The FTC Targets Private Equity

It’s long been understood that PE roll-ups provide business owners with exits while also destroying some of those businesses in the process. But do the roll-ups also violate antitrust laws?

Good Morning!

Here are today’s highlights:            

• Amazon is realizing that its sellers have fresh options.

• If you’re trying to get an SBA loan, try to get it done before the government shuts down.

• All of those check-out prompts for tips may not be having the impact we thought.

• “Cleanfluencers” are changing the cleaning industry—and even convincing some that staying in is the new going out.

SCHEDULING NOTE

There will be no Morning Report on Monday in observance of Yom Kippur. But both Dashboard, on Monday, and the weekly 21 Hats Podcast on Tuesday, will be published as usual. 

PRIVATE EQUITY

The FTC is going after private equity roll-ups: “The FTC sued US Anesthesia Partners and its private equity partner Welsh Carson Anderson & Stowe LP on Thursday, alleging they engaged in a scheme to monopolize the market for anesthesiologists in Texas using the ‘roll-up’ strategy. It’s the first time the agency has targeted such deals, which usually are small enough to avoid antitrust review. Welsh Carson systematically bought up more than a dozen anesthesiology practices, becoming the dominant provider of the services in Texas, including in Houston and Dallas, according to the complaint. The company then increased prices and secured promises from other providers that they would stay outside the market, the FTC alleged.”

• “‘Private equity firm Welsh Carson spearheaded a roll-up strategy and created USAP to buy out nearly every large anesthesiology practice in Texas,’ Khan said in a statement. ‘These tactics enabled USAP and Welsh Carson to raise prices for anesthesia services — raking in tens of millions of extra dollars for these executives at the expense of Texas patients and businesses.’”

• “Khan has said her agency is ‘looking closely at the role of private equity,’ noting research that shows its investments in nursing homes have led to higher death rates. In an op-ed published Thursday in The Financial Times, Khan said the FTC will focus on parent companies and investors ‘if they directly participate or conspire to participate in anti-competitive conduct.’”

• “In a statement, USAP called the FTC complaint ‘misguided,’ saying it would harm patient care.” READ MORE

ECOMMERCE

Amazon actually has some new competition: “While Amazon has for years contended with challenges from rivals such as Walmart and Target, Temu and Shein, both of which have Chinese roots, are tapping into demand for low-price items that aren’t delivered quickly. Amazon hasn’t taken steps to match the prices of items on Temu, people familiar with the matter said, a rare strategy for a company that typically scours the internet with a variety of price-matching tools to ensure its site has some of the lowest prices online. Inside the tech giant, executives have been weighing how to respond to the two competitors, the people said. Executives have seen there is a market for bargain items that take longer to arrive and have tried to figure out if they should make such offerings on their own site more discoverable and available.”

• “Shein recently opened a marketplace for U.S. customers, creating a channel for independent merchants to sell products through its site. Thousands of Amazon sellers have joined the new platform, including dozens that are based in the U.S., according to research firm Marketplace Pulse.”

• “Customers have been attracted to Temu and Shein for bargains. While items may take a week or longer to arrive, the companies can sell items cheaply primarily because they don’t have large inventory stored in U.S. warehouses, eliminating costs that Amazon and U.S. sellers have. They ship many products directly from China based on consumer demand instead of having large inventory sitting in warehouses in advance.” READ MORE

Amazon has decided to scrap a planned 2-percent fee on merchants that don’t use its shipping services: “The abrupt reversal suggests the company is being more cautious about how much money it tries to extract from online sellers amid an escalating antitrust investigation. Amazon announced the 2-percent fee on merchants in August, and it was set to take effect on Oct. 1. The levy was interpreted by Amazon merchants and consultants as a brazen move since the US government is poised to file an antitrust lawsuit against the e-commerce giant. The federal case is expected to focus in part on Amazon’s alleged efforts to coerce merchants into using its logistics services.”

• “‘The 2-percent seller-fulfilled Prime fee was intended to cover our costs, but after careful consideration we’ve made the decision not to implement this program fee to ensure seller sentiment related to the fee does not impact program participation,’ an Amazon spokesperson said in an emailed statement.”

