Provident Healthcare Partners Analyst Robert Aprill told Becker's ASC Review what to expect from private equity groups in 2019, as well as which sectors will set the tone for consolidation.
Note: Responses have been lightly edited for style.
Question: Have you observed any shifts in orthopedic investment activity in 2019?
Robert Aprill: Yes, we have seen a significant increase in interest from private equity sponsors. As more firms commit time and resources to educate themselves around the orthopedic space, there will be an increasing number of PE groups looking to find strong platform investments. Additionally, because there are so few platform investments made in the space, the add-on market is fairly quiet. As we start to see more platform investments made, I believe this will create a frothy add-on marketplace, similar to what we have seen in dermatology and ophthalmology. This will allow for smaller practices, not large enough for platform investments, to still seek private equity partnership and create liquidity and value in their practice.
Q: How can ASCs improve their value in light of these observations?
RA: Surgery centers are one of the largest — if not the largest — cash-generators in an orthopedic practice. For practices that have an affiliated surgery center, these centers can create significant value in a transaction process. When a practice is paired with a surgery center in a transaction, the whole is worth more than the parts. In other words, the valuation a buyer is willing to pay is greater when there is a practice and ASC than if either are being acquired independently.
Q: Aside from orthopedics, what other specialties in the outpatient setting are becoming ripe for investment?
RA: Dermatology and ophthalmology continue to be the highest consolidated specialties, but there are several newcomers that I expect to be front page news in 2019. Sectors such OB-GYN, urology, gastroenterology, and of course, orthopedics are likely to set the tone for consolidation in physician services over the next 12 to 18 months.