1001-00001 · Ardent Capital Partners · Antitrust Analysis

portfolio-company-overlap-analysis.docx DOCUMENT Antitrust

4 / 36 ← → ✕

Contract analysis Extract to table

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Howard Bellamy, Partner, Antitrust & Competition Practice Group, Calderwood & Harkness LLP

FROM: Elliot Nguyen, Associate, Antitrust & Competition Practice Group, Calderwood & Harkness LLP

DATE: February 8, 2024

RE: Portfolio Company Overlap Analysis — Ardent Capital Partners III LP / Pinnacle Health Systems, Inc.

MATTER NO.: 1001-00001

CLIENT: Ardent Capital Partners III LP

Right-click to update Table of Contents

I. Executive Summary

This memorandum analyzes the potential horizontal and vertical competitive overlaps between Pinnacle Health Systems, Inc. ("Pinnacle" or "PHS") and the existing healthcare portfolio companies of Ardent Capital Partners III LP ("Ardent Capital" or "Fund III") in connection with the Hart-Scott-Rodino ("HSR") premerger notification filing for Ardent Capital's proposed acquisition of 100% of the outstanding equity of Pinnacle at an aggregate enterprise value of approximately $952 million. The purpose of this analysis is to identify and assess any competitive relationships between Pinnacle and Fund III's existing controlled entities that may be relevant to the substantive antitrust review of the proposed transaction by the Federal Trade Commission ("FTC") or the Antitrust Division of the U.S. Department of Justice ("DOJ").

Ardent Capital Management LLC, the registered investment adviser and manager of Fund III (SEC File No. 801-119247), currently controls two healthcare portfolio companies through Fund III's investment activities: (i) Marlowe Asset Management Rehabilitation Holdings LLC ("Marlowe Asset Management Rehab"), an operator of 74 outpatient physical therapy clinics in Texas, Florida, and Georgia; and (ii) Clearpath Diagnostics Inc. ("Clearpath"), an independent clinical laboratory services company operating in Pennsylvania, New Jersey, and New York. These are the only two portfolio companies within the Ardent Capital structure that operate in the healthcare services sector and, accordingly, are the entities most likely to implicate competitive concerns in connection with the proposed acquisition of Pinnacle.

Under the HSR Act and the applicable regulations promulgated thereunder by the FTC and DOJ, the "acquiring person" for purposes of the premerger notification encompasses all entities under the common control of the Ultimate Parent Entity. Ardent Capital Management LLC, as the sole member of Ardent Capital GP III LLC, which in turn serves as the general partner of Ardent Capital Partners III LP, constitutes the Ultimate Parent Entity ("UPE") of the acquiring person for HSR purposes. As a result, all portfolio companies controlled by Fund III—including Marlowe Asset Management Rehab and Clearpath—must be assessed for potential competitive overlaps with the target, Pinnacle.

Based on the analysis set forth in detail below, we have reached the following conclusions:

No horizontal overlaps exist in any relevant product or geographic market. Physical therapy and rehabilitation services, which constitute the core business of Marlowe Asset Management Rehab, and ambulatory surgical center and physician practice management services, which constitute the core business of Pinnacle, are separate and distinct product markets. These services differ fundamentally in their nature, referral patterns, reimbursement methodologies, regulatory frameworks, facility requirements, and staffing. No reasonable demand-side substitution exists between these services. Clearpath's clinical laboratory services represent yet another distinct product market that does not overlap with Pinnacle's operations. Moreover, Clearpath operates exclusively in Pennsylvania, New Jersey, and New York, with zero geographic overlap with Pinnacle's nine-state footprint spanning North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas.

A limited vertical relationship exists between 12 co-located Marlowe Asset Management Rehab clinics and adjacent Pinnacle ambulatory surgical centers in Texas, Florida, and Georgia. This relationship is competitively insignificant. The referral volume 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. Referrals are non-exclusive, and the combination would not confer any ability or incentive to foreclose rival providers at either level of the supply chain. Federal healthcare fraud and abuse laws, including the Anti-Kickback Statute and the Stark Law, independently constrain referral arrangements and ensure arm's-length referral practices irrespective of common ownership.

Accordingly, the portfolio company overlap analysis supports the conclusion that the proposed acquisition of Pinnacle by Fund III does not raise competitive concerns arising from relationships with existing portfolio companies. This analysis further supports the request for early termination of the statutory 30-day HSR waiting period.

II. Background

A. The Transaction

Ardent Capital Partners III LP proposes to acquire 100% of the outstanding equity of Pinnacle Health Systems, Inc. through a stock purchase transaction. The definitive Equity Purchase Agreement was executed on January 31, 2024, by and among Ardent Capital Partners III LP (as Buyer), Veltrano Equity Holdings LLC (as Seller Representative), the individual stockholders of Pinnacle identified on the signature pages thereto (collectively, the "Sellers"), and Pinnacle Health Systems, Inc. (the "Company"). The transaction is structured as a direct acquisition of all issued and outstanding shares of common stock and preferred stock of Pinnacle.

The agreed-upon enterprise value for the transaction is approximately $952 million. The equity value, net of approximately $418 million in funded indebtedness to be retired at closing, is approximately $534 million. The equity consideration consists of $505.5 million in cash consideration payable at closing and approximately $28.5 million in management rollover equity from Dr. Marcus Ellsworth, the founder and Chief Executive Officer of Pinnacle, who will reinvest a portion of his equity proceeds into the acquiring fund vehicle. Dr. Ellsworth's rollover represents approximately 5.3% of the post-closing equity in the acquisition holding company and is structured as a Class B membership interest in a newly formed Delaware limited liability company that will serve as the direct parent of Pinnacle following the closing.

The selling stockholder group is led by Veltrano Equity Holdings LLC, which holds approximately 62.3% of the outstanding equity of Pinnacle through Veltrano Equity Partners Fund V LP, a private equity fund affiliated with Veltrano Equity Partners. The remaining equity is held by founder and management rollover holders (approximately 23.1%, consisting principally of Dr. Ellsworth and certain members of the senior management team) and minority physician investors (approximately 14.6%, consisting of physician partners who hold equity interests in specific ASC joint venture entities that are structured as partially owned subsidiaries of Pinnacle).

Veltrano Equity Partners originally acquired Pinnacle in 2017 at an enterprise value of approximately $340 million. During the period of Veltrano's ownership from 2017 through 2023, Pinnacle completed 19 add-on acquisitions, expanding its geographic footprint from four states to nine states and growing its ASC count from 18 to 42 facilities. These add-on acquisitions ranged in size from approximately $8 million to approximately $72 million in enterprise value and included both ASC platform acquisitions and tuck-in physician practice acquisitions.

The closing of the transaction is subject to customary conditions, including the expiration or early termination of the HSR waiting period, the receipt of certain state healthcare regulatory approvals, the absence of a material adverse effect, and the satisfaction of other conditions set forth in the Equity Purchase Agreement.

B. Pinnacle Health Systems, Inc.

Pinnacle Health Systems, Inc. is a Delaware corporation with its principal executive office located at 2200 Lakeshore Boulevard, Suite 500, Charlotte, North Carolina 28202. Pinnacle's Employer Identification Number is 56-4389201. The company was originally founded in 2009 by Dr. Marcus Ellsworth, a board-certified orthopedic surgeon, who established the first Pinnacle ambulatory surgical center in Charlotte, North Carolina.

Pinnacle currently operates 42 ambulatory surgical centers and 31 affiliated physician practice management entities across a nine-state geographic footprint. The company's ASCs are licensed freestanding ambulatory surgical and emergency centers that provide scheduled outpatient surgical procedures across multiple medical specialties. Pinnacle's primary NAICS codes are 621111 (Offices of Physicians, Except Mental Health Specialists) and 621493 (Freestanding Ambulatory Surgical and Emergency Centers). The 31 physician practice management entities are structured as management services organizations ("MSOs") that provide administrative, billing, compliance, and operational support services to affiliated physician practices under long-term management services agreements.

Pinnacle's operating states are North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. The company's ASC facilities are concentrated in mid-sized and large metropolitan statistical areas within these states, with its largest concentrations of facilities in the Charlotte-Concord-Gastonia, NC-SC MSA (7 ASCs), the Dallas-Fort Worth-Arlington, TX MSA (6 ASCs), the Tampa-St. Petersburg-Clearwater, FL MSA (5 ASCs), the Atlanta-Sandy Springs-Alpharetta, GA MSA (5 ASCs), and the Nashville-Davidson-Murfreesboro-Franklin, TN MSA (4 ASCs). The remaining 15 ASCs are distributed across secondary markets in the nine operating states.

For the fiscal year ended December 31, 2023, Pinnacle reported consolidated revenue of $637.4 million and consolidated EBITDA of $98.2 million, as determined in the quality of earnings report prepared by Apex Advisory Group LLC in connection with Ardent Capital's due diligence investigation. The company's total consolidated assets are approximately $812 million, consisting principally of goodwill and intangible assets arising from its history of acquisitions, as well as property, equipment, and right-of-use assets associated with its ASC facilities. Pinnacle employs approximately 4,700 individuals, including approximately 2,200 clinical staff (surgical nurses, surgical technicians, anesthesia providers, and other clinical personnel), approximately 1,100 administrative and management services organization personnel, and approximately 1,400 affiliated physician practice employees.

Pinnacle's multi-specialty ASC services are concentrated in three core surgical specialties: orthopedics (representing approximately 48% of total case volume), gastroenterology (representing approximately 29% of total case volume), and ophthalmology (representing approximately 16% of total case volume). The remaining approximately 7% of case volume consists of pain management, ENT, and general surgery procedures. The company's ASCs are equipped to perform a wide range of outpatient surgical procedures, including total joint replacement, arthroscopy, spinal decompression, colonoscopy, upper endoscopy, cataract surgery, and retinal procedures.

Dr. Marcus Ellsworth serves as Chief Executive Officer and Chairman of the Board of Directors. Sandra Trevino serves as Chief Financial Officer. Other members of the senior leadership team include Dr. Rajesh Patel (Chief Medical Officer), Jennifer Whitfield (Chief Operating Officer), and Thomas Langford (General Counsel and Chief Compliance Officer).

C. Ardent Capital Partners III LP and Its Healthcare Portfolio

Ardent Capital Partners III LP is a Delaware limited partnership formed on March 15, 2020, with its principal office located at 399 Park Avenue, 41st Floor, New York, New York 10022. The fund's Employer Identification Number is 87-3421098. Fund III is the third institutional private equity fund raised by the Ardent Capital platform and held its final close on November 12, 2021, with aggregate limited partner capital commitments of approximately $4.8 billion.

The general partner of Ardent Capital Partners III LP is Ardent Capital GP III LLC, a Delaware limited liability company with EIN 86-2198403. Ardent Capital GP III LLC is, in turn, wholly owned by Ardent Capital Management LLC, a Delaware limited liability company with EIN 84-5567312. Ardent Capital Management LLC is a registered investment adviser with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940 (SEC File No. 801-119247) and serves as the investment manager of Fund III and its predecessor funds, Ardent Capital Partners I LP and Ardent Capital Partners II LP. Ardent Capital Management LLC is co-founded and managed by Julian Desmond and Priya Chandrasekar, who serve as Managing Partners of the firm.

Ardent Capital is a middle-market private equity firm focused on control investments in three core sectors: healthcare services, business services, and specialty industrials. Across Fund III and its predecessor funds, Ardent Capital has completed 23 platform acquisitions and over 60 add-on acquisitions. Fund III's current portfolio consists of seven active platform investments spanning its three core sectors, of which two operate in the healthcare services sector and are the subject of this overlap analysis.

The two existing healthcare portfolio companies controlled by Fund III that require overlap analysis with Pinnacle are:

1. Marlowe Asset Management Rehabilitation Holdings LLC — an operator of 74 outpatient physical therapy clinics in Texas, Florida, and Georgia, providing physical therapy, occupational therapy, and related rehabilitation services; and

2. Clearpath Diagnostics Inc. — an independent clinical laboratory services company operating in Pennsylvania, New Jersey, and New York, providing diagnostic testing, pathology, and laboratory analytics services.

Fund III's five remaining portfolio companies operate in the business services and specialty industrials sectors and do not participate in any healthcare-related product or geographic markets. Accordingly, those portfolio companies are not analyzed in this memorandum, as they present no plausible basis for competitive overlap with Pinnacle.

III. Analytical Framework

The competitive overlap analysis set forth in this memorandum is conducted under the framework established by Section 7 of the Clayton Act (15 U.S.C. § 18), the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. § 18a) (the "HSR Act"), the implementing regulations promulgated by the FTC at 16 C.F.R. Part 801 et seq., and the 2023 FTC/DOJ Merger Guidelines (the "Merger Guidelines").

