Private Equity is Changing the Game – If You Think You are Too Young, Too Small, or Too Specialized
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.
MYTH #1: SELLING TO PRIVATE EQUITY IS “SELLING OUT”
In past consolidation efforts, selling an ophthalmology practice to a non-physician was a last resort succession plan, and many buyers developed a reputation for steamrolling existing infrastructure. The current PE approach is fundamentally different and focused on growth and collaboration. Most importantly, deference to physicians – particularly in clinical practice – is paramount. Rather than “problems to fix”, investors are looking for successful practices that they can join and grow. Investors view specialty practices as stable investments in a desirable and growing healthcare vertical. In the past, there was an imagined opportunity to centralize operations and cut costs. Today, the opportunity lies in the shift to value-based care and favorable market trends such as Baby Boomers “aging into care.” Private equity investors recognize that a reputable brand name, strong existing operations, and productive physicians are essential for a stable investment. For that reason, they are positioned to be partners rather than steamrollers.
MYTH #2: SELLING IS ONLY FOR PHYSICIANS IN RETIREMENT AGE
While selling a specialty practice to outside investors is a lucrative and strategic succession plan, physicians should not wait until their planned retirement age to consider being acquired. To ensure seamless continuity of the practice, physician-owners should expect to remain involved for at least five years post-acquisition. Younger physicians with longer career runways will receive the most lucrative offers because of the long-term stability associated with their investment.
MYTH #3: WE ARE NOT BIG ENOUGH
In the early days of private equity interest, only ophthalmology practices of a certain size were desirable. That has changed. In today’s market, with strong platform investments popping up across the country, small and mid-size practices are essential for growth and a key part of investors’ fundamental strategy. Furthermore, since today’s investors seek to deploy a collaborative and hands-off approach, practices of nearly any size can be a good candidate for private equity acquisition. While the growth stage we are entering will be for practices of all sizes, it won’t last forever.
MYTH #4: WE HAVE TO OFFER COMPREHENSIVE SERVICES AND ARE TOO SPECIALIZED
For the same reasons that smaller practices are of interest to private equity, buyers have an interest in both sub-specialty and comprehensive practices. Put simply, more is better and diversified services capture more patient needs. Within eye care, there is significant interest in all sub-specialties: ophthalmology, optometry, retina, glaucoma, corneal, and pediatric.
MYTH #5: I’M NOT IN THE DENSE NORTHEAST WHERE THESE ACQUISITIONS ARE HAPPENING
We believe 2018 will see acquisition activity across the entire country. The strong interest in the northeast has expanded to include many other areas. While these major transactions are flags that have been planted, we are nowhere near saturation in any market.
Timing has never been better to explore practice acquisition opportunities. The fundamental realities driving this activity are:
Investors need stable investments. There is a lot of money out there looking for a safe place to go.
The general population is aging into more ophthalmic care, creating higher demand than we’ve ever experienced.
There is a shortage of supply. The number of ophthalmic providers has not kept up with the increased demand, creating a desirable market for investment.
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