2018 Outlook

Podcast 18.1: Emerging Private Equity Interest In Ophthalmology Reaches Critical Mass

podcast_GEORGIA ARIAL 18.1The first PF Insights episode will kickoff our series on what physician owners can expect from private equity in 2018. In this episode, we will offer a brief history of PhysiciansFirst as well as an overview of private equity's emerging interest in ophthalmology. We discuss the positive differences of today's buyers versus those of the 1990's and break down interest and activity by regions and by practice size.


  • Meet Andy and Eric  1:00 - 4:00
  • History of PhysiciansFirst Healthcare Partners  4:00 - 5:22
  • Explanation of explosion of M&A in Ophthalmology in 2017  5:22 - 8:25
  • Untouched regional transaction activity and development  8:50 - 10:25
  • Areas of opportunity for small and single physician practices  10:26 - 13:35
  • Importance of profitability  13:36 - 15:07
  • The critical and positive differences of today's investor goals versus the 1990's  15:08 - 20:46 

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(intro clip)

Eric: At the end of the day it's really very simple, there is momentum in the right direction in this industry. They don't need to come in and pull a rabbit out of a hat, they just need to ride that momentum and that's what they're investing in. They're investing in the fundamentals behind ophthalmic practice.

Chris: Welcome to PF Insights, hosted by the leadership of Physicians First Healthcare Partners. If you're a physician practice owner or an ambulatory surgery center owner and you're wondering how to navigate the mergers and acquisitions ecosystem, this is the podcast for you.
(intro clip ends)

Chris: Okay and welcome to episode 1 of PF Insights podcast hosted by the leadership team of Physicians First Healthcare Partners. If you are a physician practice owner looking to understand the mergers and acquisition space for physician practice owners in 2018 this is the podcast for you. A lot of interesting changes particularly in 2017 and 2018 in the M&A space for physician practice owners, really an exciting time, so we're here to dive deep into that. I'm here with the leadership team of Physicians First Healthcare Partners, Eric Yetter and Andy Snyder. Guys, welcome.

Eric: Thank you Chris. I'm Eric Yetter, here with my partner Andy Snyder. We’re the founders of Physicians First Healthcare Partners. We're a boutique investment bank totally focused on physicians and specifically physicians who own specialty practices and who own ambulatory surgery centers. This is a really exciting time for physicians because the opportunities that are available on the financial side are better than they've been in a long time and probably are better than they've ever been. That both means from a financial perspective, also from the operational go forward basis that these companies are being operated on after a deal, it's a very physician friendly, extremely deferential to physicians and that makes it really exciting.

Chris: We’ve got a lot to talk about today. Before we get into the actual meat of the podcast I'd like to introduce you guys to the audience. Andy let's introduce you first, just tell me a little bit about yourself, how you came to do what you do now with Physicians First and what got you interested in the space in general.

Andy: Thank you Chris. So I am a Nashville native, my father was a surgeon here in Nashville and while I did not follow his footsteps of getting into medicine or going to medical school I did start my career on the corporate side of medicine which is a very popular trend here in the Nashville area. Early on, both Eric and I have been in this career of corporate medicine through acquisitions of practices and surgery centers in a variety of specialties, whether it be ophthalmology or gastroenterology, anesthesia practices. We really cut our teeth there and got to a point where we went on our own and created this boutique investment firm Physicians First. We're really excited to launch PF Insights because a core mission of our company is to first and foremost educate physicians on this mergers and acquisition space. It's complicated, there's there's a lot to it and a lot of physicians that are considering a transaction, they really do need the resources and the team behind them to do it the right way, so Eric and I are very excited about that opportunity.

Chris: That's great. Over to you Eric, introduce yourself to the audience tell us all about yourself and how you came to be in the M&A space for physician practices.

