The first in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses gastroenterology, urology and men’s health trends. It is authored by Kerri Zelensek and Tom Zahn.
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Gastroenterology, urology and men’s mealth will continue to be active in the year ahead, according to experts who spoke on a panel at the 16th Annual Healthcare and Life Sciences Private Equity and Finance Conference on February 20 and 21 in Chicago.
Experts included Bill Britton, Managing Director of Cross Keys Capital, Luke Mitchell, Managing Director of Edgemont Capital Partners, Edward Sohn, Vice President of Waud Capital Partners and David Young, President of Physicians Endoscopy Center.
Here are five key points from the panel discussion.
1. The panelists agreed that gastroenterology, urology and men’s health will continue to be active in the market in the upcoming year, despite the fact that many of the nation’s largest gastroenterology groups and some large urology groups have already or are currently participating in market transactions.
2. Market fragmentation varies by specialty and will impact opportunity and strategy. Gastroenterology is a highly fragmented market. Many gastroenterologists are independent, and one panelist noted that in approximately 24 states there are no gastroenterology practices with over 20 physicians. There is still opportunity to invest in large groups, to serve small groups in a role as manager or to add-on or combine small groups; however, add-ons or combinations may be more challenging within this specialty because gastroenterologists tend to be accustomed to independence. By contrast, there are many large and medium sized urology practices across the nation. A few of these practices are currently working on transactions, while others are interested but waiting to see what happens in the transactions that are in process. One panelist noted that urologists from different practices often know one another from participation in industry organizations and past lobbying and advocacy activities. Therefore, add-ons or combinations may be easier to close in this specialty.
3. Multiples vary based on the infrastructure and sophistication of the practice and based on the nature of the transaction. Panelists noted that they have experienced multiplies in the low teens or high single digits for platform deals where a practice has a solid internal infrastructure. Multiples will likely be lower for add-on deals and/or deals where a practice does not have a solid infrastructure in place. Investors will consider not only the cost, but also the time it will take to strengthen a practice’s infrastructure in pricing a transaction.
4. The ability to commercialize ancillaries is a key part of these specialties. In these specialties in particular, there is wide availability of ancillaries that, when structured correctly, can be both lucrative from an investment standpoint and beneficial to the physicians’ practices. Panelists noted, however, that these ancillaries often have legally complex structures and take time and money to put into place.
5. Transparency within a practice and physician leadership are key. Panelists noted that there should be an agreed upon, transparent formula for physician compensation in place before a practice comes to market. This helps prevent internal arguments among physician partners during the transaction process. Large practices also need strong physician leadership to guide the practice through a transaction, bring the physician partners together, represent the physicians’ interests in negotiations and help physician partners make decisions.