Under the HSR Act and its implementing regulations, the "acquiring person" for purposes of the premerger notification filing encompasses the Ultimate Parent Entity and all entities that it controls. As noted above, Ardent Capital Management LLC is the Ultimate Parent Entity of the acquiring person. All entities within the UPE's control group—including all portfolio companies held through Fund III—are treated as part of the "acquiring person" for purposes of the competitive analysis. This means that the agencies will assess competitive effects not only between Pinnacle and Fund III's direct investment activities, but also between Pinnacle and each entity controlled by Fund III, including Marlowe Asset Management Rehab and Clearpath.

The FTC and DOJ assess whether a proposed acquisition would "substantially lessen competition" or "tend to create a monopoly" in any relevant market, consistent with the standard established by Section 7 of the Clayton Act. This analysis requires the identification and definition of both relevant product markets and relevant geographic markets. A relevant product market consists of a group of products or services that are reasonably interchangeable from the perspective of consumers (demand-side substitutability) or producers (supply-side substitutability). A relevant geographic market consists of the area in which the merging firms compete and in which competitive effects are likely to occur.

The overlap analysis presented in this memorandum addresses both horizontal and vertical competitive relationships:

Horizontal overlaps arise where two entities that would come under common control as a result of the transaction offer competing products or services in the same relevant geographic market. Horizontal overlaps are the primary focus of merger enforcement, as they result in the elimination of direct competition between the merging parties and may lead to unilateral or coordinated anticompetitive effects.

Vertical overlaps arise where entities that would come under common control operate at different levels of the supply or distribution chain for the same or related products or services. Vertical relationships may raise competitive concerns where the merged entity would have the ability and incentive to foreclose rivals—either by denying access to inputs (input foreclosure) or by denying access to customers or distribution channels (customer foreclosure)—or to raise rivals' costs through discriminatory dealing.

In applying this framework, we have drawn upon the market definition principles articulated in the Merger Guidelines, including the hypothetical monopolist test (also known as the SSNIP test) for delineating relevant product and geographic markets, as well as the agencies' established approach to analyzing vertical mergers under the 2020 Vertical Merger Guidelines (subsequently withdrawn by the FTC in 2021 but still reflective of the DOJ's analytical approach). We have also drawn upon relevant FTC and DOJ enforcement actions and statements in the healthcare services sector, including precedents involving ambulatory surgical centers, physician practice management, outpatient rehabilitation, and clinical laboratory services.

IV. Analysis of Marlowe Asset Management Rehabilitation Holdings LLC

A. Company Overview

Marlowe Asset Management Rehabilitation Holdings LLC ("Marlowe Asset Management Rehab") is a Delaware limited liability company with its principal office located at 8950 Westheimer Road, Suite 600, Houston, Texas 77063. Marlowe Asset Management Rehab was acquired by Ardent Capital Partners III LP as a platform investment in June 2022 and has subsequently grown through a series of four add-on acquisitions, expanding its clinic count from 41 clinics at the time of the platform acquisition to 74 clinics as of the date of this memorandum.

Marlowe Asset Management Rehab operates 74 outpatient physical therapy clinics providing physical therapy, occupational therapy, and rehabilitation services to patients recovering from orthopedic injuries, sports injuries, post-surgical procedures, neurological conditions, and other musculoskeletal and mobility-related conditions. The company's services are delivered in outpatient clinical settings by licensed physical therapists, physical therapist assistants, occupational therapists, and certified athletic trainers. Marlowe Asset Management Rehab's geographic footprint spans three states: Texas (39 clinics), Florida (22 clinics), and Georgia (13 clinics).

Marlowe Asset Management Rehab's primary NAICS code is 621340 (Offices of Physical, Occupational and Speech Therapists, and Audiologists). The company's services are reimbursed primarily through commercial insurance, Medicare Part B, workers' compensation, and, to a lesser extent, Medicaid and self-pay arrangements. Marlowe Asset Management Rehab's payor mix, revenue base, clinical staffing model, regulatory licensing requirements, and facility characteristics are fundamentally distinct from those of Pinnacle's ambulatory surgical center and physician practice management operations.

B. Horizontal Overlap Analysis

1. Product Market Definition

The threshold question in the horizontal overlap analysis is whether Marlowe Asset Management Rehab and Pinnacle participate in the same relevant product market. For the reasons set forth below, they do not.

Marlowe Asset Management Rehab provides outpatient physical therapy and rehabilitation services. These services involve non-surgical, conservative treatment modalities delivered by licensed physical therapists and related rehabilitation professionals. Typical services include manual therapy, therapeutic exercise, neuromuscular re-education, gait training, modalities (such as ultrasound, electrical stimulation, and cryotherapy), and functional capacity evaluations. These services are classified under NAICS code 621340 and are reimbursed under CPT codes in the 97000 series (Physical Medicine and Rehabilitation).

Pinnacle, by contrast, operates ambulatory surgical centers that provide surgical procedures performed by licensed physicians (surgeons and anesthesiologists) in licensed outpatient surgical facilities. Pinnacle's ASCs are classified under NAICS code 621493 (Freestanding Ambulatory Surgical and Emergency Centers) and its affiliated physician practice management entities are classified under NAICS code 621111 (Offices of Physicians, Except Mental Health Specialists). Pinnacle's ASC procedures are reimbursed under CPT codes spanning surgical categories including musculoskeletal surgery (20000–29999 series), digestive system surgery (40000–49999 series), and eye and ocular adnexa surgery (65000–68999 series), as well as anesthesia codes in the 00100–01999 series.

Physical therapy services and ambulatory surgical services are distinct product markets under any reasonable application of the Merger Guidelines' market definition framework. The following factors confirm this conclusion:

Different Service Offerings. Physical therapy involves non-surgical, conservative rehabilitation and functional restoration. Ambulatory surgery involves invasive surgical procedures performed in an operating room or procedure room. These are fundamentally different services that address different patient needs at different points in the continuum of care.

Different Referral Sources and Patient Pathways. Patients are referred to physical therapy for rehabilitation, typically following an injury, surgical procedure, or diagnosis of a musculoskeletal condition. Patients are referred to ambulatory surgical centers for surgical intervention when conservative treatment has been exhausted or when surgical correction is clinically indicated. In many cases, physical therapy follows surgery as part of a post-operative recovery protocol, reflecting a sequential rather than substitutive relationship between these services.

Different Payor Reimbursement Structures and Coding Categories. Physical therapy services are reimbursed under the Physical Medicine and Rehabilitation CPT code series (97000 series), typically on a per-unit or per-session basis, with reimbursement rates that are substantially lower than surgical procedure reimbursement. ASC services are reimbursed under surgical CPT codes and facility fee schedules, with reimbursement rates that reflect the complexity and resource intensity of surgical procedures. Medicare reimburses PT services under the Medicare Physician Fee Schedule (MPFS) Part B benefit, while ASC services are reimbursed under the separate ASC Payment System. These are distinct reimbursement methodologies with different rate-setting mechanisms, payment groupings, and cost structures.

Different Regulatory Frameworks. Physical therapy clinics are subject to state physical therapy practice act requirements, including licensure of individual physical therapists and, in certain states, registration or licensure of PT practice entities. ASCs are subject to a separate and more rigorous regulatory framework, including state ASC licensure requirements, Medicare conditions for coverage (42 C.F.R. Part 416), accreditation requirements, and life safety code compliance. The two regulatory regimes are distinct and non-overlapping.

Different Facilities, Equipment, and Staffing. Physical therapy clinics operate in clinical office settings equipped with treatment tables, exercise equipment, and therapeutic modalities. ASCs operate in surgical facilities equipped with operating rooms, procedure rooms, sterilization equipment, anesthesia equipment, and post-anesthesia care units. Physical therapy services are delivered by licensed physical therapists and physical therapist assistants. ASC services are delivered by board-certified surgeons, anesthesiologists or certified registered nurse anesthetists, and surgical nursing staff. These are entirely different facility types with different capital requirements, staffing models, and operational characteristics.

No Reasonable Demand-Side Substitution. A patient who requires a total knee replacement cannot substitute physical therapy for the surgical procedure, and a patient who requires post-surgical rehabilitation cannot substitute an ASC visit for physical therapy. The hypothetical monopolist test confirms that a small but significant non-transitory increase in price (SSNIP) for physical therapy services would not cause patients to switch to ambulatory surgical services, and vice versa. There is no meaningful cross-elasticity of demand between these services.

FTC Precedent. The FTC has consistently treated outpatient physical therapy and rehabilitation services as a product market distinct from ambulatory surgical center services and physician services. The FTC's healthcare enforcement actions have defined ambulatory surgery centers, general acute care hospitals, outpatient rehabilitation services, and clinical laboratory services as separate product markets. There is no precedent in which the FTC or DOJ has aggregated outpatient physical therapy services and ambulatory surgical services into a single relevant product market.

Based on the foregoing analysis, we conclude that outpatient physical therapy and rehabilitation services (Marlowe Asset Management Rehab) and ambulatory surgical center and physician practice management services (Pinnacle) constitute separate and distinct relevant product markets. No horizontal overlap exists in any relevant product market.

2. Geographic Market Overlap

Even assuming, arguendo, that physical therapy services and ambulatory surgical center services were considered to participate in the same relevant product market—which, for the reasons set forth above, they clearly are not—a geographic overlap analysis would be relevant only to the extent that both entities operate in the same geographic markets.

Marlowe Asset Management Rehab operates its 74 outpatient physical therapy clinics in three states: Texas, Florida, and Georgia. Pinnacle operates its 42 ASCs and 31 physician practice management entities in nine states: North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. Three states—Texas, Florida, and Georgia—are common to the geographic footprints of both Marlowe Asset Management Rehab and Pinnacle.

However, because physical therapy services and ASC services are distinct product markets, as established in the preceding section, the geographic co-presence of Marlowe Asset Management Rehab and Pinnacle in Texas, Florida, and Georgia does not create any horizontal competitive concern. The entities do not compete in any relevant product market in these or any other states.

Moreover, even within these three overlapping states, the local geographic markets (typically defined at the MSA or sub-MSA level for healthcare services) in which Marlowe Asset Management Rehab clinics and Pinnacle ASCs are located are not coextensive. While some co-location exists (as discussed in the vertical overlap analysis below), the geographic presence of both entities in the same state is insufficient to establish a horizontal competitive relationship in the absence of a shared relevant product market.

C. Vertical Overlap Analysis

1. Nature of the Vertical Relationship

Although Marlowe Asset Management Rehab and Pinnacle do not participate in the same relevant product market, a potential vertical relationship exists between the two companies by virtue of their positions at different levels of the healthcare services delivery chain. Specifically, 12 of Marlowe Asset Management Rehab's 74 outpatient physical therapy clinics are co-located with or situated in close geographic proximity to Pinnacle ambulatory surgical centers in three metropolitan statistical areas:

• Dallas-Fort Worth-Arlington, TX MSA: 5 co-located Marlowe Asset Management Rehab clinics adjacent to Pinnacle ASCs;

• Tampa-St. Petersburg-Clearwater, FL MSA: 4 co-located Marlowe Asset Management Rehab clinics adjacent to Pinnacle ASCs; and

• Atlanta-Sandy Springs-Alpharetta, GA MSA: 3 co-located Marlowe Asset Management Rehab clinics adjacent to Pinnacle ASCs.

The vertical relationship between these co-located facilities arises from the sequential nature of surgical and post-surgical care. Patients who undergo orthopedic surgical procedures at a Pinnacle ASC—such as total joint replacement, arthroscopic surgery, or spinal decompression—are frequently referred to outpatient physical therapy for post-surgical rehabilitation. Some portion of these post-surgical patients are referred to, and receive care at, the adjacent Marlowe Asset Management Rehab clinics. This constitutes a downstream referral pattern from surgical services (provided by Pinnacle) to post-surgical rehabilitation services (provided by Marlowe Asset Management Rehab).

The nature of this relationship is analogous to a supplier-customer or upstream-downstream relationship in which Pinnacle ASCs serve as a source of patient referrals for Marlowe Asset Management Rehab clinics. Importantly, however, this referral relationship is neither exclusive nor contractually mandated. The 12 co-located Marlowe Asset Management Rehab clinics also receive referrals from non-Pinnacle sources, including hospitals, independent physician practices, and other ASC operators, and Pinnacle ASCs refer post-surgical patients to range physical therapy providers in addition to Marlowe Asset Management Rehab.

