Over the past two years, a new breed of investor has demonstrated interest in acquiring ophthalmology practices — “private equity” (PE) investors. My best estimate is between 30 and 40 practices have sold out to PE investors, but the exact number is difficult to know. One could argue that this is a passing fad; however, it appears we are “early in the game” and likely to see more activity.
Why the PE interest?
The “why” is driven by several factors, including, but not limited to:
- Changing demographics and an increase in the prevalence of eye disease.
- Investors seeing a disparate specialty ripe for consolidation.
- Sources of passive income, such as optical and surgery centers.
- New technology and the availability of cash-pay services.
- A plethora of physicians anxious to monetize the value in their assets.
What is the impact?
To gain insight into the long-term impact, it is important to understand how PE transactions impact physicians. Typically, the owner physicians sell all their assets and become employees of a new company with close ties to the investor. They sell some or all their ownership in affiliated operating companies and, in some cases, take a portion of their sale proceeds and reinvest alongside the financial partner (in a newly formed company). Associate providers normally stay on with little change to their terms of employment.
The obvious concern with PE transactions is whether doctors will choose to continue working in an environment where the economic incentives are somewhat diluted. Also, it is very hard to know if younger doctors will choose to stay (or join the practice) as their financial opportunities have changed.
Ophthalmology is unique, a personal service business where the key to success frequently is the passion, motivation, and incentive for physicians to “own” the mission of providing outstanding care in a healthy and stimulating environment. However, PE “needs” to exit most investments in three to five years, potentially putting its objective in opposition to what is best for a practice. Only time will tell.
For our readers
Be aware of this emerging trend and remind yourself each day to focus on what is within your sphere of control. As always, we hope the knowledge and information we share in Ophthalmic Professional provides you with the practical tools necessary to achieve this objective. OP