GTCR/Surmodics Win On Divestiture, Share Analysis And Captive Capacity

The government lost the first merger challenge brought by the FTC under the second Trump administration. On November 10, 2025, Judge Jeffrey Cummings of the Northern District of Illinois denied a request for a preliminary injunction filed by the FTC and joined by the States of Illinois and Minnesota, against the proposed transaction between GTCR, LLC and Surmodics, Inc.

Key Takeaways

The court's ruling represents a significant victory for merging parties. The most noteworthy aspects of the court's decision include:

• Revenue-based shares may not reflect future competition. Parties may successfully challenge the government's presumption of illegality under the 2023 Merger Guidelines by showing that revenue-based market shares and HHI measures of changes in concentration misrepresent current or future competition. In this case, the FTC's market shares were based on outdated "legacy" revenue data areflecting the sales performance of medical devices for which coatings were chosen years ago. The parties presented recent bidding data that was more persuasive to the court.

• Divestitures must be considered alongside the deal. The government must account for the offsetting competitive effects of parties' proposed divestiture remedy and prove that even with the divestiture, the transaction is still likely to substantially lessen competition. Parties are not required to show that the divestiture would fully restore competition or completely negate any anticompetitive effects.

• In-house production can constrain post-merger pricing. Customers' current or potential ability to turn to in-house production of an input could serve as a strong competitive constraint against any significant price increase by the parties. In this case, the government failed to incorporate such a competitive constraint in its analysis of the overall competitive effects of the transaction.

Summary of Facts

On April 16, 2025, the Plaintiffs filed an amended complaint against GTCR and Surmodics. The Plaintiffs alleged that GTCR, a private equity firm, in 2022 acquired a majority stake in Biocoat, Inc. ("Biocoat"), the second largest provider of hydrophilic coatings in the United States. In 2024, GTCR proposed to acquire Surmodics, the largest provider of hydrophilic coatings in the United States. The FTC alleged the proposed transaction would result in a combined company that controls over 50 percent of the market for outsourced hydrophilic coatings, which are critical inputs in medical devices such as catheters and guidewires. The FTC's economic expert calculated a combined market share of 60 percent, a post-merger HHI of over 3,500, and a change in HHI of over 1,000. The transaction allegedly would also result in a loss of head-to-head competition between the parties, resulting in lower quality and service levels, diminished innovation, and higher prices for hydrophilic coatings sold to U.S. medical device manufacturers.

On July 29, 2025—a few weeks before trial—the parties executed a divestiture agreement with buyer Integer, a large medical device manufacturer, to address the FTC's competitive concerns. The divestiture package included 10 Biocoat coating products; 11 Biocoat employees; a former production facility now used primarily for research and development; and a portion of Biocoat's customer contracts. On August 13, 2025, the FTC rejected the parties' proposed divestiture. The FTC explained that while a full divestiture of Biocoat would likely preserve competition, the partial divestiture proposed by the parties consisting of "a piecemeal" set of assets was insufficient to enable Integer to compete with the merged firm.

The preliminary injunction hearing took place from August 21 to September 2.

Court Decision and Analysis

Judge Cummings delivered an oral decision denying the Plaintiffs' motion for a preliminary injunction of the transaction. While the court found that the Plaintiffs have met their burden to establish a presumption that the transaction is likely to substantially lessen competition and violate Section 7 of the Clayton Act, the Defendants have successfully rebutted that presumption.

The Court Rejected Revenue-Based Market Shares Analysis

The court set aside FTC's market share and HHI calculations because it found persuasive Defendants' argument that the FTC's calculations were based on the parties' "legacy" revenues from past customer contracts, which did not accurately represent current competition or future competitive significance.

Medical device manufacturers typically select a coating supplier as they develop a device prior to FDA approval and are unlikely to switch to an alternative supplier after launching the device, resulting in suppliers locking in that customer's revenue for many years once a contract is in place. Therefore, the court reasoned that it was only logical that Biocoat and Surmodics, two of the oldest firms in the industry, would have the highest market shares based on legacy revenue data—in fact, almost all of the parties' revenues were derived from medical devices that are at least five years old.

The court also noted that the FTC's use of revenue data failed to account for instances where a coating supplier won business from a device manufacturer, but that device did not ultimately secure regulatory approval and thus did not begin accruing any revenue.

The court instead credited the analysis of the Defendants' economic expert, who examined bidding data that reflected recent competitive opportunities in the medical device coatings industry, including opportunities to provide coatings products and services to relevant devices that received FDA approval in 2024. The court emphasized that such data more accurately reflects current competition among coating suppliers, as suppliers compete to be selected by device manufacturers for products that are under development and awaiting regulatory approval, before those products become revenue-generating. Defendants' expert showed that:

• In the vast majority of industry opportunities, customers did not select either one of the parties as the coating provider.

• The parties both bid on only a minority of opportunities and even for most of these overlap opportunities, one or the other of the parties dropped out during the bidding process.

• The parties came head-to-head in just five opportunities, where customers also considered other potential suppliers besides the parties.

The Court Held that FTC Must Analyze a Proposed Divestiture Remedy in Competitive Effects

Another critical flaw in FTC's analysis was that FTC did not account for the offsetting effects of defendants' proposed divestiture. Citing to the UHG-Change case, the court concluded that a proper competitive effects analysis should include the effects of both the proposed acquisition and the proposed divestiture. The burden remains on the government to prove that the combined effect of the proposed acquisition and divestiture is still likely to substantially lessen competition.

Conversely, Defendants in their rebuttal case are not required to show that their proposed divestiture would fully negate any loss in competition flowing from the transaction. Defendants could satisfy their burden by showing that with the proposed divestiture, the transaction would not substantially lessen competition.

The court held that Defendants' proposed divestiture met that burden. In the court's opinion, Integer is an "exceptionally well-qualified" divestiture buyer with $1.7 billion in annual revenue and relevant prior experience in attempting to enter the medical device coatings industry. The divestiture assets will now provide Integer with the necessary tools to succeed, and the public is likely to benefit from the introduction of a new, strong competitor to the industry.

The Court Rejected Economic Model Showing Post-Merger Price Increase

FTC's expert submitted a merger simulation model to the court that predicted significant post-transaction price increases for parties' coating products (28% for Biocoat products and 13% for Surmodics products). However, customer witnesses did not testify about any concerns over a price increase. Importantly, the FTC also failed to account for the strong competitive constraint to a significant price increase posed by in-house production, which industry witnesses did attest to.

Conclusion

This court decision dealt another blow to government enforcers' position thus far that the effects of parties' proposed "fixes" (e.g. proposed divestiture remedies) to competitive concerns should not be evaluated in the government's prima facie case. The decision also demonstrates that courts are likely to favor market data and other evidence that reveal the current and future competitive realities in a specific industry context.

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