[co-author: Stephanie Kozol]*
Illinois Attorney General (AG) Kwame Raoul and Minnesota AG Keith Ellison have joined the Federal Trade Commission (FTC) in a lawsuit to block the acquisition of Surmodics Inc. by GTCR BC Holdings LLC, two major manufacturers of critical medical device coatings. The regulators allege that the merger is anticompetitive, violating Section 7 of the Clayton Act and Section 5 of the FTC Act.
The Details:
On April 17, Raoul and Ellison announced their participation in the FTC’s lawsuit, which seeks to prevent GTCR BC Holdings LLC (Biocoat) from acquiring Surmodics. The lawsuit alleges that the acquisition would combine the two largest manufacturers of hydrophilic coatings, essential for medical devices like catheters and guidewires, resulting in a company that controls over 50% of the market. Regulators argue that the remaining market consists of smaller providers lacking the FDA approvals, reputation, and service footprint that Surmodics and Biocoat have established.
The complaint outlines several reasons why the direct competition between these companies benefits consumers and why the acquisition is considered unlawful, including:
- Better Quality: Both Surmodics and Biocoat offer full-service support, including testing, assistance with regulatory approval, and contract coating services, differentiating them from other competitors. Testimony cited in the complaint indicates that competition between Surmodics and Biocoat has led to higher quality product offerings at better terms.
- Increased Innovation: Both companies have historically utilized different curing methods for their most popular hydrophilic coatings. The competition between Surmodics and Biocoat has driven both companies to release innovative new products, demonstrating the ongoing competitive pressure driving innovation in the market.
- Entry and Expansion: Barriers to entry and expansion in the hydrophilic coatings market are high, with no new entrants in at least five years. Regulators allege that the acquisition would make these barriers even more insurmountable, even for well-capitalized companies.
- Efficiencies: The complaint alleges that neither company can demonstrate merger-specific, verifiable, and cognizable efficiencies that would overcome the structural presumption of illegality or show that the proposed acquisition does not threaten to substantially lessen competition.
The lawsuit, filed in the Northern District of Illinois, seeks a temporary restraining order and preliminary injunction to halt the acquisition until a full administrative hearing can be conducted.
Why It Matters:
The lawsuit underscores the critical importance of considering antitrust laws, particularly Section 7 of the Clayton Act and Section 5 of the FTC Act, when evaluating acquisitions or mergers. While the factors that preclude business combinations are well established, companies must also assess how the transaction will impact the market more broadly, including aspects such as quality, innovation, price, competition, service, and barriers to entry. By prioritizing the potential antitrust implications of mergers and acquisitions, companies can more effectively navigate the legal landscape, maintain competitive markets, and avoid costly legal challenges. This understanding is vital for making informed strategic decisions and avoiding engagements in mergers or acquisitions that could be deemed anticompetitive, leading to expensive legal disputes and wasted effort and opportunity. Therefore, it is crucial for companies to strategically plan for any combination that could significantly affect the market at large.
*Senior Government Relations Manager
