: Revenue allocation by NAICS code is an open item. Awaiting data from Greenvale Durneval LLP / Pinnacle CFO Sandra Trevino per email exchange of February 11, 2024. See Open Items Tracker, Item 1.]
5(c) — Overlap Analysis by NAICS Code
Based on the NAICS code analysis set forth in Items 5(a) and 5(b), there are no overlapping NAICS codes between the entities controlled by the acquiring person's UPE and the acquired person.
The two healthcare portfolio companies within the Ardent Capital family — Marlowe Asset Management Rehabilitation Holdings LLC and Clearpath Diagnostics Inc. — each operate in distinct product markets that do not overlap with Pinnacle's primary business lines:
Marlowe Asset Management Rehabilitation Holdings LLC (NAICS 621340 — Physical Therapy): Marlowe Asset Management Rehab provides outpatient physical therapy and rehabilitation services, which constitute a separate and distinct product market from ambulatory surgical center services (NAICS 621493) and physician practice management services (NAICS 621111). Physical therapy services are a post-acute care service line that is downstream from surgical procedures and does not compete with or substitute for the surgical services provided in Pinnacle's ASCs or the physician practice management services provided by Pinnacle's MSOs. While physical therapy clinics and ASCs may serve some of the same patient populations (e.g., orthopedic patients), they serve different functions in the healthcare continuum and are classified in different NAICS codes.
Clearpath Diagnostics Inc. (NAICS 621511 — Medical Laboratories): Clearpath provides independent clinical laboratory testing services, which constitute a separate and distinct product market from both ASC services and physician practice management services. Moreover, Clearpath's operations are geographically limited to Pennsylvania, New Jersey, and New York, whereas Pinnacle operates exclusively in North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. There is no geographic overlap between Clearpath's service territory and Pinnacle's nine-state operating footprint.
Accordingly, the proposed acquisition does not give rise to any horizontal overlap in any relevant product or geographic market as measured by NAICS code classifications.
ITEM 6 — ADDITIONAL INFORMATION
6(a) — Prior Acquisitions
Pursuant to Item 6(a) of the Notification and Report Form, the acquiring person is required to identify any acquisitions made by the UPE or any entity controlled by the UPE within the past five years in NAICS codes that overlap with those of the acquired person.
As noted in Item 5(c), the acquiring person's UPE and its controlled entities do not derive revenues in NAICS codes 621111 (Offices of Physicians) or 621493 (Freestanding Ambulatory Surgical and Emergency Centers). Consistent with this fact, a review of the acquisition history of Ardent Capital Management LLC and its controlled entities over the past five years confirms that no acquisitions have been made in NAICS code 621111 or NAICS code 621493 during this period.
While Ardent Capital has an active track record of acquisitions in the healthcare services sector — including add-on acquisitions for Marlowe Asset Management Rehabilitation Holdings LLC (NAICS 621340) and Clearpath Diagnostics Inc. (NAICS 621511) — none of these acquisitions involved targets operating in the ambulatory surgical center space or the physician practice management space. The proposed acquisition of Pinnacle Health Systems, Inc. represents the Ardent Capital platform's first entry into these subsectors of the healthcare services industry.
6(b) — Other Filings
As of the date of this draft (February 12, 2024), there are no other pending or recently completed HSR Act notifications filed by or on behalf of Ardent Capital Management LLC (UPE) or any entity controlled by Ardent Capital Management LLC.
[Note to file: To be confirmed as of the actual filing date (anticipated to be February 16, 2024). Monica Reyes to verify with Ardent Capital's legal team and update accordingly.]
ITEM 7 — INFORMATION ABOUT CERTAIN EXISTING RELATIONSHIPS
7(a) — Existing Competitive Relationships
Pursuant to Item 7(a) of the Notification and Report Form, the acquiring person has assessed whether any entities controlled by the UPE currently operate in the same relevant product or geographic markets as Pinnacle Health Systems, Inc.
Conclusion: No entities controlled by the acquiring person's UPE operate in the same relevant product market or geographic market as Pinnacle Health Systems, Inc.
As discussed in detail in Item 5(c), the two healthcare portfolio companies controlled by Ardent Capital Management LLC operate in distinct product markets from Pinnacle:
Marlowe Asset Management Rehabilitation Holdings LLC operates in NAICS code 621340 (outpatient physical therapy), which constitutes a separate product market from Pinnacle's ASC services (NAICS 621493) and physician practice management services (NAICS 621111). Marlowe Asset Management Rehab does not perform surgical procedures, does not operate ambulatory surgical centers, and does not provide physician practice management services. Although Marlowe Asset Management Rehab has 12 clinic locations that are co-located with or geographically adjacent to Pinnacle ASC facilities in Texas, Florida, and Georgia, this geographic proximity reflects a vertical referral relationship rather than horizontal competition. Physical therapy clinics and ambulatory surgical centers serve complementary — not competitive — roles in the patient care continuum. A patient who undergoes an orthopedic procedure at a Pinnacle ASC may subsequently receive post-surgical rehabilitation at a Marlowe Asset Management Rehab clinic, but the two services are not substitutes for one another.
