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Pros, cons to consider before accepting private equity involvement
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WAIKOLOA, Hawaii — There are a lot of questions and concerns whether selling an ophthalmology practice to a private equity firm is a viable and sustainable option, according to a speaker here.
Private equity groups have interest in investing in ophthalmology practices, with a short-term goal of unlocking and creating additional value to the purchase, Reginald Sanders, MD, said at Retina 2019.
“Private equity is about growth,” he said. A private equity investment might “roll up” companies together to make them more valuable as a public company or break up companies if the pieces are worth more than the whole.
Ophthalmology practices are of interest to private equity companies for a number of reasons, he said. There is increased need for ophthalmology services as the population ages, there are limited providers, additional income streams include optical shops and ambulatory surgery centers, and there is not competition with health care systems.
There are differences between the failed investments of the 1990s and now, he said. For one, in the past, investors acquired practices rather than growing businesses. For another, there is now a lot more investment money.
“If you want to expand your footprint ... it takes money. If you want to develop an ophthalmology network, it takes money,” he said.
In the new model of private equity investment, rather than receiving mostly stock in the new company, the seller typically receives 70% in cash (subject to capital gains tax) and the remainder in stock, Sanders said.
There are questions to answer, however, before deciding whether to seek private equity investment:
Will the acquirers actually integrate practices?
Can the new, larger integrated entity produce more than it could separately?
Do physicians want to answer to another owner?
“When you sell your practice to private equity, you are owned by ... another corporation,” Sanders said. – by Patricia Nale, ELS
References:
Sanders R. So you want to sell your practice: An introduction to private equity. Presented at: Retina 2019; Jan. 20-25, 2019; Waikoloa, Hawaii.
Disclosure: Sanders reports no relevant financial disclosures.