• “The fee would have applied to thousands of third-party merchants who ship products via Amazon’s Seller Fulfilled Prime program, which guarantees speedy delivery even though the company isn’t handling shipping itself. The levy would have been added to the commission — usually 15 percent — that merchants already pay Amazon to sell products on the popular web store.” READ MORE

FINANCE

If you’re trying to get an SBA loan, the government shutdown could be a problem: 

READ MORE

SOCIAL MEDIA

Home-cleaning videos are changing how the industry does business: “Cleaning evangelists have long drawn fans—think of Marie Kondo, the author of bestseller ‘The Life-Changing Magic of Tidying Up.’ But the pandemic, during which many at home took more interest in spiffing up their living spaces, helped vault cleaning from the mundane to the celebrated. TikTok says its ‘Cleantok’ hashtag has amassed some-84 billion views—more than any other on the platform.”

• “Among top crowd-pleasers on TikTok are ‘Sunday resets,’ showing people vacuuming and cleaning their entire homes, as well as closet-organizing clips, particularly ones showing a messy before and a pristine after. Hacks are another big draw: such as scrubbing a couch with a cloth-wrapped saucepan lid, using dryer sheets to clean baseboards, and spraying shaving cream to remove makeup stains.”

• “[Brandon] Pleshek has 1.6 million followers on TikTok and companies pay him between $5,000 and $15,000 per post to feature their cleaning brands. Those deals often include an exclusivity clause barring the janitor from promoting rival brands for a certain period. Some of his personal tips are basic but crafty: to keep sneakers smelling fresh, put two tablespoons of baking soda in a coffee filter, tie it with a rubber band and place inside.”

• “Hoping to ride this wave, consumer-goods giant Unilever in June said it would pay more than 100 content creators (also known as ‘cleanfluencers’) to get more of its products such as Cif spray and Domestos toilet cleaner into videos on TikTok.”

• “‘There’s a new breed of GenZs who see staying home and cleaning as the new going out,’ the company said.” READ MORE

HUMAN RESOURCES

Those prompts for tips may not be working: “Prompts encouraging customers to leave a tip seem to be popping up everywhere, quietly raising prices for everything from dinner to the doctor. The prospect of a future where every outing requires you to tack on a little extra change is also fueling a backlash. But the spread of tipping requests might be generating more buzz than money. The numbers, such as they are, don’t point to a surge in cash. ‘Just because everyone asks, doesn’t mean most customers are giving it,’ said Michael Lynn, a professor at Cornell University’s School of Hotel Administration. ‘The data tell us in many of these newer contexts, no, they’re not.’”

• “Ad hoc surveys suggest tipping might not be as widespread as the prompts make it seem. In May, the polling firm YouGov surveyed 1,000 Americans and found only two situations in which most people tip: restaurants and hairdressers or barbers.”

• “In theory tips are taxable income, but here, too, there is rampant underreporting. In 2006, the Internal Revenue Service estimated that over half of tip income—$23 billion of an estimated $44 billion in tips—went unreported on taxes. People who dodge taxes are probably not the type to report the income on other surveys.”

• “Toast, a provider of restaurant payment systems, says the average tip at quick-service restaurants, as a percentage of the bill, has trended down for five years, with no apparent uptick during the pandemic. At full-service restaurants, tips rose early in the pandemic but began to slide again in 2021. By the second quarter of this year, they were back down to roughly where they were on the eve of the pandemic.” READ MORE

THE 21 HATS PODCAST

I Would Have Been a Sub of a Sub of a Sub: This week, Shawn Busse, Paul Downs, and Liz Picarazzi talk about spotting the clients who are more trouble than they’re worth. Liz, for example, is tired of dealing with bureaucracy and being at the bottom of the food chain. In one instance, she was so turned off that she actually recommended a competitor for a job she no longer wanted. Paul has a simple test: If it’s easy work for a bad client, okay, fine. But if it’s hard work for a bad client, “Just don’t do it.” Of course, there are times in the life cycle of most businesses when that’s easier said than done, when you have to accept almost any work offered. Those are the tough ones.

• Plus: is it time for business owners to take artificial intelligence seriously? And should owners care that a well known economics firm is predicting a depression in 2030?

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren