• Eric J. Yetter

Understanding the Types of Ophthalmology Buyers


As a physician-owner of an ophthalmology practice, you are probably trying to make sense of the acquisition and outside investment inquiries you’ve received over the past year. Where did all of these potential buyers come from? Who are they, and how do you separate the legitimate acquirers from the tire-kickers?


At Physicians First, we pride ourselves on developing and maintaining strong relationships with the full buyer spectrum. Whether an established acquirer with multiple ophthalmology platforms throughout the country or a private equity group seeking to make its first investment, they are on our radar. In this post, we will discuss the different types of ophthalmology buyers, the practices and ASCs we see them searching for, and what differentiates each buyer.


EXISTING PRIVATE EQUITY BACKED OPHTHALMOLOGY COMPANIES


Private equity backed ophthalmology companies led the way in M&A activity for ophthalmology practices in 2017 and we expect this trend to continue in 2018. In most cases, private equity groups have earmarked a portion of their fund for ophthalmic investment. Once they’ve made a “platform” (large practice) investment as the cornerstone of their newly formed portfolio company, they will aggressively seek to make regional add-on investments as well as additional platform investments in different geographic areas.


Over the past year, we have seen at least ten of these portfolio companies enter the market. The competitive acquisition environment paired with the need to grow portfolio companies quickly and achieve scale has led to unprecedented acquisition multiples for ophthalmologists.


As 2018 continues and more platform investments are completed across the country, the opportunities will accelerate for more small and medium-sized practices to be acquired at high multiples.


PRIVATE EQUITY GROUPS SEEKING TO ENTER THE MARKET


When success is established in the private equity community there will be followers, and ophthalmic investment is no exception. Physicians First keeps a close relationship with many groups looking to enter the space and replicate the success of their peers. While ophthalmology may be a new venture for some, many of these groups have experienced success in the consolidation of other medical specialties such as dermatology or dentistry.


Theses buyers typically have a high floor for practice profitability and are willing to pay aggressive prices for practice characteristics that fit their investment profile – including leadership and expansion potential.


These buyers are a good fit for entrepreneurial physicians who wish to have an active stake in future investments for the portfolio company. Private equity-backed ophthalmic companies often offer enticing rollover equity positions to “champion” physicians focused on the future growth of the global company.


INDEPENDENT OPHTHALMOLOGY PRACTICES BUYING OTHER PRACTICES


PhysiciansFirst has seen a trend of practices merging together to form a larger entity in preparation for a potential private equity deal. In most cases, it only takes the merging of two smaller practices to immediately become a candidate for lucrative outside investment. We currently advise several forward-thinking practices using this method to maximize future acquisition values.


Interestingly, many acquirers will offer a price premium to these practices based on that value-add, even before a formal merger. Similarly, larger practices with pending acquisitions of smaller regional practices can receive offers based on their projected post-close EBITDA, without formally completing the acquisition process. This is a good solution for fast-growing practices considering a transaction.


MANAGEMENT COMPANIES


Typically, a surgery center needs to be involved for acquisition consideration from the established management companies - AMSURG, Surgery Partners, USPI, SCA, Covenant Surgical Partners, and others – though that is not an absolute rule. Some of these companies have thirty-year surgery center and practice acquisition track records and offer a comprehensive suite of management and administrative services as part of the transaction.


These acquirers can be the best option for physician-owners seeking to be relieved of management burdens yet maintain a healthy minority ownership stake, typically 49% of the practice and surgery center. Additionally, some of these companies have become accustomed to entering three-way joint ventures including the regional hospital or health care system. We often recommend this option for practices experiencing uncertain times due to external pressure from a hospital or health care system.


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


This post is for informational purposes only and does not constitute an offer, invitation, solicitation, or recommendation to buy, sell, subscribe for, or issue any securities. While the information provided herein is believed to be accurate and reliable, 127 Capital, LLC (“Physicians First”) and Ashland Securities, LLC make no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person. Certain Principals of Physicians First are registered representatives of Ashland Securities, LLC Member FINRA, SIPC. Physicians First and Ashland Securities, LLC are separate and unaffiliated entities. Securities and Investment Banking Services are offered through Ashland Securities, LLC.