Eric: I'm Eric Yetter, I grew up in Michigan outside Detroit and I wanted to have a little bit warmer life so I went to college down here in Nashville Tennessee, went to Vanderbilt University and had a great time there, I met my wife there. We both thought we wanted to be lawyers, we both went to law school also at Vanderbilt Law School. My wife is still a lawyer, she's a great lawyer and I decided I wanted to do something else. I was interested in business, interested in finance and in Nashville it's difficult not to follow into the healthcare space and I did that pretty much right away. I started out doing some clinical side things and then migrated more to the business side and met Andy at our former company Covenant Surgical Partners which was a buyer and operator of physician practices and ambulatory surgery centers in ophthalmology and gastroenterology. We learned this business there, we learned this business on that side which is really valuable to us now as advisors to physicians on the other side of the table. We know what the buyers are interested in, what their perspective is. At Covenant we learned all those things but we also decided that the two of us wanted to be on our own. We wanted to be entrepreneurs and have our own firm, our own company and we saw the need for it because the opportunities were accelerating for physicians and we didn't feel like there was enough good quality representation for them. So we decided to add our name Physicians First Healthcare Partners to the few firms that are already in the space doing this and they are doing a great job by the way but we thought we could do that too and I think we have so far. We're excited to be in this space and be at the forefront of the current wave of private equity investment in physician practices. This is really a new thing and we've been able to have a head start getting into it with our buy side experience and be ahead as it accelerated coming to the brokerage space and make a really good splash with that over the last couple of years.

Chris: Great so we're going to dig deep into, this is gonna be a three-part series and this is part one and this is really based on a piece of content that's on the Physicians First website you can go to physiciansfirst com to look at that, but it's titled 2018 Trends That Physician Owners Can Expect From Private Equity. So if you want more information on what we're talking about or just a reference point go to physiciansfirst.com for that, but I'd like to start off with part of this report that you guys released is about ophthalmology practice deal volume in terms of established regions, so regions where there are existing ophthalmology deals. What's going on in these regions that maybe hasn't been there in the past, that's unique to 2017 and 2018?

Andy: There we're talking about really the explosion of investment in 2017 in ophthalmology specifically. The investment in ophthalmology practices is a new thing in the M&A ecosystem. It does date back to about 2012 when we first started seeing initial platform investments and there were maybe one one or two big investments every year or so and then in 2017 we really just saw the growth in investment. We had seven big platform investments in ophthalmology space, it's kind of creating what you call an established region and so later in 2017 and now full force in 2018 we're seeing additional growth in those areas where these private equity backed portfolio companies need to expand upon their platform investments and it really opens up opportunities to kind of the middle sized or smaller size ophthalmology practices that will be the grow through acquisition to the platforms.

Eric: Yeah and that's something that always happens in these types of situations and it happened in dermatology which was the the previous specialty that was of interest before ophthalmology. It really started out with a few very large acquisitions. Initially investors need to make large acquisitions, they need to get into the market and the physicians read about this, they read about these very very large deals and say is this an opportunity for me? I'm more of a normal practice, I have two physicians - five physicians - six physicians: Is this opportunity available to me? The answer is at the beginning it probably wasn't. Just those very very big practices were doing the transactions, but now in 2018 this is a really key point. Those same types of opportunities are available for small and medium practices and that's what we can get really excited about because those are the practices that Andy and I are really focused on. There are massive practices with 50 physicians that will continue to do deals and will continue to make headlines but our focus is on the more normal practices that are the bread and butter of physician private practice in America. Opportunities are importantly available and very attractive for those types of practices now.

PF Insights is sponsored by Physicians First Healthcare Partners, the investment bank for physicians. If you’re a physician and curious about the market value of your practice give us a call for a personalized valuation. Reach out at 615-647-6885
(intermission ends)

Chris: Let's talk a little bit about untouched regions so that's more… What we talked about was established regions, so let's talk about these more untouched regions. What's going on in those regions and what deals can we expect in untouched regions that were maybe different from what happened a couple decades ago in private practice?

Andy: I'll start off addressing the question about the untouched regions. Thus far in this ophthalmology investment cycle we've seen about 15 private equity firms enter the space and trying to really establish themselves as the dominant players. Eric and I pride ourselves on keeping and maintaining strong relationships with the other private equity groups out there that are trying to enter the space and you know we have another thirty that are there looking in or different geographic, different profiles for each practice and and that's really where we get excited about these kind of untouched regions, because everyone is trying to make a splash and really plant their flag in a region that doesn't have ophthalmology investment. That's really where you can see the the highest multiples, the best valuations because we can go in and make that initial acquisition and usually in a larger practice and then it opens up opportunities for the other smaller and midsize practices in these regions. Right now there is a lot of activity around the geographic regions that already has an investment from the dominant players and players that already have an ophthalmology practice in the area, but for these that haven't yet made their initial investment, they're really fighting to get in plant their flag in that new area.

