Advisory Resources For Physicians

As mentioned in our previous post, there are many questions swirling around private equity investments in ophthalmology practices. Some particularly important ones relate to how a transaction will alter the career trajectory of associate ophthalmologists – particularly those with an interest in partnership. Is there upside for physicians who did not participate in the initial equity transaction? Will they ever have an opportunity to gain an equity position in the practice? The answer is yes, and here’s why.

These days, many ophthalmology practices are faced with the challenge of securing their next generation of physician partners. Historically, practices brought in ophthalmology “associates” soon after residency or fellowship, and these associates immediately set their sights on the path to partnership. Although partnership was never guaranteed, it was expected to both reward physician loyalty and, more importantly, ensure practice continuity.

As a physician-owner of an ophthalmology practice, you are probably trying to make sense of the acquisition and outside investment inquiries you’ve received over the past year. Where did all of these potential buyers come from? Who are they, and how do you separate the legitimate acquirers from the tire-kickers?

As more physician-owners continue to capitalize on the value they’ve created within their practices, selling is understandably a tougher decision for younger physicians, who are often decades away from retirement age. Financially, today’s private equity transactions in ophthalmology are once-in-a-lifetime opportunities, but physicians with long career runways are hesitant to pursue a transaction, fearing they will be “stuck” as an employed physician without upside incentivization for the rest of their career. Quite the dilemma.

Private equity interest in buying ophthalmology practices is accelerating across the US. This interest has created a fundamental shift in how practice owners should think about the future of their businesses. As a result, many physicians are unclear or even confused about how these partnerships unfold and what makes a strong candidate for private equity investment. As this ophthalmology acquisition wave continues to build, we seek to dispel some of the common myths surrounding the new M&A landscape.

As 2018 begins, physician-owners are developing strategic plans and examining their long-term options. More and more, the importance of private equity’s interest in specialty medical practices and surgery centers is being considered and discussed by physicians throughout the United States. What is going to happen in 2018? Should I consider a sale to private equity? How do these transactions work? Is private equity my best long-term option? Is this the best time to make a deal?

Many interested physicians ask me how private equity investments in ophthalmology will play out over the coming years. We now know that consolidation is happening, but how will it work? Why are PE firms interested? What kind of return on investment are they looking for? And what will it take to achieve that objective? This article will look at those items in detail and explore the financial mechanics from a PE firm's perspective.

The current consolidation wave in ophthalmology is still in its very early stages, but something changed in 2017. This year’s accelerated private equity investments confirmed our predictions of far-reaching, immediate impact across the specialty. The year 2017 has seen the heaviest investment to date, with eight major acquisitions completed as of November 1^st.

EBITDA is a key component to the accelerating consolidation trend within specialty physician practices. It is the single biggest determinant in valuing practices, and subsequently the purchase price paid by private equity firms. But what does it mean? Officially, EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. It is intended to represent the firm’s actual pre-tax cash flow before financing and investing activities. Essentially, it is the cash flow that an acquirer is “buying” from the practice’s current owners.

Private Equity's recent interest in ophthalmology represents the biggest opportunity for physicians in decades.

Private equity firms have plenty of cash they need to invest. According to Bain & Company, PE has raised more than $500 billion each year since 2013. That money can't sit on the sidelines - it needs to be invested, and quickly. But in today's slow-growth, low-interest rate economy, PE firms need to be careful. They know the best investments are safe ones.