8 major private equity trends taking shape in the ASC market in 2018

Physician-owners can expect a high volume of ophthalmology acquisitions and early adoption in orthopedics and spine care by private equity firms this year, according to investment bank PhysiciansFirst.

As physician-owners evaluate their long-term options and strategic plans, PhysiciansFirst recommends considering private equity's interest in specialty medical practices and ASCs.

Here are eight private equity trends to anticipate.

1. Advancement of large practice ophthalmology deal volume in established regions.

After the acquisition of seven large, profitable ophthalmology practices last year, PhysiciansFirst predicts private equity firms will pick up more transactions in those same markets. The geographic markets already entered include the Northeast, Tennessee, Georgia, Southern California, Arizona and Florida, as well as Chicago, Minneapolis, Dallas and Denver.

2. Completion of large ophthalmology transactions in new regions.

Private equity firms are also looking to get into previously uncharted territory. Based on discussions with firms seeking large practice investments, PhysiciansFirst expects major acquisitions in these markets:

  • Pennsylvania and the remaining Northeast
  • Ohio and Indiana
  • North and South Carolina
  • Texas
  • The Pacific Northwest
  • Most of California

3. Significant increase in pursuit of small and medium ophthalmology practices.

Most private equity firms burst into the ophthalmology market with a large initial investment before picking up small and medium practices in complementary areas for network growth. The major transactions in 2017 primed the market for those smaller, supplemental acquisitions this year. Some private equity firms will aim to enter the ophthalmology space through the acquisition of small and medium practices, but not necessarily for market dominance.

4. High multiples for ophthalmology driven by competitive deal dynamics.

Private equity firms seeking to gain footing in the ophthalmology space will fiercely compete for the right initial investments, and firms already in the market will employ aggressive growth strategies for scale and market dominance. These drivers of increased demand will enable physician-owners of successful practices to sell at "very high multiples," according to PhysiciansFirst.

5. Continued opportunities for dermatology.

Established firms in the dermatology space maintained a high volume of deals in 2017 and will continue to do so this year. Several private equity firms have a significant amount of assets available to deploy and are looking to make large initial investments in the market.

6. Development of major acquisitions in orthopedics and spine cases.

Following Candescent Partners' successful recapitalization of Mount Pleasant, S.C.-based Southeastern Spine Institute in April 2017, other private equity firms are interested in entering the general orthopedics market and orthopedic or neurosurgery-based spine care. Factors driving investments include an anticipated dramatic increase in joint replacements and spine fusion, as well as momentum from the accelerating shift to outpatient, value-based care.

7. Emergence of differentiated corporate cultures.

As only a small portion of U.S. medical practices have been acquired, the private equity market for physician practices is in its early stages. As the investment cycle progresses in 2018, expect to see distinctive corporate cultures take shape.

Private equity ophthalmology platforms will heavily invest in services, technology and equipment for their portfolio companies, helping to shape their identities and differentiate them from competitors.

8. Acceleration of business development activity.

The competitive dynamics characterizing ophthalmology practices this year will also drive firms' internal business development activities. Private equity firms will enlist more representatives to seek and establish relationships with optimal practices, meaning physicians will be hearing from buyers more often.

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