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Private equity is the right thing for optometry – maybe
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NEW ORLEANS — The last few years have demonstrated that optometry is attractive to private equity. Experts here at SECO delved into why it is attractive and, more importantly, whether it should be attractive to you.
In its most basic explanation, private equity firms, “form to raise capital and then invest in portfolio companies and once they have invested in a portfolio company, they look to grow and increase the value ... and then they sell it to another buyer,” said Christopher J. Quinn, OD, a Primary Care Optometry News Editorial Board member, former American Optometric Association president and CEO of Omni Ophthalmic Management Consultants.
Quinn’s practice joined with a private equity firm about 18 months ago. “It is a planned investment with an expected rate of return,” he said.
Private equity firms may be wealthy individuals, pension plans or states, he said. “Anyone who is looking for a riskier investment with a higher rate of return.”
But why are they interested in ophthalmology and optometry?
“It is a growing industry,” Quinn said. “It is a large industry and there is the intersection with optometry and retail optical, and ophthalmology and facilities with surgical centers,” Quinn said. “That combination is very attractive to private equity groups.”
Eye care is a highly fragmented market, “with 60,000 providers and the vast majority in small groups,” he said, noting that 56% of providers are in a practice setting of four or fewer providers. Also unique to eye care is the fact that ophthalmology and optometry are not traditionally hospital-based or affiliated with a large health care system, which has experienced consolidation.
So, optometry is ripe for “consolidation because consolidation can bring improved efficiencies and improved productivity and, ultimately, that is what will drive businesses to become more profitable,” Quinn said.
Also, the aging population with its great demand for eye care and the fact that more people have access to eye care coverage are also motives for private equity firms focusing on optometry, he said.
Some doctors choose to pursue private equity as an exit strategy. Some may choose private equity because running a practice continues to become more complex and risky given compliance and regulations.
But there may be a lopsided experience for junior partners, who may be at a disadvantage particularly because opportunities to own a practice are diminishing and a significant pay cut may come with the private equity firm partnership, according to Rob Pate, OD, of Basden Eye Care in Auburn, Ala.
“I had a dream of owning my own practice. That is why I got into optometry – to be able to call the shots,” Pate said. “Every time a practice sells, that’s one less practice that an optometrist has to be an owner, and I don’t know how that is good for optometry.”
Quinn and the panel did discuss alternatives, such as bringing on a junior partner who would gradually build up equity with a final plan to purchase the practice from the senior partner.
Quinn and Pate spoke during the panel that also included Kirsten Albrecht, OD; Daryl F. Mann, OD; and William Spearman, OD.
This was presented as part of MedPRO360. Healio, the online home of Primary Care Optometry News, is MedPRO360’s official media partner. – by Joan-Marie Stiglich, ELS
Reference:
Quinn C, Pate O. MedPRO360 Presents: The New World Order: PPM’s and Private Equity. Presented at: SECO; February 20-24, 2019; New Orleans.
Disclosures: Quinn and Pate report no financial disclosures.