CALDERWOOD & HARKNESS LLP Attorneys at Law 600 Lexington Avenue New York, NY 10022
Howard Bellamy Partner, Antitrust & Competition Practice Group Direct Dial: (212) 848-6230 Direct Fax: (212) 848-6231
Email: hbellamy@calderwoodharkness.com
February 16, 2024
Federal Trade Commission Premerger Notification Office Bureau of Competition 600 Pennsylvania Avenue, NW Washington, DC 20580
Re: Hart-Scott-Rodino Notification and Report Form — Acquiring Person Acquisition by Ardent Capital Partners III LP of 100% of the Outstanding Shares of Pinnacle Health Systems, Inc. Section 7A of the Clayton Act, as amended, 15 U.S.C. § 18a; 16 C.F.R. Parts 801–803
Dear Sir or Madam:
This firm represents Ardent Capital Partners III LP, a Delaware limited partnership (the "Acquiring Person"), in connection with its proposed acquisition of one hundred percent (100%) of the issued and outstanding shares of common stock of Pinnacle Health Systems, Inc., a Delaware corporation (the "Acquired Person"). On behalf of the Acquiring Person, we are transmitting herewith the completed Notification and Report Form (the "Filing") pursuant to Section 7A of the Clayton Act, as amended by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a, and the implementing rules promulgated thereunder at 16 C.F.R. Parts 801–803 (the "HSR Act" and the "HSR Rules," respectively). This filing is being made on behalf of the Acquiring Person only. The Acquired Person's corresponding Notification and Report Form is being submitted simultaneously under separate cover by Greenvale Durneval LLP, antitrust counsel to Pinnacle Health Systems, Inc.
Transaction Description
Ardent Capital Partners III LP proposes to acquire one hundred percent (100%) of the issued and outstanding equity interests of Pinnacle Health Systems, Inc. pursuant to an Equity Purchase Agreement dated January 31, 2024 (the "Purchase Agreement"), by and among Ardent Capital Partners III LP (and/or its designated acquisition subsidiaries), Veltrano Equity Holdings LLC, the management and founder holders named therein, and Pinnacle Health Systems, Inc. The transaction is structured as a stock purchase, in which the Acquiring Person (through a newly formed acquisition vehicle) will acquire all of the outstanding shares of the Acquired Person directly from the current equityholders.
The enterprise value of the proposed transaction is Nine Hundred Fifty-Two Million Dollars ($952,000,000). The aggregate consideration consists of cash consideration of Five Hundred Five Million Five Hundred Thousand Dollars ($505,500,000) and management rollover equity of approximately Twenty-Eight Million Five Hundred Thousand Dollars ($28,500,000), resulting in a total equity value of Five Hundred Thirty-Four Million Dollars ($534,000,000), with the balance of the enterprise value accounted for by existing indebtedness of the Acquired Person to be refinanced or assumed at closing.
The Ultimate Parent Entity ("UPE") of the Acquiring Person is Ardent Capital Management LLC, a Delaware limited liability company and registered investment adviser with the U.S. Securities and Exchange Commission (SEC File No. 801-119247). Ardent Capital Management LLC serves as the investment manager of Ardent Capital Partners III LP and is the sole member of Ardent Capital GP III LLC, the general partner of Ardent Capital Partners III LP. The principal offices of the Acquiring Person and its Ultimate Parent Entity are located at 399 Park Avenue, 41st Floor, New York, NY 10022.
Pinnacle Health Systems, Inc. is headquartered at 2200 Lakeshore Boulevard, Suite 500, Charlotte, NC 28202. Pinnacle currently operates forty-two (42) ambulatory surgical centers and thirty-one (31) affiliated physician practice management entities across nine states, including North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. Pinnacle's current majority owner is Veltrano Equity Holdings LLC, which holds a 62.3% equity interest in the company. The remaining equity is held by founder and management holders (23.1%) and minority physician investors (14.6%). Following consummation of the proposed acquisition, the Acquiring Person will hold 100% of the outstanding equity of Pinnacle, subject to the management rollover described above.
Filing Threshold Analysis
The proposed transaction satisfies each of the jurisdictional thresholds set forth in 15 U.S.C. § 18a(a) and 16 C.F.R. § 801.1, as described below:
Size-of-Transaction. The aggregate total amount of voting securities and assets of Pinnacle Health Systems, Inc. to be held as a result of the proposed acquisition has a value of $952,000,000. This value exceeds the applicable 2024 size-of-transaction threshold of $111.4 million, as adjusted by the Federal Trade Commission pursuant to Section 7A(a)(2) of the Clayton Act and published at 89 Fed. Reg. 5,927 (Jan. 30, 2024). Accordingly, the size-of-transaction test is satisfied.
Size-of-Person (Acquiring Person). Ardent Capital Partners III LP has total assets of approximately $4,800,000,000, representing committed capital in Fund III. This amount exceeds the $22.3 million size-of-person threshold applicable to the acquiring person in 2024.
Size-of-Person (Acquired Person). Pinnacle Health Systems, Inc. reported annual net sales of $637,400,000 for fiscal year 2023 and has total assets of approximately $812,000,000. Each of these figures exceeds the $22.3 million size-of-person threshold applicable to the acquired person.
Because both the size-of-transaction test and the size-of-person tests are satisfied, the notification obligation under the HSR Act is triggered, and the parties are required to file their respective Notification and Report Forms and observe the statutory waiting period prior to consummation of the proposed acquisition.
Filing Fee
The applicable filing fee for the proposed transaction is Two Hundred Eighty Thousand Dollars ($280,000), calculated in accordance with the 2024 Federal Trade Commission fee schedule established pursuant to the Merger Filing Fee Modernization Act of 2022. The transaction value of $952,000,000 falls within the filing fee tier for transactions valued at more than $500,000,000 but less than $1,000,000,000 (specifically, $500,000,001 to $999,900,000), for which the prescribed fee is $280,000.
The filing fee is being paid by the Acquiring Person, Ardent Capital Partners III LP, as required under Section 5.4(a) of the Purchase Agreement, which allocates responsibility for the HSR filing fee to the Acquiring Person. Confirmation of the wire transfer of $280,000 to the Federal Trade Commission, processed on February 15, 2024, is enclosed herewith as Enclosure C.
Item 4(c) and 4(d) Document Production
Enclosed herewith are seven (7) documents responsive to Items 4(c) and 4(d) of the Notification and Report Form, produced on behalf of the Acquiring Person. These documents were identified through a thorough search of the files and records of the Acquiring Person and its Ultimate Parent Entity, Ardent Capital Management LLC, in accordance with the requirements of 16 C.F.R. § 803.1 and the instructions to Items 4(c) and 4(d) of the HSR Form.
The seven responsive documents consist of the following:
• Three (3) Confidential Information Memoranda and/or teaser documents prepared by Pinnacle Health Systems, Inc. and its financial advisors and provided to the Acquiring Person during the course of the transaction process;
• Two (2) internal investment committee memoranda prepared by Ardent Capital Management LLC in connection with its evaluation and approval of the proposed acquisition;
• One (1) board presentation to the Advisory Committee of Ardent Capital Partners III LP summarizing the investment thesis and transaction terms; and
• One (1) email chain among senior investment professionals of Ardent Capital Management LLC discussing the competitive landscape of the ambulatory surgical center market.
A privilege-reviewed index of all responsive documents, organized by Item number and production sequence, is included as Enclosure B. All documents are produced in their entirety without redaction, except as noted in the accompanying document index for limited redactions of information protected by the attorney-client privilege or work product doctrine, as reflected in the corresponding privilege log entries contained within Enclosure B.
NAICS Codes
The relevant North American Industry Classification System ("NAICS") codes for the Acquired Person's principal operations are as follows:
• NAICS 621111 — Offices of Physicians (corresponding to Pinnacle's affiliated physician practice management operations); and
• NAICS 621493 — Freestanding Ambulatory Surgical and Emergency Centers (corresponding to Pinnacle's ambulatory surgical center operations).
These NAICS codes have been coordinated with counsel for the Acquired Person, Greenvale Durneval LLP, to ensure consistency across both the acquiring person and acquired person filings. Both parties will report identical NAICS codes in their respective Notification and Report Forms.
Request for Early Termination of the Waiting Period
The Acquiring Person hereby respectfully requests early termination of the initial thirty (30)-day waiting period applicable to this transaction pursuant to 15 U.S.C. § 18a(b)(2) and 16 C.F.R. § 803.11. The Acquired Person has independently requested early termination of the waiting period in its own filing submitted concurrently with Greenvale Durneval LLP. We understand that both requesting parties must consent to public disclosure of the grant of early termination, and both parties hereby consent to such disclosure.
Absent the grant of early termination, the initial thirty (30)-day waiting period is calculated to expire at 11:59 p.m. on March 17, 2024 (the thirtieth calendar day following the date on which both filings have been received by the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice).
A separate letter setting forth the detailed substantive basis for granting early termination, together with an accompanying voluntary submission and competitive analysis white paper, is being filed concurrently with this transmittal and is enclosed herewith as Enclosure D. In summary, the proposed acquisition does not present any horizontal overlaps in any relevant product or geographic market. The Acquiring Person and its current portfolio companies do not operate ambulatory surgical centers, physician practice management organizations, or any other healthcare services businesses that compete with the Acquired Person in any geographic area. The limited vertical relationships that exist between certain of the Acquiring Person's portfolio companies and the Acquired Person—principally involving the purchase of medical devices and supplies—are competitively insignificant, representing less than one percent (1%) of the Acquired Person's total cost of goods and services. Accordingly, the proposed transaction raises no competitive concerns warranting the expenditure of Commission resources during the full statutory waiting period, and we respectfully submit that early termination is appropriate.
Contact Information
All communications regarding this filing, including any requests for additional information or documentary material, should be directed to the following individuals:
Howard Bellamy, Partner Calderwood & Harkness LLP 600 Lexington Avenue New York, NY 10022 Telephone: (212) 848-6230
Email: hbellamy@calderwoodharkness.com
Monica Reyes, Associate Calderwood & Harkness LLP 600 Lexington Avenue New York, NY 10022 Telephone: (212) 848-6274
Email: mreyes@calderwoodharkness.com
Counsel for the Acquired Person, Pinnacle Health Systems, Inc., is:
Jonathan Felder, Partner Greenvale Durneval LLP 1800 M Street NW, Suite 1100 Washington, DC 20036
Enclosures
The following enclosures are submitted with this transmittal letter:
Enclosure A: Completed HSR Notification and Report Form for the Acquiring Person (Ardent Capital Partners III LP), with all items and exhibits, certified by Julian Desmond, General Counsel, on behalf of Ardent Capital Management LLC, the Ultimate Parent Entity of the Acquiring Person.
Enclosure B: Item 4(c)/4(d) Document Index and seven (7) responsive documents produced on behalf of the Acquiring Person, together with an accompanying privilege log for limited redactions.
Enclosure C: Confirmation of filing fee wire transfer in the amount of $280,000, processed on February 15, 2024, to the Federal Trade Commission.
Enclosure D: Request for Early Termination of Waiting Period letter and accompanying Voluntary Submission (White Paper) — Competitive Analysis Supporting Early Termination of the Initial Waiting Period.
We trust that the foregoing filing materials are complete and in order. Should the Premerger Notification Office require any additional information, supplemental documentation, or clarification regarding this notification or the proposed transaction, please do not hesitate to contact the undersigned or Ms. Reyes at the telephone numbers and email addresses set forth above. We are prepared to respond promptly to any inquiries and to provide whatever additional materials the staff may find helpful in its review of this filing.
We respectfully request that the Premerger Notification Office acknowledge receipt of this filing by returning a file-stamped copy of this transmittal letter to the undersigned at the address indicated below. A self-addressed, postage-prepaid envelope has been enclosed for your convenience.
Respectfully submitted,
CALDERWOOD & HARKNESS LLP
By: ________
Howard Bellamy Partner, Antitrust & Competition Practice Group 600 Lexington Avenue New York, NY 10022
cc:
Julian Desmond, General Counsel, Ardent Capital Management LLC, 399 Park Avenue, 41st Floor, New York, NY 10022
Priya Chandrasekar, Vice President, Ardent Capital Management LLC, 399 Park Avenue, 41st Floor, New York, NY 10022
David Ostrander, Whitfield & Crane LLP, 51 West 52nd Street, New York, NY 10019
Jonathan Felder, Greenvale Durneval LLP, 1800 M Street NW, Suite 1100, Washington, DC 20036
Monica Reyes, Calderwood & Harkness LLP (file)
Elliot Nguyen, Calderwood & Harkness LLP (file)
Calderwood & Harkness Matter No. 1001-00001