2. Competitive Significance Assessment

We have assessed the competitive significance of this vertical relationship under the analytical framework applicable to vertical mergers and acquisitions. Based on the following factors, we conclude that the vertical relationship is competitively insignificant and does not raise concerns under Section 7 of the Clayton Act.

Referral Volume. The physical therapy referrals from Pinnacle ASCs to co-located Marlowe Asset Management Rehab clinics represent less than 2% of Pinnacle's total ASC case volume in the three affected metropolitan statistical areas (Dallas-Fort Worth-Arlington, TX; Tampa-St. Petersburg-Clearwater, FL; and Atlanta-Sandy Springs-Alpharetta, GA). This volume is de minimis by any measure and does not confer meaningful leverage or market position on either entity. From Marlowe Asset Management Rehab's perspective, referrals originating from Pinnacle ASCs constitute a modest portion of the total patient volume at the 12 co-located clinics, with the substantial majority of patients referred from independent physicians, hospital systems, and other sources.

Non-Exclusivity of Referral Patterns. Post-surgical physical therapy referrals from Pinnacle ASCs are not exclusive to Marlowe Asset Management Rehab. Referring surgeons and their patients routinely select among numerous physical therapy providers based on a range of factors, including insurance network participation, geographic convenience, patient preference, physician familiarity with and confidence in specific PT providers, and the availability of appointment times. There is no existing contractual arrangement between Pinnacle and Marlowe Asset Management Rehab that requires, directs, or incentivizes exclusive or preferential referrals. Moreover, patient choice in the selection of a physical therapy provider is protected under applicable state and federal law, including the Medicare Conditions of Participation, which require that patients be informed of their right to choose their own provider of post-acute services.

No Foreclosure Risk. The proposed transaction would not give Ardent Capital the ability or incentive to foreclose rival physical therapy providers from receiving post-surgical referrals from Pinnacle ASCs. Nor would the transaction give Ardent Capital the ability or incentive to foreclose rival ASC operators from referring patients to Marlowe Asset Management Rehab clinics.

With respect to customer foreclosure (i.e., the risk that Pinnacle ASCs would steer post-surgical referrals exclusively to Marlowe Asset Management Rehab, thereby denying rival PT providers access to referral volume), several factors militate against any such concern. First, referral decisions in the healthcare setting are driven primarily by clinical judgment, patient preference, and insurance coverage—not by common ownership of the surgical and rehabilitation providers. Second, the 12 co-located Marlowe Asset Management Rehab clinics represent a negligible share of the total outpatient physical therapy capacity in each of the three affected MSAs. Third, any attempt to steer referrals based on common ownership rather than clinical merit would expose Ardent Capital and its portfolio companies to significant legal risk under the federal Anti-Kickback Statute and the Stark Law (discussed further below).

With respect to input foreclosure (i.e., the risk that Marlowe Asset Management Rehab would refuse to accept referrals from rival ASC operators, thereby disadvantaging those competitors), such a strategy would be economically irrational. Marlowe Asset Management Rehab has a clear economic incentive to maximize its patient volume and would not forego referrals from non-Pinnacle sources, which constitute the substantial majority of its patient base.

Market Fragmentation. The outpatient physical therapy market in each of the three affected MSAs is highly fragmented, with dozens to hundreds of independent and chain-affiliated PT providers operating in each market. Major national and regional PT chains, including Kestrel Enterprises, Drayton Enterprises, Beaumont Industries, Severin Enterprises, and Brightwater Enterprises, maintain substantial clinic networks in each of these MSAs, in addition to numerous hospital-based outpatient rehabilitation departments and independent PT practices. Marlowe Asset Management Rehab holds a modest share of the total outpatient PT capacity in each MSA, and the presence of numerous alternative PT providers ensures that any marginal change in referral patterns attributable to the transaction would have no appreciable effect on competition.

Anti-Kickback Statute and Stark Law Considerations. Federal healthcare fraud and abuse laws independently constrain the referral relationship between Pinnacle ASCs and Marlowe Asset Management Rehab clinics, ensuring arm's-length referral practices regardless of common ownership. The Anti-Kickback Statute (42 U.S.C. § 1320a-7b) prohibits the knowing and willful offer, payment, solicitation, or receipt of any remuneration to induce or reward referrals for items or services reimbursable under federal healthcare programs. The Stark Law (42 U.S.C. § 1395nn) prohibits physicians from making referrals for designated health services to entities with which the physician or an immediate family member has a financial relationship, unless an applicable exception is satisfied. These statutes impose significant penalties for non-compliance, including criminal prosecution, civil monetary penalties, treble damages, and exclusion from federal healthcare programs. The existence of these legal constraints substantially reduces the risk that common ownership of Pinnacle and Marlowe Asset Management Rehab would lead to anticompetitive referral steering, as any such conduct would expose the parties to severe regulatory and legal consequences independent of the antitrust analysis.

Based on the totality of these factors, the vertical relationship between Marlowe Asset Management Rehab's 12 co-located clinics and adjacent Pinnacle ASCs is competitively insignificant and does not raise concerns under Section 7 of the Clayton Act or under the agencies' analytical framework for vertical mergers.

D. Conclusion — Marlowe Asset Management Rehabilitation Holdings LLC

The overlap analysis for Marlowe Asset Management Rehabilitation Holdings LLC yields the following conclusions:

No horizontal overlap. Outpatient physical therapy and rehabilitation services and ambulatory surgical center and physician practice management services are separate and distinct relevant product markets. Marlowe Asset Management Rehab and Pinnacle do not compete in any relevant product market, notwithstanding their geographic co-presence in Texas, Florida, and Georgia.

Vertical relationship is de minimis and competitively insignificant. The vertical referral relationship between 12 co-located Marlowe Asset Management Rehab clinics and adjacent Pinnacle ASCs involves less than 2% of Pinnacle's total ASC case volume in the affected MSAs. Referrals are non-exclusive, the relevant markets are highly fragmented, no foreclosure risk exists, and federal healthcare fraud and abuse laws independently constrain referral arrangements.

No competitive concern arises from the Marlowe Asset Management Rehab overlap.

V. Analysis of Clearpath Diagnostics Inc.

A. Company Overview

Clearpath Diagnostics Inc. ("Clearpath") is a Delaware corporation with its principal office located at 1700 Market Street, Suite 3400, Philadelphia, Pennsylvania 19103. Clearpath was acquired by Ardent Capital Partners III LP as a platform investment in September 2022 and operates as an independent clinical laboratory services company.

Clearpath provides a comprehensive range of clinical laboratory and diagnostic testing services, including clinical chemistry, hematology, microbiology, immunology, molecular diagnostics, anatomic pathology, and specialized laboratory analytics. The company serves a broad customer base, including hospitals, physician offices, clinics, long-term care facilities, and other healthcare providers in its service area. Clearpath's services are classified under NAICS code 621511 (Medical Laboratories) and are reimbursed under CPT codes in the 80000–89999 series (Pathology and Laboratory).

Clearpath reported revenue of approximately $218 million for the fiscal year ended December 31, 2023. The company operates laboratory facilities and specimen collection sites across a three-state geographic footprint consisting of Pennsylvania, New Jersey, and New York. Clearpath holds Clinical Laboratory Improvement Amendments ("CLIA") certificates for each of its laboratory facilities and is subject to regulation under CLIA (42 U.S.C. § 263a), state clinical laboratory licensure requirements, and applicable quality standards promulgated by the Centers for Medicare & Medicaid Services ("CMS").

B. Horizontal Overlap Analysis

1. Product Market Definition

The product market analysis for Clearpath follows the same analytical framework applied to Marlowe Asset Management Rehab above. Clearpath provides clinical laboratory and diagnostic testing services—a service category that is fundamentally distinct from Pinnacle's ambulatory surgical center and physician practice management services.

Clinical laboratory services involve the analysis of biological specimens (blood, urine, tissue, and other samples) to provide diagnostic information used by physicians in the diagnosis, treatment, and monitoring of medical conditions. These services are delivered in centralized laboratory facilities by pathologists, medical technologists, and laboratory technicians using specialized analytical equipment and instrumentation.

By contrast, Pinnacle's ASC and physician practice management services involve the delivery of outpatient surgical procedures and the administrative management of physician practices. As discussed in detail in Section IV.B.1 above, these services differ from clinical laboratory services in the following respects:

Different Services. Laboratory testing and diagnostics are fundamentally different from surgical procedures and physician practice management. Laboratory services produce diagnostic information; ASC services produce surgical interventions.

Different Customers. Laboratories serve ordering physicians and healthcare facilities, which submit specimens for analysis and receive diagnostic reports. ASCs serve patients directly, who present to the facility for scheduled surgical procedures.

Different Regulatory Regimes. Clinical laboratories are subject to CLIA certification requirements, state laboratory licensure, and CMS quality standards specific to the laboratory industry. ASCs are subject to a separate regulatory framework consisting of state ASC licensure, Medicare conditions for coverage, and accreditation requirements. These regulatory regimes are entirely distinct.

No Demand-Side Substitution. A patient or physician who requires a diagnostic laboratory test cannot substitute an ambulatory surgical procedure, and vice versa. There is no cross-elasticity of demand between clinical laboratory services and ambulatory surgical services.

Based on the foregoing, clinical laboratory and diagnostic testing services (Clearpath) and ambulatory surgical center and physician practice management services (Pinnacle) constitute separate and distinct relevant product markets. No horizontal overlap exists in any relevant product market.

2. Geographic Market Overlap

The geographic overlap analysis for Clearpath is straightforward and dispositive. Clearpath operates exclusively in Pennsylvania, New Jersey, and New York. Pinnacle operates in North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. There is zero geographic overlap between Clearpath's three-state footprint and Pinnacle's nine-state footprint.

No state or metropolitan statistical area is common to both Clearpath and Pinnacle. The nearest geographic proximity between the two companies' operations is between Clearpath's facilities in southern New Jersey and Pinnacle's facilities in central Virginia, which are separated by several hundred miles and multiple state boundaries. This geographic separation is far in excess of any plausible relevant geographic market for either clinical laboratory services or ambulatory surgical services, which are typically defined at the local or regional level.

Accordingly, no geographic overlap exists between Clearpath and Pinnacle in any relevant geographic market.

C. Vertical Overlap Analysis

In theory, a vertical relationship could exist between Clearpath and Pinnacle if Pinnacle's ASCs or affiliated physician practices ordered clinical laboratory or pathology testing services from Clearpath. Laboratory services are an input utilized by ASCs and physician practices in connection with pre-operative testing, intra-operative pathology, and post-operative monitoring. However, no such vertical relationship exists here, for one simple reason: Clearpath and Pinnacle have no geographic overlap whatsoever.

Clearpath's laboratory operations are limited to Pennsylvania, New Jersey, and New York. Pinnacle's ASCs and physician practices are located in North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. Clearpath does not serve any Pinnacle facilities, and Pinnacle does not order any laboratory services from Clearpath. Clinical laboratory services for Pinnacle's ASCs and physician practices are sourced from local and regional laboratory providers in Pinnacle's operating states, including national reference laboratories such as Kestrel & Co. and Crestline Holdings, as well as regional independent laboratories and hospital-based laboratories.

There is no existing supplier-customer or referral relationship between Clearpath and Pinnacle, and the complete absence of geographic overlap makes the emergence of any such relationship in the foreseeable future highly unlikely. Accordingly, no vertical overlap or relationship exists between Clearpath and Pinnacle.

D. Conclusion — Clearpath Diagnostics Inc.

The overlap analysis for Clearpath Diagnostics Inc. yields the following conclusions:

No horizontal overlap. Clinical laboratory services and ASC/physician practice management services are separate and distinct relevant product markets. Moreover, Clearpath and Pinnacle have zero geographic overlap, operating in entirely different states.

No vertical overlap. No existing or foreseeable supplier-customer or referral relationship exists between Clearpath and Pinnacle, owing to the complete absence of geographic proximity between their respective operations.

No competitive concern arises from the Clearpath overlap.

VI. Summary of Overlap Analysis Across All Portfolio Companies

The following table summarizes the results of the portfolio company overlap analysis for each of Fund III's existing healthcare portfolio companies in relation to the proposed acquisition of Pinnacle Health Systems, Inc.:

As reflected in the table above, neither of Fund III's existing healthcare portfolio companies presents a horizontal competitive overlap with Pinnacle in any relevant product or geographic market. The sole vertical relationship—between Marlowe Asset Management Rehab's 12 co-located physical therapy clinics and adjacent Pinnacle ASCs—is de minimis in scope and competitively insignificant under any reasonable analytical framework.

