Key Findings: Private Equity and Dermatology - 2nd Quarter 2020

Following an in-depth analysis of the key issues surrounding private equity investments in dermatology practices and surgery centers across the United State, we arrived at seven issues potential physician-sellers should know.

Key Findings

1. Excellent supply and demand fundamentals, new geographies, and dermatology’s relative independence from hospitals suggest private equity will continue to seek partner transactions.

2. Physician-owners considering a sale to private equity would be wise to act now given the maturity of the consolidation and the fact that transactions typically take 9-12 months to complete.

3. We are confident investors will give sellers “credit” for the COVID-19 shutdown – adjusting financial performance or looking at other periods when valuing a practice or ASC.

4. Deals continue to move ahead. Though many are paused, some are still closing now. We expect a return to normal deal volume once more is known about the COVID-19 timeline, and especially once normal clinical operations resume. We are advising physicians looking for a 2021 sale to begin the process now.

5. Since the third quarter of 2018, our dashboard has signaled a mixed picture of consolidation activity with some KPIs exhibiting expansion while others are more stagnant. We believe a few PE-backed companies will consolidate, and that there will be a resurgence of acquisition activity as physicians evaluate their selling opportunity post COVID-19.

6. There is a significant level of “anti-private equity consolidation” rhetoric permeating the dermatology vertical and likely reducing sale consideration. We strongly recommend that physician owners pursue a serious fact-based evaluation before dismissing this potentially lucrative window of opportunity.

7. Based on our detailed tracking and analysis, the dermatology market is only 11.5% consolidated as of this publication. Several key geographies have experienced a relatively low level of investment, yet offer compelling transaction opportunities. They are; 1) the Upper Midwest to Northeast, 2) the Southeast / Mid Atlantic, 3) Texas, Louisiana, Oklahoma and 4) Northern California and the Pacific Northwest

This article is an excerpt from our recently published White Paper: Dermatology and Private Equity State of the Market - Second Quarter 2020

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