Chris: Eric, I have a question for you, let's talk about specific regions because we’ll have people that listen to this from various regions across the United States. So what regions are do you see are hot right now that are sort of opening up new to those large investments? And what regions are kind of more established and those two-three-four person practices can expect to see a little bit of activity?

Eric: I think it's an important point so I want to be clear that the opportunities for smaller practices for two-four-five-six physicians, those are really available across the United States. You don't have to be in an area where there's already been a significant investment, where that is important is for single physician practices. It’s hard for us to find a good outcome for a single physician practice in an area where there hasn't been any significant investment nearby. But if you have a two physician practice that is highly profitable and we work with a lot of groups like this and some of them are unbelievably successful, we can find great opportunities for them regardless of where they are even if there's nothing within hundreds of miles. So to get back to the question about where we've seen significant activity, the heaviest investment so far have been in a couple of key regions. Seen a lot of it in the Northeast particularly around Long Island area, some big deals have gone on there in 2017. Big investments made in the southeast and Tennessee and Georgia. Some big investments in the West, Denver, New Mexico, Arizona. Some big investments farther north in the Midwest, in Michigan and in Minnesota, so we're kind of filling in from a few key areas and we're starting to see more acquisitions and states that you would be surprised haven't seen that much investment in, states like Texas, states like California are starting to see more of that fill in and we're gonna see a lot of that in 2018. Big acquisitions in these spaces but also small and medium practice acquisitions from buyers that are invested in growing across the whole country. For example, if you have a 2 physician practice in Montana and you're profitable, I’d love for you to give me a call, we can find a great deal from you and I'd love to come up there and work with you, I’ll have to come visit Montana right now. It’s not, you don't have to be in New York City for this to be available to you. It's definitely countrywide

Chris: Would you say that's the biggest misconception maybe of physician practice owners, like I have to be large in order to to get a deal and to sell?

Eric: Yeah I think the biggest misconception is that this is geographically based and there has to be something going on in my backyard. And two, that I have to be really big. One thing that physicians often don't understand is that really big doesn't just mean number of physicians. We've seen some really big groups with a lot of doctors that don't make as much money as some two-person groups that are just great businessmen, great physicians and they work hard.

Chris: Talk a little about that Andy profitability versus just like he said you can be large and not very profitable so… talk a little about that.

Andy: Right, I think the key there is just having lean overhead. As Eric said, we've seen two physicians that have millions in profitability in their practice and with a surgery center attached. Then we've seen some of these 10+ physician groups that aren't nearly as profitable because they don't have as much production per physician, they don't have lean overhead. That just leads to a situation where while it is great to have a large practice, the private equity investment that's looking at these opportunities, they're really more focused on the bottom line than seeing how many physicians are a part of the practice. All the factors weigh...

Chris: So if you're a small practice and very operationally excellent good business owner, profitable, you could be a more attractive deal to private equity than a larger practice that just has a much smaller margin than you.

Andy: Absolutely, this really would push this investment and what's attractive is seeing an opportunity where there can be growth. When you have a small efficient profitable practice, to an outside investor, they look at that and say we can grow that we can duplicate that and replicate that across the country to other practices, we want to invest in that, that is a well-run machine. If you have a larger practice that has a lot lower margins, well that's really not something they're looking to duplicate and it can be harder to really get there to get their money to work in that situation.

Chris: Eric I have a follow-up question for you based on we I think we mentioned a second ago but if you've if you're a physician practice owner you've been around for a little bit you remember a couple decades ago around these rounds of purchases happening, so talk a little about what those looked like and what this current wave that were at the crest of looks like. Is it just the same thing all over again or is there something different about this time around that we should make note of?

