• Eric J. Yetter

Private Equity's New Push to Acquire Ophthalmology Practices

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 economy, PE firms need to be careful. They know the best investments are safe ones.

Enter private equity's emerging interest in ophthalmology practices. Though PE has long been involved in healthcare - including technology, pharmaceuticals, and facilities - it's interest in physician services is more recent. Some firms have experienced success in areas like dermatology and anesthesiology where consolidation has been going on for a longer time. Now, firms are seeing ophthalmology's potential for similar treatment.

Importantly, this emerging wave is very different from the consolidation trend observed in the 1990's. That was more about combining practices to centralize operations and save money. It didn't work - investors lost money, physicians were unhappy, and the whole thing fizzled. By contrast, this is about private equity investing in a decentralized model with practice growth as the number one focus.

Ophthalmology is of interest to private equity firms because they see it is a low-risk, cash-producing asset with growth potential. Importantly, demographic trends in the United States favor ophthalmology perhaps more than any other specialty. America's population will essentially "age-in" to ophthalmic care, and combined with inevitable physician shortages, PE firms see a classic supply and demand scenario.

Moreover, healthcare services are generally recession proof - a looming threat many firms see on the horizon. Ophthalmology is also a clinic-based specialty with a unique referral system that can be invested-in and grown. Finally, practices often have ancillary income sources such as ambulatory surgery centers and dispensaries. When combined, these factors make the ophthalmology and vision care markets extremely attractive for private equity investment.


The ideal practice for private equity includes multiple physicians with a surgery center. Single-physician operations are still of interest and salable depending on their location. PE firms are willing to pay a premium for larger practices that can be acquired as a "platform", meaning the PE firm's first acquisition in that geographic market (or first investment overall). The firm will then acquire additional, smaller practices around that platform.

In most cases, private equity firms are looking to acquire 100% of the physician practice, surgery center, and other physician-owned assets. They typically do not acquire real estate. After the transaction, partner physicians move to an employment structure that typically includes a component of performance-based compensation. Transactions are usually completed in cash.

Those transaction structures make private equity buyers very attractive to physicians. The multiples paid can reach five to fifteen times EBITDA (earnings before interest, taxes, depreciation, and amortization) - well beyond physician-to-physician transactions. And, the fact that PE firms are acquiring 100% of these assets makes the total cash received far superior to more traditional acquisitions by management companies or hospital systems.


As mentioned in the title of this article, this represents the best opportunity for ophthalmologists to cash-out at the highest prices available in decades. Private equity's approach also makes for appealing operations after the acquisition. Its emphasis on growth rather an operational change means that physicians will be able to continue to focus on their patients while a well-funded partner grows and perpetuates their practice.

Selling is an opportunity to diversify physician assets and begin a long-term transition to retirement. For most physicians, selling their practice to another, younger doctor entails risk and happens at a much lower price than that being paid by private equity.

There may be extra rewards available for physicians willing to sell their ophthalmology practices now. This is the beginning of a consolidation wave, and history suggests that the best opportunities for sellers exist at the beginning of that wave.

For more information on selling your practice and Physicians First's investment banking solution, download our current report here.


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