Private Equity in Eye Care: What Physicians Want

You’ve probably heard a lot about private equity investment in eye care—it’s been a hot topic lately (you can read about the basics here). And the prospect of a private equity sale is intriguing to a growing number of practices. If you’re solo, the decision to sell will be simpler. But if you have multiple physicians in your practice, you’ve got more to think about.

Private equity transactions won’t affect all physicians equally.

PE is usually a great deal for older physicians. It gives them an exit strategy, allowing them to cash out on their investment in the practice. They could possibly even continue to work part-time, at a reduced productivity. Physicians nearing retirement may also be less worried about the practice’s long-term prospects and more willing to give up operational control.

But there are reasons to be wary of private equity—especially for young ophthalmologists just now buying into practices. PE is often less popular with the younger shareholders of the practice, explains attorney Mark Abruzzo, a presenter at AAO 2017. Because the re-entrance of PE into ophthalmology is still in its infancy, “we don’t know how these deals are going to work out,” adds attorney Caroline Patterson, another AAO speaker. The “if” is bigger for younger physicians than for older ones. And when young shareholders speak up, you need to listen to them, Abruzzo points out. Clauses like dissenter shareholder’s rights could kill a PE deal, he notes.

Great Expectations?

Younger physicians who have recently bought into a practice are likely expecting long-term ownership. After the PE deal, they’ll be minority shareholders, or even employees, and that could require some mental gymnastics to get used to. They will also have reduced flexibility should they want to leave the practice due to the sale non-compete restrictions. PE transactions usually require a length of employment for selling physicians—five-year terms are most common. However, the cash payout at closing could go a long way to assuage some of those concerns.

In contrast, associates who haven’t yet bought in won’t be receiving any payout, which could make a PE deal a bit harder to swallow. They may balk at spending their prime career-building years growing a practice that they’ll never get to buy into. A PE investor is going to approach employed physicians and want them to stay on after the deal, notes Abruzzo, so they actually have more leverage than they think. Even so, Abruzzo doesn’t see the buy-and-flip model as one that will ultimately benefit most young shareholders, even though that’s the selling point flippers are making, he points out.

Purchase Price vs. Compensation

There is interplay between the practice’s purchase price and physician compensation. Yes, you’ll get a chunk of cash upon sale, but that will reduce your yearly compensation in return. For a senior partner nearing retirement, the cash they’d get at closing might well be more than what they would have received from their original buy/sell agreement. But for a younger physician, there’s more at stake. They’ll need to consider the value of the payout versus potential future earnings.

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