VII. Implications for HSR Filing

The results of this portfolio company overlap analysis have several implications for the preparation and submission of the HSR premerger notification filing for the proposed acquisition of Pinnacle.

Items 5–7 Disclosure. The acquiring person's HSR notification form will disclose both Marlowe Asset Management Rehab and Clearpath as entities within the acquiring person's structure that are controlled by the Ultimate Parent Entity, Ardent Capital Management LLC. The organizational structure of the acquiring person, including the chain of control from Ardent Capital Management LLC through Ardent Capital GP III LLC to Ardent Capital Partners III LP and its portfolio company subsidiaries, will be set forth in the acquiring person's response to Item 5 (identifying the acquiring person and its UPE) and Items 6–7 (identifying entities within the acquiring person's control group).

NAICS Code Reporting. The NAICS codes for Marlowe Asset Management Rehab (621340) and Clearpath (621511) will be reported in the acquiring person's notification form in connection with the revenue reporting requirements. Importantly, no overlapping NAICS codes exist between the NAICS codes associated with Marlowe Asset Management Rehab and Clearpath, on the one hand, and Pinnacle's NAICS codes (621111 and 621493), on the other hand. The absence of overlapping NAICS codes will be apparent to the reviewing agency and is consistent with the conclusion that no horizontal product market overlap exists.

Item 4(c)/4(d) Document Production. The Item 4(c) and 4(d) document collection for the acquiring person has yielded seven responsive documents, consisting of investment committee memoranda, board presentations, and related materials prepared in connection with the evaluation and approval of the proposed acquisition of Pinnacle. We have reviewed these seven documents and confirm that none of them identifies Marlowe Asset Management Rehab or Clearpath as a competitor of Pinnacle. To the contrary, the investment committee memoranda characterize the proposed acquisition of Pinnacle as an entry into the ambulatory surgical center and physician practice management subsector, which is described as complementary to, rather than competitive with, Fund III's existing healthcare portfolio investments.

Voluntary Submission / White Paper. In connection with the HSR filing, we intend to submit a voluntary submission (commonly referred to as a "white paper") to the staff of the reviewing agency. The white paper will address, among other topics, the portfolio company overlap analysis and will affirmatively demonstrate the absence of horizontal competitive overlaps and the competitively insignificant nature of the limited vertical relationship between Marlowe Asset Management Rehab and Pinnacle. The inclusion of this analysis in the white paper is intended to facilitate the agency's review and to provide a comprehensive record supporting the conclusion that the proposed transaction does not raise competitive concerns arising from portfolio company relationships.

Early Termination. The absence of any meaningful horizontal or vertical competitive overlap between Pinnacle and Fund III's existing healthcare portfolio companies strongly supports the request for early termination of the statutory 30-day HSR waiting period. The competitive landscape analysis, combined with the portfolio company overlap analysis presented herein, provides a compelling basis for the reviewing agency to grant early termination without the need for a second request or extended investigation.

VIII. Recommendations

Based on the analysis set forth in this memorandum, we recommend the following actions:

1. Include Portfolio Company Overlap Discussion in Voluntary Submission. The voluntary submission letter (white paper) to be filed with the FTC on February 16, 2024, should include a concise discussion of the portfolio company overlap analysis, emphasizing the following key points:

(a) Outpatient physical therapy and rehabilitation services (Marlowe Asset Management Rehab) and ambulatory surgical center and physician practice management services (Pinnacle) constitute separate and distinct relevant product markets, with no reasonable basis for demand-side or supply-side substitution;

(b) Clearpath Diagnostics operates exclusively in Pennsylvania, New Jersey, and New York, with zero geographic overlap with Pinnacle's nine-state operating footprint in the southeastern, mid-Atlantic, midwestern, and southwestern United States;

(c) The limited vertical referral relationship between 12 co-located Marlowe Asset Management Rehab clinics and adjacent Pinnacle ASCs in Texas, Florida, and Georgia is de minimis in scope (representing less than 2% of Pinnacle's ASC case volume in the affected MSAs), non-exclusive in nature, and competitively insignificant under any reasonable analytical framework; and

(d) Federal healthcare fraud and abuse laws, including the Anti-Kickback Statute and the Stark Law, independently constrain referral arrangements and preclude the types of referral steering or foreclosure conduct that might otherwise raise vertical competitive concerns.

2. Prepare Summary Chart for Appendix to White Paper. A one-page summary chart, substantially in the form set forth in Section VI of this memorandum, should be prepared and included as an appendix to the white paper for ease of reference by FTC staff. The chart should present the key conclusions of the portfolio company overlap analysis in a clear and accessible tabular format.

3. Include Memorandum in HSR Filing Work File. This memorandum and all supporting documentation, including the facility lists, organizational charts, and competitive analysis materials referenced herein, should be included in the HSR filing work file maintained under Matter No. 1001-00001. This documentation will serve as the evidentiary basis for the portfolio company overlap analysis and will be available for reference in the event of any agency inquiry or second request.

4. Coordinate with Monica Reyes on Broader Competitive Analysis. The analysis contained in this memorandum should be integrated into the broader Market Definition & Competitive Analysis Memorandum that is being prepared by Monica Reyes and is anticipated to be completed by February 10, 2024. In particular, the product market definitions for outpatient physical therapy, clinical laboratory services, and ambulatory surgical services set forth herein should be cross-referenced in the Market Definition memorandum to ensure consistency. Additionally, the vertical overlap analysis should be coordinated with the HHI Concentration Analysis Workpaper to confirm that the co-located Marlowe Asset Management Rehab clinics and Pinnacle ASCs do not affect the market concentration calculations in the relevant MSAs.

IX. Appendices

Appendix A — Organizational Structure Chart

The following chart depicts the organizational structure of the acquiring person for purposes of the HSR premerger notification filing, including the chain of control from the Ultimate Parent Entity to each portfolio company and the proposed acquisition of Pinnacle Health Systems, Inc.:

ARDENT CAPITAL — ORGANIZATIONAL STRUCTURE

Level 1 — Ultimate Parent Entity:

Ardent Capital Management LLC (Delaware LLC) EIN: 84-5567312 SEC File No. 801-119247 (Registered Investment Adviser) 399 Park Avenue, 41st Floor, New York, NY 10022 Co-Founders & Managing Partners: Julian Desmond and Priya Chandrasekar Sole Member of Ardent Capital GP III LLC

Level 2 — General Partner Entity:

Ardent Capital GP III LLC (Delaware LLC) EIN: 86-2198403 General Partner of Ardent Capital Partners III LP

Level 3 — Fund Entity:

Ardent Capital Partners III LP (Delaware LP) EIN: 87-3421098 399 Park Avenue, 41st Floor, New York, NY 10022 Final Close: November 2021; $4.8 billion committed capital Controls the following portfolio companies:

Level 4 — Portfolio Companies (Healthcare Services):

Marlowe Asset Management Rehabilitation Holdings LLC (Delaware LLC) 8950 Westheimer Road, Suite 600, Houston, TX 77063 Business: 74 outpatient physical therapy clinics — TX, FL, GA Controlled by Fund III

Clearpath Diagnostics Inc. (Delaware Corporation) 1700 Market Street, Suite 3400, Philadelphia, PA 19103 EIN: (on file) Business: Clinical laboratory services — PA, NJ, NY Revenue: $218 million Controlled by Fund III

Pinnacle Health Systems, Inc. (Delaware Corporation) — TO BE ACQUIRED 2200 Lakeshore Boulevard, Suite 500, Charlotte, NC 28202 EIN: 56-4389201 Business: 42 ASCs and 31 physician practice management entities — NC, SC, VA, TN, GA, FL, AL, OH, TX Revenue: $637.4 million Acquisition pending; subject to HSR clearance

Appendix B — Marlowe Asset Management Rehabilitation Holdings LLC Facility List (74 Locations)

The following is a state-by-state listing of all 74 outpatient physical therapy clinic locations operated by Marlowe Asset Management Rehabilitation Holdings LLC. Facilities that are co-located with or adjacent to Pinnacle Health Systems ASCs are indicated with an asterisk (*) and cross-referenced to the corresponding Pinnacle ASC facility.

Texas (39 Clinics)

Note: For brevity, clinics TX-011 through TX-039 are listed in the complete facility register maintained in the Matter No. 1001-00001 work file. None of these 29 clinics are co-located with or adjacent to Pinnacle ASC facilities.

Florida (22 Clinics)

Note: For brevity, clinics FL-008 through FL-022 are listed in the complete facility register maintained in the Matter No. 1001-00001 work file. None of these 15 clinics are co-located with or adjacent to Pinnacle ASC facilities.

Georgia (13 Clinics)

Note: For brevity, clinics GA-006 through GA-013 are listed in the complete facility register maintained in the Matter No. 1001-00001 work file. None of these 8 clinics are co-located with or adjacent to Pinnacle ASC facilities.

Summary of Co-Located Facilities

Appendix C — Clearpath Diagnostics Inc. Operations Summary

Company Name: Clearpath Diagnostics Inc.

Entity Type: Delaware Corporation

Headquarters: 1700 Market Street, Suite 3400, Philadelphia, PA 19103

Revenue (FY 2023): $218 million

Services: Independent clinical laboratory and diagnostic testing services, including clinical chemistry, hematology, microbiology, immunology, molecular diagnostics, anatomic pathology, and specialized laboratory analytics.

NAICS Code: 621511 — Medical Laboratories

Operating States and Facilities:

Geographic Overlap with Pinnacle Health Systems, Inc.:

There is no state, metropolitan statistical area, or local geographic market in which both Clearpath and Pinnacle operate. The complete absence of geographic overlap precludes any horizontal or vertical competitive relationship between the two companies.

Appendix D — Pinnacle Health Systems, Inc. — Facility Footprint

The following is a summary of Pinnacle Health Systems, Inc.'s 42 ambulatory surgical centers and 31 physician practice management entities across its nine-state operating footprint, organized by state and MSA for cross-reference with Marlowe Asset Management Rehab and Clearpath operations.

Ambulatory Surgical Centers (42 Facilities)

Physician Practice Management Entities (31 Entities)

Pinnacle's 31 physician practice management entities are structured as management services organizations that are co-located with or operate in direct support of the 42 ASC facilities listed above. These MSO entities are distributed across all nine operating states in proportion to the ASC footprint. A detailed listing of all 31 MSO entities, including entity names, addresses, and affiliated ASC facilities, is maintained in the Matter No. 1001-00001 work file and is available upon request.

Geographic Overlap Cross-Reference

As reflected in the table above, Marlowe Asset Management Rehab has a geographic presence in three of Pinnacle's nine operating states (Georgia, Florida, and Texas), but operates in a separate product market (outpatient physical therapy) from Pinnacle (ASC and physician practice management services). Clearpath has no geographic presence in any of Pinnacle's nine operating states.

This memorandum has been prepared for the internal use of Calderwood & Harkness LLP and its client, Ardent Capital Partners III LP, in connection with Matter No. 1001-00001. This memorandum constitutes attorney work product and is protected by the attorney-client privilege and the work product doctrine. It should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.

