Merger and acquisition activity has increased significantly in the anesthesia market. Cross Keys Capital, an investment banking firm focused on the middle market, is not only in the thick of the action but leads in deals closed in the anesthesiology space.
In the past few years the Company has guided physicians through the M&A process and closed 15 anesthesiology transactions, including the merger of Broad Anesthesia and Mid-Florida Anesthesia to form Resolute Anesthesia and the sale of Northern Westchester Anesthesia Services to Mednax. Bill Britton, Co-Founder of Ft. Lauderdale based Investment Bank Cross Keys Capital, provides real-time insight into the forces driving M&A activity in anesthesia, the market's key players, the competitive landscape from both a strategic and financial buyer's perspective, and what it takes to execute a successful transaction.
One of the major factors driving anesthesia M&A activity is the changing healthcare market. "The industry is at a point in its life cycle when size matters, and many of the large buyers are bundling different physician and multispecialty services to gain critical mass and achieve greater bargaining power for contracts and resources," says Mr. Britton.
At the most basic level, M&A is on the rise due to the highly fragmented nature and large supply of privately owned anesthesiology practices, coupled with very strong demand among a variety of buyers from both an offensive and defensive perspective. Physicians are partnering with larger entities, in part to gain access to greater resources, infrastructure and existing and established business platforms, while also recognizing an opportunity to monetize some or all of the equity they have built up in their practices. It is also an important step and prudent manner for physicians to mitigate some of their portfolio/business risk since in many cases a significant portion of their net worth and earning power is tied up in their practice. Meanwhile, from the investor perspective, private equity buyers have joined the pool of traditional strategic buyers in response to the growth of potential acquisitions and the favorable dynamics of building out a national anesthesiology platform.
"On a macro level, financing is readily available to buyers and the low interest rate environment has contributed to higher purchase price valuations making this a favorable time to evaluate acquisition prospects," says Mr. Britton. "The lower cost of debt has attracted the private equity sector and other financial buyers by enabling them to recognize a higher return on invested capital."
Both strategic and financially-motivated buyers are actively purchasing anesthesia groups. Big names in anesthesia M&A include publicly traded companies such as:
Privately held companies and private equity sponsored companies are also active buyers in the field. This buyer sector includes names such as:
• North American Partners in Anesthesia
• Sheridan Healthcare
• U.S. Anesthesiology Partners
Executing a successful transaction
Merger and acquisition transactions can take anywhere from a few months to a year or more in order to consummate a transaction. Assembling the right team is essential to executing a successful, mutually beneficial transaction. Below are four vital components of a transaction team;
• Physician leadership. "This does not necessarily mean practice leadership with business backgrounds, but rather a competent group of leaders that are able to unify internal parties to a transaction and help them find an amenable common ground," says Mr. Britton.
• Legal representation. Anesthesia practices need an attorney with a strong background in healthcare transactions, and preferably anesthesiology transactions and experience with the various active buyers. The right legal representation will be able to navigate the dynamics of a physician practice and effectively communicate with all providers. "The attorney's role as a trusted advisor in the transaction cannot be underestimated," says Mr. Britton.
• Tax advisor. A CPA will play a vital role in understanding the tax issues associated with such an intricate transaction.
• Investment banking support. Anesthesia transactions deals are a very specific niche of the Healthcare M&A Market. An investment banker with experience closing anesthesia-specific deals will have strong relationships with major buyers, intimate and real-time knowledge of the market and the background to maximize valuation for optimal deal execution as well as identifying the most effective partner. "An experienced investment banker should also be able to foresee the many obstacles and challenges that ultimately arise among physician partners, and help the group navigate through these internal issues to build consensus," says Mr. Britton.
From the physician's point of view
Market conditions may be optimal for mergers and acquisitions, but physicians have often spent decades building an independent practice. The decision to merge with or sell to a larger group is not to be made lightly.
"Essentially I thought medicine was changing and it looked like a good opportunity in the industry to diversify equity holdings," says Marc Levine, MD, co-founder of Mid-Florida Anesthesia. "Becoming a larger entity puts you in a better position to deal with change. We had a number of options, and with our banker's help we were able to find both 'the right fit' for a long-term partner as well as the right economics."
"Decide when you are at the peak of clinical and financial performance," says Michael Loiacono, DO, NAPA regional director and medical director for NAPA Connecticut. "At this point, your group has the most value in a merger."
After the initial decision to look for a transaction opportunity, the first decision to make is whether to go with a strategic or equity buyer. A strategic or clinical partner tends to offer the opportunity to cash out while partnering with an established group with existing resources in place to immediately leverage off of and take advantage of. An equity partner offers physicians the ability to cash out of a portion of their holdings while still retaining an ownership interest in the business. In this case there is an opportunity to participate in the growth of the entire business, not just your practice, but also the practices of the other groups the equity firm has acquired. "There is no right or wrong with these decisions. There is no one size fits all. It is a much about finding the right fit with a partner as the right economics. It is like sampling a variety of flavors of ice-cream," says Bill Britton, who goes on to add that "The line between the strategic and the equity buyers are quickly becoming blurred as they both grow in size and capabilities."
"Having a variety options to evaluate was the important part for all of our partners," says Dr. Loiacono, whose group was ultimately acquired by NAPA.
While a practice is seeking a potential buyer or partner and then hammering out the details of the deal, its physicians are still running a busy practice. "You need someone to bring you options and you need someone to help you navigate through the deal process. It is virtually impossible to do on your own and to try is a disservice to your practice and your partners," says Dr. Loiacono.
A transaction team, spearheaded by a seasoned investment banker, is essential for a smooth transaction. An investment banker can help guide physician practices through the internal alignment process needed to prepare for not only the transaction, but day-to-day practice after closing. All physician partners need to be on board, but the opinion of non-partners and all effected parties, including the hospital and other facilities, need to be taken into consideration. In Dr. Loiacono's practice, the merger with NAPA would mean the elimination of the business office. The staff had been with the practice for nearly a decade. Dr. Loiacono had to weigh the ramifications of losing that staff and then work to ensure they had secure positions before closing the deal.
"Healthcare delivery is changing faster than we could have imagined," says Dr. Loiacono. "You don't want to be a passive bystander at this point. Address those challenges and consider a merger at the appropriate time."
"It was a challenging process, but I would absolutely do it all over again," says Dr. Levine.
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