Dive Brief:
- The Federal Trade Commission has challenged a private equity firm’s attempt to buy Surmodics for approximately $627 million, the regulator said Thursday.
- Surmodics provides outsourced hydrophilic coatings for devices. GTCR, the private equity group that is attempting to buy Surmodics, owns a majority stake in another coating company, Biocoat.
- The FTC said the buyout “would lead to a highly concentrated market for outsourced hydrophilic coatings and eliminate significant head-to-head competition between Biocoat and Surmodics.”
Dive Insight:
GTCR agreed to buy Surmodics in May and expected to close the takeover in the second half of 2024. The FTC asked for additional information from Surmodics and Biocoat in a second request in August. As of late January, Surmodics was aiming to close the merger by the end of March but said progress was subject to the expiration or termination of an agreement with the FTC not to consummate the deal.
The FTC dealt a setback to GTCR and Surmodics’ work to close the deal by outlining plans to file a federal court complaint and request for preliminary relief to halt the merger pending an administrative hearing. The commission voted 4-0 in favor of seeking a temporary restraining order and a preliminary injunction.
“Medical device makers rely on high-quality coatings in designing and bringing to market life-saving devices, such as neurovascular catheters,” Daniel Guarnera, director of the FTC’s Bureau of Competition, said in a statement. “This merger threatens to disrupt competitive dynamics that have ultimately benefited patients.”
The commission’s case is built on an analysis of the outsourced hydrophilic coating market. The FTC said Surmodics and Biocoat are, respectively, the largest and second-largest provider of the coatings. GTCR’s acquisition of Surmodics would create a combined company controlling more than 50% of the market, according to the FTC. The private equity firm bought a majority stake in Biocoat in 2022.
Citing internal company documents and competitor and customer testimony, the FTC said Surmodics and Biocoat are head-to-head competitors that often target the same medical device manufacturers. “Fierce competition” has driven the companies to improve coating quality and services, cut prices and increase innovation, according to the FTC. The commission said the merger would eliminate those benefits.
In some sectors, new companies would emerge to challenge a market leader that has stopped improving and innovating. However, the FTC said new competitors are unlikely to rise up in the hydrophilic coating market. Manufacturing coatings requires specialized expertise, years of research and millions of dollars, the FTC argues, and device companies often outsource to partners with proven track records.
News of the challenge to the Surmodics buyout comes weeks after FTC Chair Andrew Ferguson said the commission will continue to use stricter, Biden-era merger guidelines.