Clearpath Diagnostics Inc. operates in NAICS code 621511 (medical laboratories), which constitutes a separate product market from Pinnacle's operations. Additionally, Clearpath's geographic footprint (Pennsylvania, New Jersey, and New York) does not overlap with Pinnacle's nine-state operating footprint (NC, SC, VA, TN, GA, FL, AL, OH, TX). There is accordingly no horizontal competitive relationship between Clearpath and Pinnacle in any product or geographic market.
7(b) — Existing Supply / Customer Relationships
Pursuant to Item 7(b), the acquiring person has assessed whether any entities controlled by the UPE currently maintain supply, customer, or other vertical business relationships with Pinnacle Health Systems, Inc.
Vertical Relationship — Marlowe Asset Management Rehabilitation Holdings LLC and Pinnacle Health Systems, Inc.:
As noted in Item 7(a), Marlowe Asset Management Rehabilitation Holdings LLC operates 12 outpatient physical therapy clinic locations that are co-located with or geographically adjacent to Pinnacle ASC facilities in Texas, Florida, and Georgia. By virtue of this geographic proximity, certain patient referral patterns exist between the Marlowe Asset Management Rehab clinics and the adjacent Pinnacle ASCs. Specifically, patients who undergo surgical procedures at certain Pinnacle ASCs — particularly orthopedic procedures such as joint replacement, rotator cuff repair, ACL reconstruction, and spinal decompression — are in some instances referred to nearby Marlowe Asset Management Rehab clinics for post-surgical physical therapy and rehabilitation.
This referral pattern constitutes a vertical relationship in the healthcare services supply chain, in which the ASC (Pinnacle) provides the upstream surgical service and the physical therapy clinic (Marlowe Asset Management Rehab) provides the downstream post-surgical rehabilitation service. The referral relationship is, however, competitively insignificant. An analysis of patient referral data indicates that the aggregate case volume flowing from Pinnacle ASCs to co-located Marlowe Asset Management Rehab clinics represents less than 2% of Pinnacle's total ASC case volume in the affected metropolitan statistical areas ("MSAs"). Moreover, patients who undergo surgery at Pinnacle ASCs are free to select any physical therapy provider for post-surgical rehabilitation, and physician referral patterns are driven by patient preference, insurance network requirements, and proximity rather than by any contractual or exclusive referral arrangement between Pinnacle and Marlowe Asset Management Rehab.
There are no written referral agreements, exclusivity arrangements, or preferred provider agreements between Pinnacle and Marlowe Asset Management Rehab. The co-location of certain facilities is coincidental, resulting from the independent site selection decisions of each company.
No other supply, customer, or vertical relationships between entities controlled by the acquiring person's UPE and Pinnacle Health Systems, Inc. have been identified.
ITEM 8 — CERTIFICATION
Pursuant to 16 C.F.R. § 803.5, the undersigned certifies, under penalty of perjury, that the information contained in this Notification and Report Form, and any attachments, exhibits, and documents filed herewith, is true, correct, and complete to the best of the undersigned's knowledge and belief, formed after a reasonable inquiry.
The undersigned further certifies that all documents required to be produced pursuant to Item 4(c) and Item 4(d) of this Notification and Report Form have been identified and will be produced with this filing, subject to applicable claims of attorney-client privilege and work-product protection, as identified in the privilege and redaction log accompanying the filing.
This certification is made by the undersigned in his capacity as an authorized representative of Ardent Capital Management LLC, the Ultimate Parent Entity of the acquiring person, Ardent Capital Partners III LP.
[DRAFT — Signature block left blank pending final review and execution. Julian Desmond to execute certification on or before February 16, 2024.]
ARDENT CAPITAL MANAGEMENT LLC (Ultimate Parent Entity of the Acquiring Person)
By: ________
Name: Julian Desmond
Title: Co-Founder & Managing Partner
Date: ________
EXHIBITS AND ATTACHMENTS
The following exhibits and attachments are to be appended to the final filing:
Exhibit A — Organizational Chart
A complete organizational chart depicting the full corporate structure of the acquiring person's UPE, Ardent Capital Management LLC, through and including:
• Ardent Capital Management LLC (UPE — Delaware LLC)
• Ardent Capital GP III LLC (Delaware LLC — sole general partner)
• Ardent Capital Partners III LP (Delaware LP — the Acquiring Entity)
• All controlled portfolio companies, including:
• Marlowe Asset Management Rehabilitation Holdings LLC (healthcare — physical therapy)