The story behind Webster Equity Partners' deal to partner with Gastro One

Private equity firm Webster Equity Partners partnered with Memphis, Tenn.-based Gastro One April 8, creating gastroenterology's seventh PE-backed platform, One GI, in the process.

Here, Jarrod Smith, principal at Webster Equity Partners, and Michael Dragutsky, MD, president of Gastro One, explain the deal and discuss the platform's future:

Note: Responses were edited for style and content.

Question: Why was gastroenterology so appealing to Webster?

Jarrod Smith: Webster started studying the industry in early 2018. Given the high level of fragmentation and increasing challenges confronting traditional private practices — whether that's commercial payer consolidation or increasing competition for referrals from ever-expanding health systems — this is a sector in which the benefits of scale are readily apparent. When you pair that with the favorable demographic trends and increasing utilization of screening colonoscopies as a result of their impressive cost-saving power, you've got a great sector in which to invest. Webster has had success in the past with helping clinicians grow their practices to capture the benefits of scale, and we view the GI space as a great opportunity to do just that.

Q: Why was Webster appealing to you?

Dr. Michael Dragutsky: Webster was appealing to Gastro One primarily because its core value is the same as ours: ensuring the health and well-being of our patients. They have a strong background in healthcare generally and physician practice management specifically, as well as the business acumen and financial strength to enable independent practices like ours to grow and continue to have a critical role in our rapidly changing healthcare system. Ultimately, we decided to partner with Webster because we felt that they could help us expand and develop partnerships with other like-minded clinicians while preserving Gastro One's clinical integrity.

Q: How did the partnership with Gastro One come about?

JS: Nexus Health Capital, Gastro One's sell-side adviser, introduced us to Mike and his team late last summer. Having spent two years reviewing the sector and evaluating other opportunities, we were immediately impressed by Gastro One's level of sophistication. Mike and his partners have built out an advanced-business model with a full suite of ancillaries and robust corporate infrastructure and business functionality, allowing clinicians to focus 100 percent of their efforts on providing excellent care to their patients. This infrastructure will serve as the backbone of One GI, our new management services organization. Webster is a mission-driven investor, and it is critical that we partner with companies with an unyielding devotion to their patients. We are perfectly aligned in this regard, and Gastro One's clinical philosophy is supported by its excellent performance along key quality indicators and in [CMS' Merit-based Incentive Payment System] program.

MD: Gastro One recognized the need for consolidation in order to preserve and strengthen independent GI practices and have a strong voice in the future of gastroenterology. We decided that a partnership with [a PE firm] was essential to achieve these goals. Nexus guided us through a robust process in which we were able to learn about our potential partners, both from a business standpoint as well as getting to know them on a more personal level. There were some very strong contenders, but ultimately we knew that Webster was the best fit. The fact that Webster completed this transaction in the midst of the COVID-19 pandemic, worldwide financial instability and all other PE deals being put on hold proves we made the right choice.

Q: How will One GI benefit gastroenterology practices?

MD: I don't think it is a secret that most clinicians are brilliant practitioners but not as business-savvy. Unlike in the days of the sole practitioner, today's healthcare requires expertise in both the business of medicine and the art of medicine. One GI provides the business backbone and expertise to enable our practices to remain highly competitive while letting us clinicians concentrate on providing excellent medical care to our patients. Just as importantly, a strong platform like One GI will help clinicians navigate through unforeseen circumstances like our current pandemic that can cripple practices.

JS: Our vision for this partnership is quite simple. We want to preserve [independent practice gastroenterologists]. Right now, most GI clinicians are facing a series of challenges and their options are either to remain independent or join a hospital system. We think there is a better option, and Gastro One is proof positive of this. By joining One GI, clinicians will have access to a capital provider and an MSO whose sole purpose is to fully optimize and grow their practice. This can take many forms, but it includes introducing new ancillary services, improving the payor contracting process, and centralizing core business functions, the management of which takes valuable physician time and energy away from focusing on patient care. This model allows clinicians to retain complete clinical autonomy while enjoying the benefits of scale.

Q: How does One GI differentiate itself from other platforms in the space?

JS: Webster has a long history of investing in physician practices. We learned very early on that the sole purpose of an MSO is to live to serve its clinicians so that they can live to serve their patients. We were acutely mindful of this when embarking on this transaction, and we worked closely with Mike and the rest of the Gastro One team to structure this partnership accordingly. With Mike as chairman, One GI is truly a clinician-led organization. The clinician-centric ethos permeates all aspects of the organization, from provider autonomy to clinical training and establishment of best demonstrated practices.

MD: Location, location, location. We believe that geographic density is a must to establish the presence and clout to be highly relevant in whichever direction healthcare evolves as fee-for service dwindles. The business of healthcare is highly regional, and what drives success in one market does not necessarily apply to others. One GI's goal is to develop regional focus to ensure influence within our regional markets.

Q: How will the platform grow going forward?

MD: Our growth strategy is to partner with other great groups and give them access to all the benefits of One GI. I have spent my entire career developing relationships and sharing best practices, both clinical and business, with other like-minded clinicians. Now that the platform has been established, we have several practices slated to join One GI. Our clinician-centric model with regional density, combined with the expertise Webster brings to the table, makes One GI an exciting opportunity for independent GI practices.

JS: This is what we are most excited about. As the largest practice in Tennessee and a national leader, Gastro One has built an excellent platform, but the opportunities for growth are boundless. We believe strongly in the benefits of scale and perhaps equally as strongly in the benefits of regional concentration. Our goal is to expand the number of clinicians in the organization by partnering with high-quality, like-minded practices that prioritize clinical excellence. Our initial focus will be on the Midwest and Southeastern U.S., where Mike and his team are currently in discussions with several other exceptional practices.

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