Portfolio Company	Services	Operating States	Product Market Overlap with Pinnacle	Geographic Overlap with Pinnacle	Vertical Relationship	Competitive Concern
Marlowe Asset Management Rehabilitation Holdings LLC	Outpatient physical therapy and rehabilitation services (74 clinics)	TX, FL, GA	None — outpatient PT services and ASC/physician practice management services are separate product markets	Partial — geographic co-presence in TX, FL, and GA, but no overlap in relevant product market	Yes — 12 co-located facilities; referral volume represents less than 2% of Pinnacle's ASC case volume in affected MSAs; referrals are non-exclusive	None — vertical relationship is competitively insignificant; no foreclosure risk; no horizontal concern
Clearpath Diagnostics Inc.	Clinical laboratory and diagnostic testing services ($218 million revenue)	PA, NJ, NY	None — clinical laboratory services and ASC/physician practice management services are separate product markets	None — zero overlapping states between Clearpath's PA/NJ/NY footprint and Pinnacle's nine-state footprint	None — no existing or foreseeable supplier-customer or referral relationship due to complete absence of geographic overlap	None
Clinic No.	Location	MSA	Co-Located with Pinnacle ASC
TX-001*	4215 Medical Center Drive, Dallas, TX 75235	Dallas-Fort Worth-Arlington	Yes — Pinnacle Lakeview ASC
TX-002*	7800 North Stemmons Fre

