(Almost) 1 year later: Revisiting the Atlanta Gastroenterology Associates & Frazier Healthcare Partners deal

Atlanta Gastroenterology Associates took on a private equity partner in Frazier Healthcare Partners on Dec. 17, 2018, forming gastroenterology management company United Digestive in the process.

Here, AGA's Neal Patel, MD, revisits the deal, shares insights into the due diligence process and describes what the scene is like at AGA (almost) one year later.

Note: Responses were edited for style and content.

Question: How did the decision to partner with a private equity firm come about?

Dr. Neal Patel: The idea of partnering with private equity was something we discussed for several years. As market fundamentals of provider services evolved over the past three years, the idea of partnering with PE appeared congruent with our goals: protect the values important to a private practice, complete alignment with all parties, and appropriate valuations for the inherent value of our practice. Furthermore, partnership seemed to bolster us against our perceived risks, specifically payer negotiations, hospital systems, compliance and reporting requirements, and future capital investments for infrastructure. We have always prided ourselves on being progressive and early adopters, and this partnership allowed us to invest in ourselves and stay relatively independent.

Q: What sort of due diligence did AGA do when selecting a PE partner?

NP: Our physician executive committee undertook a very detailed and methodical approach with the help of a broker, who was well versed in these types of transactions and who understood our business and culture. We focused on PE partners who successfully invested solely in healthcare, due to the complexities that are unique to our field. We evaluated over 20 PE groups and even met with physicians who were currently on their platforms. We looked at the track records of previous deals, reputation from trusted sources, size and life cycle of the fund, and debt coverage expectations to try and create a comprehensive picture of each firm.

Q: Why did you choose Frazier Healthcare Partners to help form United Digestive?

NP: Most importantly, Frazier presented a very specific thesis on how to create real value for our doctors as shareholders. They believed sustainable value creation would result by leveraging their managerial expertise to develop and integrate best practices, while allowing our providers to concentrate on the practice of medicine. Although growth through acquisition was important, they were disciplined investors who were willing to walk away from any deal if the negotiations went beyond their model. In addition, they allowed us to partner with [now United Digestive] CEO Mark Gilreath, whom we had familiarity with from his previous leadership roles in GI companies.

Q: What has changed in the practice since the deal closed in December?

NP: Clinically, I can say without hesitation that nothing has changed in the exam rooms with our patients and providers. On the administrative side, there have been significant advancements. We have brought in executive talent in accounting, human resources, and business development to complement our existing operations and physician leadership. Our team now includes specialists in payer relations, information technology, business analytics and call center management. These investments in human capital and infrastructure have already yielded results and EBITDA growth.

Q: How is AGA, and in the broader sense United Digestive, competing with other existing platforms?

NP: I do not think we are competing. Although most PE groups tend to be formulaic in their valuations, the growth models seem to be quite different at each platform. We strongly believe that real value for our shareholders is in a tightly integrated network of like-minded gastroenterologists sharing best practices, administrative duties, and payer negotiations. We measure financial success by EBITDA per shareholder, not by states entered or number of doctors acquired. This controlled growth model may not be as highly visible nationally, but we believe it is the best positioned for long-term success.

Q: What would you want other GI practices that are considering a PE partner to take away from your deal?

NP: A PE partnership is not for every group. However, there are aspects of these partnerships which appeal to physicians in all phases of their careers. For more experienced physicians, this presents an opportunity to realize more of the value they have helped create in their company, as opposed to the traditional "buy-out" structure. Younger physicians can concentrate on practicing medicine rather than on the increasing administrative demands, as well as benefit from share growth in the platform or MSO. Most importantly, we saw a PE partnership as a way to maintain clinical autonomy, gain long-term stability, and participate in the value we know that we create as productive and well-respected physicians.

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