• Eric J. Yetter

Tipping Point: Private Equity's Focus on Gastroenterology

Private equity investment in specialty practices and surgery centers is growing across America and gastroenterology is the latest specialty to see a significant surge of investment activity.

Private Equity Firm Participation

For any business, entering a new market is a big decision. The key drivers to that decision are saturation and profit potential. When a market has high profit potential and low competitor saturation, new entrants are attracted. This is clearly exhibited by the increase in PE firms entering gastroenterology in 2018 and 2019.

By comparison, the number of PE firms investing in Gastroenterology grew faster in year four of its consolidation lifecycle than the more mature ophthalmology consolidation. This comparative analysis foreshadows two possible growth trajectories. Given the unique makeup of gastroenterology in terms of physician size, market coverage and acquisition opportunity, we believe a significant number of new PE investors will enter in 2020.

Acquisition Activity Surges

In addition to the increase in participating investors, we’ve seen a significant surge in acquisition activity. Seventeen gastroenterology practices/surgery centers were acquired in 2019 following three years of relatively low activity. That increase, along with the expected increase in PE firm participation, suggests the consolidation has reached a tipping point that signals a significant surge in activity by firms already invested as well as those considering entry.

We believe the rush is on to secure strong platform acquisitions and important add-on practices in key geographic areas.

This article is an excerpt from our recently published White Paper: Gastroenterology 2020 Outlook - Private Equity Investment and Consolidation Strategies.