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Howard Bellamy, Partner, Antitrust & Competition Practice Group, Calderwood & Harkness LLP
FROM: Elliot Nguyen, Associate, Antitrust & Competition Practice Group, Calderwood & Harkness LLP
DATE: February 8, 2024
RE: Portfolio Company Overlap Analysis — Ardent Capital Partners III LP / Pinnacle Health Systems, Inc.
MATTER NO.: 1001-00001
CLIENT: Ardent Capital Partners III LP
Right-click to update Table of Contents
I. Executive Summary
This memorandum analyzes the potential horizontal and vertical competitive overlaps between Pinnacle Health Systems, Inc. ("Pinnacle" or "PHS") and the existing healthcare portfolio companies of Ardent Capital Partners III LP ("Ardent Capital" or "Fund III") in connection with the Hart-Scott-Rodino ("HSR") premerger notification filing for Ardent Capital's proposed acquisition of 100% of the outstanding equity of Pinnacle at an aggregate enterprise value of approximately $952 million. The purpose of this analysis is to identify and assess any competitive relationships between Pinnacle and Fund III's existing controlled entities that may be relevant to the substantive antitrust review of the proposed transaction by the Federal Trade Commission ("FTC") or the Antitrust Division of the U.S. Department of Justice ("DOJ").
Ardent Capital Management LLC, the registered investment adviser and manager of Fund III (SEC File No. 801-119247), currently controls two healthcare portfolio companies through Fund III's investment activities: (i) Marlowe Asset Management Rehabilitation Holdings LLC ("Marlowe Asset Management Rehab"), an operator of 74 outpatient physical therapy clinics in Texas, Florida, and Georgia; and (ii) Clearpath Diagnostics Inc. ("Clearpath"), an independent clinical laboratory services company operating in Pennsylvania, New Jersey, and New York. These are the only two portfolio companies within the Ardent Capital structure that operate in the healthcare services sector and, accordingly, are the entities most likely to implicate competitive concerns in connection with the proposed acquisition of Pinnacle.
Under the HSR Act and the applicable regulations promulgated thereunder by the FTC and DOJ, the "acquiring person" for purposes of the premerger notification encompasses all entities under the common control of the Ultimate Parent Entity. Ardent Capital Management LLC, as the sole member of Ardent Capital GP III LLC, which in turn serves as the general partner of Ardent Capital Partners III LP, constitutes the Ultimate Parent Entity ("UPE") of the acquiring person for HSR purposes. As a result, all portfolio companies controlled by Fund III—including Marlowe Asset Management Rehab and Clearpath—must be assessed for potential competitive overlaps with the target, Pinnacle.
Based on the analysis set forth in detail below, we have reached the following conclusions:
No horizontal overlaps exist in any relevant product or geographic market. Physical therapy and rehabilitation services, which constitute the core business of Marlowe Asset Management Rehab, and ambulatory surgical center and physician practice management services, which constitute the core business of Pinnacle, are separate and distinct product markets. These services differ fundamentally in their nature, referral patterns, reimbursement methodologies, regulatory frameworks, facility requirements, and staffing. No reasonable demand-side substitution exists between these services. Clearpath's clinical laboratory services represent yet another distinct product market that does not overlap with Pinnacle's operations. Moreover, Clearpath operates exclusively in Pennsylvania, New Jersey, and New York, with zero geographic overlap with Pinnacle's nine-state footprint spanning North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas.
A limited vertical relationship exists between 12 co-located Marlowe Asset Management Rehab clinics and adjacent Pinnacle ambulatory surgical centers in Texas, Florida, and Georgia. This relationship is competitively insignificant. The referral volume 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. Referrals are non-exclusive, and the combination would not confer any ability or incentive to foreclose rival providers at either level of the supply chain. Federal healthcare fraud and abuse laws, including the Anti-Kickback Statute and the Stark Law, independently constrain referral arrangements and ensure arm's-length referral practices irrespective of common ownership.
Accordingly, the portfolio company overlap analysis supports the conclusion that the proposed acquisition of Pinnacle by Fund III does not raise competitive concerns arising from relationships with existing portfolio companies. This analysis further supports the request for early termination of the statutory 30-day HSR waiting period.
II. Background
A. The Transaction
Ardent Capital Partners III LP proposes to acquire 100% of the outstanding equity of Pinnacle Health Systems, Inc. through a stock purchase transaction. The definitive Equity Purchase Agreement was executed on January 31, 2024, by and among Ardent Capital Partners III LP (as Buyer), Veltrano Equity Holdings LLC (as Seller Representative), the individual stockholders of Pinnacle identified on the signature pages thereto (collectively, the "Sellers"), and Pinnacle Health Systems, Inc. (the "Company"). The transaction is structured as a direct acquisition of all issued and outstanding shares of common stock and preferred stock of Pinnacle.
The agreed-upon enterprise value for the transaction is approximately $952 million. The equity value, net of approximately $418 million in funded indebtedness to be retired at closing, is approximately $534 million. The equity consideration consists of $505.5 million in cash consideration payable at closing and approximately $28.5 million in management rollover equity from Dr. Marcus Ellsworth, the founder and Chief Executive Officer of Pinnacle, who will reinvest a portion of his equity proceeds into the acquiring fund vehicle. Dr. Ellsworth's rollover represents approximately 5.3% of the post-closing equity in the acquisition holding company and is structured as a Class B membership interest in a newly formed Delaware limited liability company that will serve as the direct parent of Pinnacle following the closing.
The selling stockholder group is led by Veltrano Equity Holdings LLC, which holds approximately 62.3% of the outstanding equity of Pinnacle through Veltrano Equity Partners Fund V LP, a private equity fund affiliated with Veltrano Equity Partners. The remaining equity is held by founder and management rollover holders (approximately 23.1%, consisting principally of Dr. Ellsworth and certain members of the senior management team) and minority physician investors (approximately 14.6%, consisting of physician partners who hold equity interests in specific ASC joint venture entities that are structured as partially owned subsidiaries of Pinnacle).
Veltrano Equity Partners originally acquired Pinnacle in 2017 at an enterprise value of approximately $340 million. During the period of Veltrano's ownership from 2017 through 2023, Pinnacle completed 19 add-on acquisitions, expanding its geographic footprint from four states to nine states and growing its ASC count from 18 to 42 facilities. These add-on acquisitions ranged in size from approximately $8 million to approximately $72 million in enterprise value and included both ASC platform acquisitions and tuck-in physician practice acquisitions.
The closing of the transaction is subject to customary conditions, including the expiration or early termination of the HSR waiting period, the receipt of certain state healthcare regulatory approvals, the absence of a material adverse effect, and the satisfaction of other conditions set forth in the Equity Purchase Agreement.
B. Pinnacle Health Systems, Inc.
Pinnacle Health Systems, Inc. is a Delaware corporation with its principal executive office located at 2200 Lakeshore Boulevard, Suite 500, Charlotte, North Carolina 28202. Pinnacle's Employer Identification Number is 56-4389201. The company was originally founded in 2009 by Dr. Marcus Ellsworth, a board-certified orthopedic surgeon, who established the first Pinnacle ambulatory surgical center in Charlotte, North Carolina.
Pinnacle currently operates 42 ambulatory surgical centers and 31 affiliated physician practice management entities across a nine-state geographic footprint. The company's ASCs are licensed freestanding ambulatory surgical and emergency centers that provide scheduled outpatient surgical procedures across multiple medical specialties. Pinnacle's primary NAICS codes are 621111 (Offices of Physicians, Except Mental Health Specialists) and 621493 (Freestanding Ambulatory Surgical and Emergency Centers). The 31 physician practice management entities are structured as management services organizations ("MSOs") that provide administrative, billing, compliance, and operational support services to affiliated physician practices under long-term management services agreements.
Pinnacle's operating states are North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. The company's ASC facilities are concentrated in mid-sized and large metropolitan statistical areas within these states, with its largest concentrations of facilities in the Charlotte-Concord-Gastonia, NC-SC MSA (7 ASCs), the Dallas-Fort Worth-Arlington, TX MSA (6 ASCs), the Tampa-St. Petersburg-Clearwater, FL MSA (5 ASCs), the Atlanta-Sandy Springs-Alpharetta, GA MSA (5 ASCs), and the Nashville-Davidson-Murfreesboro-Franklin, TN MSA (4 ASCs). The remaining 15 ASCs are distributed across secondary markets in the nine operating states.
For the fiscal year ended December 31, 2023, Pinnacle reported consolidated revenue of $637.4 million and consolidated EBITDA of $98.2 million, as determined in the quality of earnings report prepared by Apex Advisory Group LLC in connection with Ardent Capital's due diligence investigation. The company's total consolidated assets are approximately $812 million, consisting principally of goodwill and intangible assets arising from its history of acquisitions, as well as property, equipment, and right-of-use assets associated with its ASC facilities. Pinnacle employs approximately 4,700 individuals, including approximately 2,200 clinical staff (surgical nurses, surgical technicians, anesthesia providers, and other clinical personnel), approximately 1,100 administrative and management services organization personnel, and approximately 1,400 affiliated physician practice employees.
Pinnacle's multi-specialty ASC services are concentrated in three core surgical specialties: orthopedics (representing approximately 48% of total case volume), gastroenterology (representing approximately 29% of total case volume), and ophthalmology (representing approximately 16% of total case volume). The remaining approximately 7% of case volume consists of pain management, ENT, and general surgery procedures. The company's ASCs are equipped to perform a wide range of outpatient surgical procedures, including total joint replacement, arthroscopy, spinal decompression, colonoscopy, upper endoscopy, cataract surgery, and retinal procedures.
Dr. Marcus Ellsworth serves as Chief Executive Officer and Chairman of the Board of Directors. Sandra Trevino serves as Chief Financial Officer. Other members of the senior leadership team include Dr. Rajesh Patel (Chief Medical Officer), Jennifer Whitfield (Chief Operating Officer), and Thomas Langford (General Counsel and Chief Compliance Officer).
C. Ardent Capital Partners III LP and Its Healthcare Portfolio
Ardent Capital Partners III LP is a Delaware limited partnership formed on March 15, 2020, with its principal office located at 399 Park Avenue, 41st Floor, New York, New York 10022. The fund's Employer Identification Number is 87-3421098. Fund III is the third institutional private equity fund raised by the Ardent Capital platform and held its final close on November 12, 2021, with aggregate limited partner capital commitments of approximately $4.8 billion.
The general partner of Ardent Capital Partners III LP is Ardent Capital GP III LLC, a Delaware limited liability company with EIN 86-2198403. Ardent Capital GP III LLC is, in turn, wholly owned by Ardent Capital Management LLC, a Delaware limited liability company with EIN 84-5567312. Ardent Capital Management LLC is a registered investment adviser with the U.S. Securities and Exchange Commission under the Investment Advisers Act of 1940 (SEC File No. 801-119247) and serves as the investment manager of Fund III and its predecessor funds, Ardent Capital Partners I LP and Ardent Capital Partners II LP. Ardent Capital Management LLC is co-founded and managed by Julian Desmond and Priya Chandrasekar, who serve as Managing Partners of the firm.
Ardent Capital is a middle-market private equity firm focused on control investments in three core sectors: healthcare services, business services, and specialty industrials. Across Fund III and its predecessor funds, Ardent Capital has completed 23 platform acquisitions and over 60 add-on acquisitions. Fund III's current portfolio consists of seven active platform investments spanning its three core sectors, of which two operate in the healthcare services sector and are the subject of this overlap analysis.
The two existing healthcare portfolio companies controlled by Fund III that require overlap analysis with Pinnacle are:
1. Marlowe Asset Management Rehabilitation Holdings LLC — an operator of 74 outpatient physical therapy clinics in Texas, Florida, and Georgia, providing physical therapy, occupational therapy, and related rehabilitation services; and
2. Clearpath Diagnostics Inc. — an independent clinical laboratory services company operating in Pennsylvania, New Jersey, and New York, providing diagnostic testing, pathology, and laboratory analytics services.
Fund III's five remaining portfolio companies operate in the business services and specialty industrials sectors and do not participate in any healthcare-related product or geographic markets. Accordingly, those portfolio companies are not analyzed in this memorandum, as they present no plausible basis for competitive overlap with Pinnacle.
III. Analytical Framework
The competitive overlap analysis set forth in this memorandum is conducted under the framework established by Section 7 of the Clayton Act (15 U.S.C. § 18), the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. § 18a) (the "HSR Act"), the implementing regulations promulgated by the FTC at 16 C.F.R. Part 801 et seq., and the 2023 FTC/DOJ Merger Guidelines (the "Merger Guidelines").
Under the HSR Act and its implementing regulations, the "acquiring person" for purposes of the premerger notification filing encompasses the Ultimate Parent Entity and all entities that it controls. As noted above, Ardent Capital Management LLC is the Ultimate Parent Entity of the acquiring person. All entities within the UPE's control group—including all portfolio companies held through Fund III—are treated as part of the "acquiring person" for purposes of the competitive analysis. This means that the agencies will assess competitive effects not only between Pinnacle and Fund III's direct investment activities, but also between Pinnacle and each entity controlled by Fund III, including Marlowe Asset Management Rehab and Clearpath.
The FTC and DOJ assess whether a proposed acquisition would "substantially lessen competition" or "tend to create a monopoly" in any relevant market, consistent with the standard established by Section 7 of the Clayton Act. This analysis requires the identification and definition of both relevant product markets and relevant geographic markets. A relevant product market consists of a group of products or services that are reasonably interchangeable from the perspective of consumers (demand-side substitutability) or producers (supply-side substitutability). A relevant geographic market consists of the area in which the merging firms compete and in which competitive effects are likely to occur.
The overlap analysis presented in this memorandum addresses both horizontal and vertical competitive relationships:
Horizontal overlaps arise where two entities that would come under common control as a result of the transaction offer competing products or services in the same relevant geographic market. Horizontal overlaps are the primary focus of merger enforcement, as they result in the elimination of direct competition between the merging parties and may lead to unilateral or coordinated anticompetitive effects.
Vertical overlaps arise where entities that would come under common control operate at different levels of the supply or distribution chain for the same or related products or services. Vertical relationships may raise competitive concerns where the merged entity would have the ability and incentive to foreclose rivals—either by denying access to inputs (input foreclosure) or by denying access to customers or distribution channels (customer foreclosure)—or to raise rivals' costs through discriminatory dealing.
In applying this framework, we have drawn upon the market definition principles articulated in the Merger Guidelines, including the hypothetical monopolist test (also known as the SSNIP test) for delineating relevant product and geographic markets, as well as the agencies' established approach to analyzing vertical mergers under the 2020 Vertical Merger Guidelines (subsequently withdrawn by the FTC in 2021 but still reflective of the DOJ's analytical approach). We have also drawn upon relevant FTC and DOJ enforcement actions and statements in the healthcare services sector, including precedents involving ambulatory surgical centers, physician practice management, outpatient rehabilitation, and clinical laboratory services.
IV. Analysis of Marlowe Asset Management Rehabilitation Holdings LLC
A. Company Overview
Marlowe Asset Management Rehabilitation Holdings LLC ("Marlowe Asset Management Rehab") is a Delaware limited liability company with its principal office located at 8950 Westheimer Road, Suite 600, Houston, Texas 77063. Marlowe Asset Management Rehab was acquired by Ardent Capital Partners III LP as a platform investment in June 2022 and has subsequently grown through a series of four add-on acquisitions, expanding its clinic count from 41 clinics at the time of the platform acquisition to 74 clinics as of the date of this memorandum.
Marlowe Asset Management Rehab operates 74 outpatient physical therapy clinics providing physical therapy, occupational therapy, and rehabilitation services to patients recovering from orthopedic injuries, sports injuries, post-surgical procedures, neurological conditions, and other musculoskeletal and mobility-related conditions. The company's services are delivered in outpatient clinical settings by licensed physical therapists, physical therapist assistants, occupational therapists, and certified athletic trainers. Marlowe Asset Management Rehab's geographic footprint spans three states: Texas (39 clinics), Florida (22 clinics), and Georgia (13 clinics).
Marlowe Asset Management Rehab's primary NAICS code is 621340 (Offices of Physical, Occupational and Speech Therapists, and Audiologists). The company's services are reimbursed primarily through commercial insurance, Medicare Part B, workers' compensation, and, to a lesser extent, Medicaid and self-pay arrangements. Marlowe Asset Management Rehab's payor mix, revenue base, clinical staffing model, regulatory licensing requirements, and facility characteristics are fundamentally distinct from those of Pinnacle's ambulatory surgical center and physician practice management operations.
B. Horizontal Overlap Analysis
1. Product Market Definition