Eric: It's very different and Andy and I wouldn't be doing what we're doing we wouldn't be as confident about what we're doing if it was the same because everyone knows positions now that that was a disaster, what happened before. There were a couple of really critical differences in how this was pursued by investors in the 90s versus how it is pursued now, and they all have to do with how the investors treat and work with physicians. Back then the whole model was to take physicians out of the game. It just turned them into employees, take away their their incentive to perform their incentive to produce and it's just not being done that way now. The investors realize that physicians need to continue to be compensated based on their productivity and they also have created a lot of ways for them to remain involved from an equity perspective to have skin in the game on a go-forward basis. There have been several different models developed by investors that create that both for the physicians that are selling for their situation after the deal but also for younger physicians that want to be partners they can still have ownership opportunities as they advance in their careers even if the practice they're a part of has done a deal with private equity, so that's number one, just treating physicians the right way from a compensation perspective. Number two and probably more important is deference to physicians and I'm not just talking about clinical judgment so I think in that even in that instance investors knew that they had to let physicians make clinical decisions there's just never been any question about that. What they got wrong was that they didn't trust the physicians to make good operational decisions. They thought that they could come in and buy these practices and turn them around make them better. Fire some people, hire some new people, put in some new technology, some new systems just change everything like they do in some other in some other businesses we've heard about those stories but that's not what they're looking to do now. They're looking for practices that are already really well run by good physician leaders and they want to let those people keep doing what they're doing the biggest risk to them if the physician leader a key physician walks out the door after the deal. That's the biggest risk of them that's the thing they're the most afraid I'm so they're gonna do everything they can to make sure that this really well-run machine that they've that they buy keeps going the way it's going they're going to invest in growth they're gonna pour money into this they're gonna pour money for you know acquiring additional small practices, more volume growing the patient base through referrals etc investing equipment and technology, but they're not going to come in and try to change how things are being done. I think between those two differences, those two key differences, this is a fundamentally different opportunity and that's why we're really excited about it. We think it's much better for physicians.

Chris: Andy, anything you would add to that in terms of you know M&A; is are they aren't looking to flip practices they're looking for good opportunities so anything you would add to that in terms of how this round is quite different than twenty years ago?

Andy: That's right I think a misconception is that physicians have that fear of outside investment coming in trying to squeeze their employees for more trying to squeeze them for more production and really trying to attack the bottom line that way and that's simply not the case. They're they're wanting to leave kind of clinical autonomy and operational autonomy in the hands of the physicians and I think that often leads to the question well then you know how is this a good investment I just don't understand someone coming in and you know offering me this multiple to keep me doing what I'm doing how does that work? Why is that attractive to private equity? I think that leads to the conversation you know kind of the trends the the market forces that lead this to be a good investment at least these outside investment investors they see the writing on the wall that there's a huge population that is aging into more ophthalmic care and there's a supply issue where the number of physicians entering the workforce isn't going to keep up with that demand, so you for those kind of factors alone that they can afford to come in at a strong multiple and and make it a good investment over a long period of time.

Eric: At the end of the day it's really very simple, there is momentum in the right direction in this industry. They don't need to come in and pull the rabbit out of a hat, they just need to ride that momentum and that's what they're investing in. They're investing in the fundamentals behind ophthalmic practice and that's what they're doing in other specialties where they're investing. They saw that in dermatology and they were successful and where they go next we think it's gonna be orthopedics, we think it's going to be spine care. From the orthopedic and neurosurgery side, they see that same thing. They see people aging into the care and they also see too importantly and this is true of ophthalmology as well the migration of care to the ambulatory setting, the continued and accelerated migration of care that way. It benefits these specialties, it benefits ophthalmology. Ophthalmology has already been it benefited from it greatly over the last twenty years, thirty years and now that's coming into the orthopedic and spine space more and more so they're looking there next.

Chris: Thanks a lot guys, we're out of time for this episode. Thanks everybody for listening, if you want more information go to http://www.physiciansfirst.com. Go to the advisory resources link at the top of the screen, all kinds of content there specifically for physician practice owners and mergers and acquisitions, tons of resources there. If you want more podcasts, we'll be releasing more of these http://www.physiciansfirst.com/podcast you can you can look at more content there. This is part one of three so we've got two more episodes coming up about the current state of mergers and acquisitions for physician practices and so stay tuned for that and thanks so much for listening.

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