The threshold question in the horizontal overlap analysis is whether Marlowe Asset Management Rehab and Pinnacle participate in the same relevant product market. For the reasons set forth below, they do not.
Marlowe Asset Management Rehab provides outpatient physical therapy and rehabilitation services. These services involve non-surgical, conservative treatment modalities delivered by licensed physical therapists and related rehabilitation professionals. Typical services include manual therapy, therapeutic exercise, neuromuscular re-education, gait training, modalities (such as ultrasound, electrical stimulation, and cryotherapy), and functional capacity evaluations. These services are classified under NAICS code 621340 and are reimbursed under CPT codes in the 97000 series (Physical Medicine and Rehabilitation).
Pinnacle, by contrast, operates ambulatory surgical centers that provide surgical procedures performed by licensed physicians (surgeons and anesthesiologists) in licensed outpatient surgical facilities. Pinnacle's ASCs are classified under NAICS code 621493 (Freestanding Ambulatory Surgical and Emergency Centers) and its affiliated physician practice management entities are classified under NAICS code 621111 (Offices of Physicians, Except Mental Health Specialists). Pinnacle's ASC procedures are reimbursed under CPT codes spanning surgical categories including musculoskeletal surgery (20000–29999 series), digestive system surgery (40000–49999 series), and eye and ocular adnexa surgery (65000–68999 series), as well as anesthesia codes in the 00100–01999 series.
Physical therapy services and ambulatory surgical services are distinct product markets under any reasonable application of the Merger Guidelines' market definition framework. The following factors confirm this conclusion:
Different Service Offerings. Physical therapy involves non-surgical, conservative rehabilitation and functional restoration. Ambulatory surgery involves invasive surgical procedures performed in an operating room or procedure room. These are fundamentally different services that address different patient needs at different points in the continuum of care.
Different Referral Sources and Patient Pathways. Patients are referred to physical therapy for rehabilitation, typically following an injury, surgical procedure, or diagnosis of a musculoskeletal condition. Patients are referred to ambulatory surgical centers for surgical intervention when conservative treatment has been exhausted or when surgical correction is clinically indicated. In many cases, physical therapy follows surgery as part of a post-operative recovery protocol, reflecting a sequential rather than substitutive relationship between these services.
Different Payor Reimbursement Structures and Coding Categories. Physical therapy services are reimbursed under the Physical Medicine and Rehabilitation CPT code series (97000 series), typically on a per-unit or per-session basis, with reimbursement rates that are substantially lower than surgical procedure reimbursement. ASC services are reimbursed under surgical CPT codes and facility fee schedules, with reimbursement rates that reflect the complexity and resource intensity of surgical procedures. Medicare reimburses PT services under the Medicare Physician Fee Schedule (MPFS) Part B benefit, while ASC services are reimbursed under the separate ASC Payment System. These are distinct reimbursement methodologies with different rate-setting mechanisms, payment groupings, and cost structures.
Different Regulatory Frameworks. Physical therapy clinics are subject to state physical therapy practice act requirements, including licensure of individual physical therapists and, in certain states, registration or licensure of PT practice entities. ASCs are subject to a separate and more rigorous regulatory framework, including state ASC licensure requirements, Medicare conditions for coverage (42 C.F.R. Part 416), accreditation requirements, and life safety code compliance. The two regulatory regimes are distinct and non-overlapping.
Different Facilities, Equipment, and Staffing. Physical therapy clinics operate in clinical office settings equipped with treatment tables, exercise equipment, and therapeutic modalities. ASCs operate in surgical facilities equipped with operating rooms, procedure rooms, sterilization equipment, anesthesia equipment, and post-anesthesia care units. Physical therapy services are delivered by licensed physical therapists and physical therapist assistants. ASC services are delivered by board-certified surgeons, anesthesiologists or certified registered nurse anesthetists, and surgical nursing staff. These are entirely different facility types with different capital requirements, staffing models, and operational characteristics.
No Reasonable Demand-Side Substitution. A patient who requires a total knee replacement cannot substitute physical therapy for the surgical procedure, and a patient who requires post-surgical rehabilitation cannot substitute an ASC visit for physical therapy. The hypothetical monopolist test confirms that a small but significant non-transitory increase in price (SSNIP) for physical therapy services would not cause patients to switch to ambulatory surgical services, and vice versa. There is no meaningful cross-elasticity of demand between these services.
FTC Precedent. The FTC has consistently treated outpatient physical therapy and rehabilitation services as a product market distinct from ambulatory surgical center services and physician services. The FTC's healthcare enforcement actions have defined ambulatory surgery centers, general acute care hospitals, outpatient rehabilitation services, and clinical laboratory services as separate product markets. There is no precedent in which the FTC or DOJ has aggregated outpatient physical therapy services and ambulatory surgical services into a single relevant product market.
Based on the foregoing analysis, we conclude that outpatient physical therapy and rehabilitation services (Marlowe Asset Management Rehab) and ambulatory surgical center and physician practice management services (Pinnacle) constitute separate and distinct relevant product markets. No horizontal overlap exists in any relevant product market.
2. Geographic Market Overlap
Even assuming, arguendo, that physical therapy services and ambulatory surgical center services were considered to participate in the same relevant product market—which, for the reasons set forth above, they clearly are not—a geographic overlap analysis would be relevant only to the extent that both entities operate in the same geographic markets.
Marlowe Asset Management Rehab operates its 74 outpatient physical therapy clinics in three states: Texas, Florida, and Georgia. Pinnacle operates its 42 ASCs and 31 physician practice management entities in nine states: North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. Three states—Texas, Florida, and Georgia—are common to the geographic footprints of both Marlowe Asset Management Rehab and Pinnacle.
However, because physical therapy services and ASC services are distinct product markets, as established in the preceding section, the geographic co-presence of Marlowe Asset Management Rehab and Pinnacle in Texas, Florida, and Georgia does not create any horizontal competitive concern. The entities do not compete in any relevant product market in these or any other states.
Moreover, even within these three overlapping states, the local geographic markets (typically defined at the MSA or sub-MSA level for healthcare services) in which Marlowe Asset Management Rehab clinics and Pinnacle ASCs are located are not coextensive. While some co-location exists (as discussed in the vertical overlap analysis below), the geographic presence of both entities in the same state is insufficient to establish a horizontal competitive relationship in the absence of a shared relevant product market.
C. Vertical Overlap Analysis
1. Nature of the Vertical Relationship
Although Marlowe Asset Management Rehab and Pinnacle do not participate in the same relevant product market, a potential vertical relationship exists between the two companies by virtue of their positions at different levels of the healthcare services delivery chain. Specifically, 12 of Marlowe Asset Management Rehab's 74 outpatient physical therapy clinics are co-located with or situated in close geographic proximity to Pinnacle ambulatory surgical centers in three metropolitan statistical areas:
• Dallas-Fort Worth-Arlington, TX MSA: 5 co-located Marlowe Asset Management Rehab clinics adjacent to Pinnacle ASCs;
• Tampa-St. Petersburg-Clearwater, FL MSA: 4 co-located Marlowe Asset Management Rehab clinics adjacent to Pinnacle ASCs; and
• Atlanta-Sandy Springs-Alpharetta, GA MSA: 3 co-located Marlowe Asset Management Rehab clinics adjacent to Pinnacle ASCs.
The vertical relationship between these co-located facilities arises from the sequential nature of surgical and post-surgical care. Patients who undergo orthopedic surgical procedures at a Pinnacle ASC—such as total joint replacement, arthroscopic surgery, or spinal decompression—are frequently referred to outpatient physical therapy for post-surgical rehabilitation. Some portion of these post-surgical patients are referred to, and receive care at, the adjacent Marlowe Asset Management Rehab clinics. This constitutes a downstream referral pattern from surgical services (provided by Pinnacle) to post-surgical rehabilitation services (provided by Marlowe Asset Management Rehab).
The nature of this relationship is analogous to a supplier-customer or upstream-downstream relationship in which Pinnacle ASCs serve as a source of patient referrals for Marlowe Asset Management Rehab clinics. Importantly, however, this referral relationship is neither exclusive nor contractually mandated. The 12 co-located Marlowe Asset Management Rehab clinics also receive referrals from non-Pinnacle sources, including hospitals, independent physician practices, and other ASC operators, and Pinnacle ASCs refer post-surgical patients to range physical therapy providers in addition to Marlowe Asset Management Rehab.
2. Competitive Significance Assessment
We have assessed the competitive significance of this vertical relationship under the analytical framework applicable to vertical mergers and acquisitions. Based on the following factors, we conclude that the vertical relationship is competitively insignificant and does not raise concerns under Section 7 of the Clayton Act.
Referral Volume. The physical therapy referrals from Pinnacle ASCs to co-located Marlowe Asset Management Rehab clinics represent less than 2% of Pinnacle's total ASC case volume in the three affected metropolitan statistical areas (Dallas-Fort Worth-Arlington, TX; Tampa-St. Petersburg-Clearwater, FL; and Atlanta-Sandy Springs-Alpharetta, GA). This volume is de minimis by any measure and does not confer meaningful leverage or market position on either entity. From Marlowe Asset Management Rehab's perspective, referrals originating from Pinnacle ASCs constitute a modest portion of the total patient volume at the 12 co-located clinics, with the substantial majority of patients referred from independent physicians, hospital systems, and other sources.
Non-Exclusivity of Referral Patterns. Post-surgical physical therapy referrals from Pinnacle ASCs are not exclusive to Marlowe Asset Management Rehab. Referring surgeons and their patients routinely select among numerous physical therapy providers based on a range of factors, including insurance network participation, geographic convenience, patient preference, physician familiarity with and confidence in specific PT providers, and the availability of appointment times. There is no existing contractual arrangement between Pinnacle and Marlowe Asset Management Rehab that requires, directs, or incentivizes exclusive or preferential referrals. Moreover, patient choice in the selection of a physical therapy provider is protected under applicable state and federal law, including the Medicare Conditions of Participation, which require that patients be informed of their right to choose their own provider of post-acute services.
No Foreclosure Risk. The proposed transaction would not give Ardent Capital the ability or incentive to foreclose rival physical therapy providers from receiving post-surgical referrals from Pinnacle ASCs. Nor would the transaction give Ardent Capital the ability or incentive to foreclose rival ASC operators from referring patients to Marlowe Asset Management Rehab clinics.
With respect to customer foreclosure (i.e., the risk that Pinnacle ASCs would steer post-surgical referrals exclusively to Marlowe Asset Management Rehab, thereby denying rival PT providers access to referral volume), several factors militate against any such concern. First, referral decisions in the healthcare setting are driven primarily by clinical judgment, patient preference, and insurance coverage—not by common ownership of the surgical and rehabilitation providers. Second, the 12 co-located Marlowe Asset Management Rehab clinics represent a negligible share of the total outpatient physical therapy capacity in each of the three affected MSAs. Third, any attempt to steer referrals based on common ownership rather than clinical merit would expose Ardent Capital and its portfolio companies to significant legal risk under the federal Anti-Kickback Statute and the Stark Law (discussed further below).
With respect to input foreclosure (i.e., the risk that Marlowe Asset Management Rehab would refuse to accept referrals from rival ASC operators, thereby disadvantaging those competitors), such a strategy would be economically irrational. Marlowe Asset Management Rehab has a clear economic incentive to maximize its patient volume and would not forego referrals from non-Pinnacle sources, which constitute the substantial majority of its patient base.
Market Fragmentation. The outpatient physical therapy market in each of the three affected MSAs is highly fragmented, with dozens to hundreds of independent and chain-affiliated PT providers operating in each market. Major national and regional PT chains, including Kestrel Enterprises, Drayton Enterprises, Beaumont Industries, Severin Enterprises, and Brightwater Enterprises, maintain substantial clinic networks in each of these MSAs, in addition to numerous hospital-based outpatient rehabilitation departments and independent PT practices. Marlowe Asset Management Rehab holds a modest share of the total outpatient PT capacity in each MSA, and the presence of numerous alternative PT providers ensures that any marginal change in referral patterns attributable to the transaction would have no appreciable effect on competition.
Anti-Kickback Statute and Stark Law Considerations. Federal healthcare fraud and abuse laws independently constrain the referral relationship between Pinnacle ASCs and Marlowe Asset Management Rehab clinics, ensuring arm's-length referral practices regardless of common ownership. The Anti-Kickback Statute (42 U.S.C. § 1320a-7b) prohibits the knowing and willful offer, payment, solicitation, or receipt of any remuneration to induce or reward referrals for items or services reimbursable under federal healthcare programs. The Stark Law (42 U.S.C. § 1395nn) prohibits physicians from making referrals for designated health services to entities with which the physician or an immediate family member has a financial relationship, unless an applicable exception is satisfied. These statutes impose significant penalties for non-compliance, including criminal prosecution, civil monetary penalties, treble damages, and exclusion from federal healthcare programs. The existence of these legal constraints substantially reduces the risk that common ownership of Pinnacle and Marlowe Asset Management Rehab would lead to anticompetitive referral steering, as any such conduct would expose the parties to severe regulatory and legal consequences independent of the antitrust analysis.
Based on the totality of these factors, the vertical relationship between Marlowe Asset Management Rehab's 12 co-located clinics and adjacent Pinnacle ASCs is competitively insignificant and does not raise concerns under Section 7 of the Clayton Act or under the agencies' analytical framework for vertical mergers.
D. Conclusion — Marlowe Asset Management Rehabilitation Holdings LLC
The overlap analysis for Marlowe Asset Management Rehabilitation Holdings LLC yields the following conclusions:
No horizontal overlap. Outpatient physical therapy and rehabilitation services and ambulatory surgical center and physician practice management services are separate and distinct relevant product markets. Marlowe Asset Management Rehab and Pinnacle do not compete in any relevant product market, notwithstanding their geographic co-presence in Texas, Florida, and Georgia.
Vertical relationship is de minimis and competitively insignificant. The vertical referral relationship between 12 co-located Marlowe Asset Management Rehab clinics and adjacent Pinnacle ASCs involves less than 2% of Pinnacle's total ASC case volume in the affected MSAs. Referrals are non-exclusive, the relevant markets are highly fragmented, no foreclosure risk exists, and federal healthcare fraud and abuse laws independently constrain referral arrangements.
No competitive concern arises from the Marlowe Asset Management Rehab overlap.
V. Analysis of Clearpath Diagnostics Inc.
A. Company Overview
Clearpath Diagnostics Inc. ("Clearpath") is a Delaware corporation with its principal office located at 1700 Market Street, Suite 3400, Philadelphia, Pennsylvania 19103. Clearpath was acquired by Ardent Capital Partners III LP as a platform investment in September 2022 and operates as an independent clinical laboratory services company.
Clearpath provides a comprehensive range of clinical laboratory and diagnostic testing services, including clinical chemistry, hematology, microbiology, immunology, molecular diagnostics, anatomic pathology, and specialized laboratory analytics. The company serves a broad customer base, including hospitals, physician offices, clinics, long-term care facilities, and other healthcare providers in its service area. Clearpath's services are classified under NAICS code 621511 (Medical Laboratories) and are reimbursed under CPT codes in the 80000–89999 series (Pathology and Laboratory).
Clearpath reported revenue of approximately $218 million for the fiscal year ended December 31, 2023. The company operates laboratory facilities and specimen collection sites across a three-state geographic footprint consisting of Pennsylvania, New Jersey, and New York. Clearpath holds Clinical Laboratory Improvement Amendments ("CLIA") certificates for each of its laboratory facilities and is subject to regulation under CLIA (42 U.S.C. § 263a), state clinical laboratory licensure requirements, and applicable quality standards promulgated by the Centers for Medicare & Medicaid Services ("CMS").
B. Horizontal Overlap Analysis
1. Product Market Definition
The product market analysis for Clearpath follows the same analytical framework applied to Marlowe Asset Management Rehab above. Clearpath provides clinical laboratory and diagnostic testing services—a service category that is fundamentally distinct from Pinnacle's ambulatory surgical center and physician practice management services.
Clinical laboratory services involve the analysis of biological specimens (blood, urine, tissue, and other samples) to provide diagnostic information used by physicians in the diagnosis, treatment, and monitoring of medical conditions. These services are delivered in centralized laboratory facilities by pathologists, medical technologists, and laboratory technicians using specialized analytical equipment and instrumentation.
By contrast, Pinnacle's ASC and physician practice management services involve the delivery of outpatient surgical procedures and the administrative management of physician practices. As discussed in detail in Section IV.B.1 above, these services differ from clinical laboratory services in the following respects:
Different Services. Laboratory testing and diagnostics are fundamentally different from surgical procedures and physician practice management. Laboratory services produce diagnostic information; ASC services produce surgical interventions.
Different Customers. Laboratories serve ordering physicians and healthcare facilities, which submit specimens for analysis and receive diagnostic reports. ASCs serve patients directly, who present to the facility for scheduled surgical procedures.
Different Regulatory Regimes. Clinical laboratories are subject to CLIA certification requirements, state laboratory licensure, and CMS quality standards specific to the laboratory industry. ASCs are subject to a separate regulatory framework consisting of state ASC licensure, Medicare conditions for coverage, and accreditation requirements. These regulatory regimes are entirely distinct.
No Demand-Side Substitution. A patient or physician who requires a diagnostic laboratory test cannot substitute an ambulatory surgical procedure, and vice versa. There is no cross-elasticity of demand between clinical laboratory services and ambulatory surgical services.
Based on the foregoing, clinical laboratory and diagnostic testing services (Clearpath) and ambulatory surgical center and physician practice management services (Pinnacle) constitute separate and distinct relevant product markets. No horizontal overlap exists in any relevant product market.
2. Geographic Market Overlap
The geographic overlap analysis for Clearpath is straightforward and dispositive. Clearpath operates exclusively in Pennsylvania, New Jersey, and New York. Pinnacle operates in North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. There is zero geographic overlap between Clearpath's three-state footprint and Pinnacle's nine-state footprint.
No state or metropolitan statistical area is common to both Clearpath and Pinnacle. The nearest geographic proximity between the two companies' operations is between Clearpath's facilities in southern New Jersey and Pinnacle's facilities in central Virginia, which are separated by several hundred miles and multiple state boundaries. This geographic separation is far in excess of any plausible relevant geographic market for either clinical laboratory services or ambulatory surgical services, which are typically defined at the local or regional level.
Accordingly, no geographic overlap exists between Clearpath and Pinnacle in any relevant geographic market.
C. Vertical Overlap Analysis
In theory, a vertical relationship could exist between Clearpath and Pinnacle if Pinnacle's ASCs or affiliated physician practices ordered clinical laboratory or pathology testing services from Clearpath. Laboratory services are an input utilized by ASCs and physician practices in connection with pre-operative testing, intra-operative pathology, and post-operative monitoring. However, no such vertical relationship exists here, for one simple reason: Clearpath and Pinnacle have no geographic overlap whatsoever.
Clearpath's laboratory operations are limited to Pennsylvania, New Jersey, and New York. Pinnacle's ASCs and physician practices are located in North Carolina, South Carolina, Virginia, Tennessee, Georgia, Florida, Alabama, Ohio, and Texas. Clearpath does not serve any Pinnacle facilities, and Pinnacle does not order any laboratory services from Clearpath. Clinical laboratory services for Pinnacle's ASCs and physician practices are sourced from local and regional laboratory providers in Pinnacle's operating states, including national reference laboratories such as Kestrel & Co. and Crestline Holdings, as well as regional independent laboratories and hospital-based laboratories.
There is no existing supplier-customer or referral relationship between Clearpath and Pinnacle, and the complete absence of geographic overlap makes the emergence of any such relationship in the foreseeable future highly unlikely. Accordingly, no vertical overlap or relationship exists between Clearpath and Pinnacle.
D. Conclusion — Clearpath Diagnostics Inc.
The overlap analysis for Clearpath Diagnostics Inc. yields the following conclusions:
No horizontal overlap. Clinical laboratory services and ASC/physician practice management services are separate and distinct relevant product markets. Moreover, Clearpath and Pinnacle have zero geographic overlap, operating in entirely different states.
No vertical overlap. No existing or foreseeable supplier-customer or referral relationship exists between Clearpath and Pinnacle, owing to the complete absence of geographic proximity between their respective operations.
No competitive concern arises from the Clearpath overlap.
VI. Summary of Overlap Analysis Across All Portfolio Companies
The following table summarizes the results of the portfolio company overlap analysis for each of Fund III's existing healthcare portfolio companies in relation to the proposed acquisition of Pinnacle Health Systems, Inc.:
As reflected in the table above, neither of Fund III's existing healthcare portfolio companies presents a horizontal competitive overlap with Pinnacle in any relevant product or geographic market. The sole vertical relationship—between Marlowe Asset Management Rehab's 12 co-located physical therapy clinics and adjacent Pinnacle ASCs—is de minimis in scope and competitively insignificant under any reasonable analytical framework.
VII. Implications for HSR Filing
The results of this portfolio company overlap analysis have several implications for the preparation and submission of the HSR premerger notification filing for the proposed acquisition of Pinnacle.
Items 5–7 Disclosure. The acquiring person's HSR notification form will disclose both Marlowe Asset Management Rehab and Clearpath as entities within the acquiring person's structure that are controlled by the Ultimate Parent Entity, Ardent Capital Management LLC. The organizational structure of the acquiring person, including the chain of control from Ardent Capital Management LLC through Ardent Capital GP III LLC to Ardent Capital Partners III LP and its portfolio company subsidiaries, will be set forth in the acquiring person's response to Item 5 (identifying the acquiring person and its UPE) and Items 6–7 (identifying entities within the acquiring person's control group).
NAICS Code Reporting. The NAICS codes for Marlowe Asset Management Rehab (621340) and Clearpath (621511) will be reported in the acquiring person's notification form in connection with the revenue reporting requirements. Importantly, no overlapping NAICS codes exist between the NAICS codes associated with Marlowe Asset Management Rehab and Clearpath, on the one hand, and Pinnacle's NAICS codes (621111 and 621493), on the other hand. The absence of overlapping NAICS codes will be apparent to the reviewing agency and is consistent with the conclusion that no horizontal product market overlap exists.
Item 4(c)/4(d) Document Production. The Item 4(c) and 4(d) document collection for the acquiring person has yielded seven responsive documents, consisting of investment committee memoranda, board presentations, and related materials prepared in connection with the evaluation and approval of the proposed acquisition of Pinnacle. We have reviewed these seven documents and confirm that none of them identifies Marlowe Asset Management Rehab or Clearpath as a competitor of Pinnacle. To the contrary, the investment committee memoranda characterize the proposed acquisition of Pinnacle as an entry into the ambulatory surgical center and physician practice management subsector, which is described as complementary to, rather than competitive with, Fund III's existing healthcare portfolio investments.
Voluntary Submission / White Paper. In connection with the HSR filing, we intend to submit a voluntary submission (commonly referred to as a "white paper") to the staff of the reviewing agency. The white paper will address, among other topics, the portfolio company overlap analysis and will affirmatively demonstrate the absence of horizontal competitive overlaps and the competitively insignificant nature of the limited vertical relationship between Marlowe Asset Management Rehab and Pinnacle. The inclusion of this analysis in the white paper is intended to facilitate the agency's review and to provide a comprehensive record supporting the conclusion that the proposed transaction does not raise competitive concerns arising from portfolio company relationships.
Early Termination. The absence of any meaningful horizontal or vertical competitive overlap between Pinnacle and Fund III's existing healthcare portfolio companies strongly supports the request for early termination of the statutory 30-day HSR waiting period. The competitive landscape analysis, combined with the portfolio company overlap analysis presented herein, provides a compelling basis for the reviewing agency to grant early termination without the need for a second request or extended investigation.
VIII. Recommendations
Based on the analysis set forth in this memorandum, we recommend the following actions:
1. Include Portfolio Company Overlap Discussion in Voluntary Submission. The voluntary submission letter (white paper) to be filed with the FTC on February 16, 2024, should include a concise discussion of the portfolio company overlap analysis, emphasizing the following key points:
(a) Outpatient physical therapy and rehabilitation services (Marlowe Asset Management Rehab) and ambulatory surgical center and physician practice management services (Pinnacle) constitute separate and distinct relevant product markets, with no reasonable basis for demand-side or supply-side substitution;
(b) Clearpath Diagnostics operates exclusively in Pennsylvania, New Jersey, and New York, with zero geographic overlap with Pinnacle's nine-state operating footprint in the southeastern, mid-Atlantic, midwestern, and southwestern United States;
(c) The limited vertical referral relationship between 12 co-located Marlowe Asset Management Rehab clinics and adjacent Pinnacle ASCs in Texas, Florida, and Georgia is de minimis in scope (representing less than 2% of Pinnacle's ASC case volume in the affected MSAs), non-exclusive in nature, and competitively insignificant under any reasonable analytical framework; and
(d) Federal healthcare fraud and abuse laws, including the Anti-Kickback Statute and the Stark Law, independently constrain referral arrangements and preclude the types of referral steering or foreclosure conduct that might otherwise raise vertical competitive concerns.
2. Prepare Summary Chart for Appendix to White Paper. A one-page summary chart, substantially in the form set forth in Section VI of this memorandum, should be prepared and included as an appendix to the white paper for ease of reference by FTC staff. The chart should present the key conclusions of the portfolio company overlap analysis in a clear and accessible tabular format.
3. Include Memorandum in HSR Filing Work File. This memorandum and all supporting documentation, including the facility lists, organizational charts, and competitive analysis materials referenced herein, should be included in the HSR filing work file maintained under Matter No. 1001-00001. This documentation will serve as the evidentiary basis for the portfolio company overlap analysis and will be available for reference in the event of any agency inquiry or second request.
4. Coordinate with Monica Reyes on Broader Competitive Analysis. The analysis contained in this memorandum should be integrated into the broader Market Definition & Competitive Analysis Memorandum that is being prepared by Monica Reyes and is anticipated to be completed by February 10, 2024. In particular, the product market definitions for outpatient physical therapy, clinical laboratory services, and ambulatory surgical services set forth herein should be cross-referenced in the Market Definition memorandum to ensure consistency. Additionally, the vertical overlap analysis should be coordinated with the HHI Concentration Analysis Workpaper to confirm that the co-located Marlowe Asset Management Rehab clinics and Pinnacle ASCs do not affect the market concentration calculations in the relevant MSAs.
IX. Appendices
Appendix A — Organizational Structure Chart
The following chart depicts the organizational structure of the acquiring person for purposes of the HSR premerger notification filing, including the chain of control from the Ultimate Parent Entity to each portfolio company and the proposed acquisition of Pinnacle Health Systems, Inc.:
ARDENT CAPITAL — ORGANIZATIONAL STRUCTURE
Level 1 — Ultimate Parent Entity:
Ardent Capital Management LLC (Delaware LLC) EIN: 84-5567312 SEC File No. 801-119247 (Registered Investment Adviser) 399 Park Avenue, 41st Floor, New York, NY 10022 Co-Founders & Managing Partners: Julian Desmond and Priya Chandrasekar Sole Member of Ardent Capital GP III LLC
Level 2 — General Partner Entity:
Ardent Capital GP III LLC (Delaware LLC) EIN: 86-2198403 General Partner of Ardent Capital Partners III LP
Level 3 — Fund Entity:
Ardent Capital Partners III LP (Delaware LP) EIN: 87-3421098 399 Park Avenue, 41st Floor, New York, NY 10022 Final Close: November 2021; $4.8 billion committed capital Controls the following portfolio companies:
Level 4 — Portfolio Companies (Healthcare Services):
Marlowe Asset Management Rehabilitation Holdings LLC (Delaware LLC) 8950 Westheimer Road, Suite 600, Houston, TX 77063 Business: 74 outpatient physical therapy clinics — TX, FL, GA Controlled by Fund III
Clearpath Diagnostics Inc. (Delaware Corporation) 1700 Market Street, Suite 3400, Philadelphia, PA 19103 EIN: (on file) Business: Clinical laboratory services — PA, NJ, NY Revenue: $218 million Controlled by Fund III
Pinnacle Health Systems, Inc. (Delaware Corporation) — TO BE ACQUIRED 2200 Lakeshore Boulevard, Suite 500, Charlotte, NC 28202 EIN: 56-4389201 Business: 42 ASCs and 31 physician practice management entities — NC, SC, VA, TN, GA, FL, AL, OH, TX Revenue: $637.4 million Acquisition pending; subject to HSR clearance
Appendix B — Marlowe Asset Management Rehabilitation Holdings LLC Facility List (74 Locations)
The following is a state-by-state listing of all 74 outpatient physical therapy clinic locations operated by Marlowe Asset Management Rehabilitation Holdings LLC. Facilities that are co-located with or adjacent to Pinnacle Health Systems ASCs are indicated with an asterisk (*) and cross-referenced to the corresponding Pinnacle ASC facility.
Texas (39 Clinics)
Note: For brevity, clinics TX-011 through TX-039 are listed in the complete facility register maintained in the Matter No. 1001-00001 work file. None of these 29 clinics are co-located with or adjacent to Pinnacle ASC facilities.
Florida (22 Clinics)
Note: For brevity, clinics FL-008 through FL-022 are listed in the complete facility register maintained in the Matter No. 1001-00001 work file. None of these 15 clinics are co-located with or adjacent to Pinnacle ASC facilities.
Georgia (13 Clinics)
Note: For brevity, clinics GA-006 through GA-013 are listed in the complete facility register maintained in the Matter No. 1001-00001 work file. None of these 8 clinics are co-located with or adjacent to Pinnacle ASC facilities.
Summary of Co-Located Facilities
Appendix C — Clearpath Diagnostics Inc. Operations Summary
Company Name: Clearpath Diagnostics Inc.
Entity Type: Delaware Corporation
Headquarters: 1700 Market Street, Suite 3400, Philadelphia, PA 19103
Revenue (FY 2023): $218 million
Services: Independent clinical laboratory and diagnostic testing services, including clinical chemistry, hematology, microbiology, immunology, molecular diagnostics, anatomic pathology, and specialized laboratory analytics.
NAICS Code: 621511 — Medical Laboratories
Operating States and Facilities:
Geographic Overlap with Pinnacle Health Systems, Inc.:
There is no state, metropolitan statistical area, or local geographic market in which both Clearpath and Pinnacle operate. The complete absence of geographic overlap precludes any horizontal or vertical competitive relationship between the two companies.
Appendix D — Pinnacle Health Systems, Inc. — Facility Footprint
The following is a summary of Pinnacle Health Systems, Inc.'s 42 ambulatory surgical centers and 31 physician practice management entities across its nine-state operating footprint, organized by state and MSA for cross-reference with Marlowe Asset Management Rehab and Clearpath operations.
Ambulatory Surgical Centers (42 Facilities)
Physician Practice Management Entities (31 Entities)
Pinnacle's 31 physician practice management entities are structured as management services organizations that are co-located with or operate in direct support of the 42 ASC facilities listed above. These MSO entities are distributed across all nine operating states in proportion to the ASC footprint. A detailed listing of all 31 MSO entities, including entity names, addresses, and affiliated ASC facilities, is maintained in the Matter No. 1001-00001 work file and is available upon request.
Geographic Overlap Cross-Reference
As reflected in the table above, Marlowe Asset Management Rehab has a geographic presence in three of Pinnacle's nine operating states (Georgia, Florida, and Texas), but operates in a separate product market (outpatient physical therapy) from Pinnacle (ASC and physician practice management services). Clearpath has no geographic presence in any of Pinnacle's nine operating states.
This memorandum has been prepared for the internal use of Calderwood & Harkness LLP and its client, Ardent Capital Partners III LP, in connection with Matter No. 1001-00001. This memorandum constitutes attorney work product and is protected by the attorney-client privilege and the work product doctrine. It should not be disclosed to any third party without the prior written consent of Calderwood & Harkness LLP.
Portfolio Company | Services | Operating States | Product Market Overlap with Pinnacle | Geographic Overlap with Pinnacle | Vertical Relationship | Competitive Concern
Marlowe Asset Management Rehabilitation Holdings LLC | Outpatient physical therapy and rehabilitation services (74 clinics) | TX, FL, GA | None — outpatient PT services and ASC/physician practice management services are separate product markets | Partial — geographic co-presence in TX, FL, and GA, but no overlap in relevant product market | Yes — 12 co-located facilities; referral volume represents less than 2% of Pinnacle's ASC case volume in affected MSAs; referrals are non-exclusive | None — vertical relationship is competitively insignificant; no foreclosure risk; no horizontal concern
Clearpath Diagnostics Inc. | Clinical laboratory and diagnostic testing services ($218 million revenue) | PA, NJ, NY | None — clinical laboratory services and ASC/physician practice management services are separate product markets | None — zero overlapping states between Clearpath's PA/NJ/NY footprint and Pinnacle's nine-state footprint | None — no existing or foreseeable supplier-customer or referral relationship due to complete absence of geographic overlap | None
Clinic No. | Location | MSA | Co-Located with Pinnacle ASC
TX-001* | 4215 Medical Center Drive, Dallas, TX 75235 | Dallas-Fort Worth-Arlington | Yes — Pinnacle Lakeview ASC
TX-002* | 7800 North Stemmons Fre

PRIVILEGED & CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

MATTER NO.: 1001-00001

Record

Parties

Dates

Amounts