Private Equity in Eye Care: What Investors Want

It’s an exciting—and maybe unnerving—time to be an ophthalmology or optometry practice owner. Private equity is flowing into the industry once again, hoping to take advantage of opportunities and avoid the mistakes of the past. But what types of practices, exactly, are private equity investors looking for?

Private Equity Takes Aim

PE investors typically target medium and large—but not too large—practices that are dominant in their markets. Most PE investors look for practices with qualities like these:

• Practices with ancillary services
• Practices with surgery centers
• High growth potential
• Sustainable business model
• Strong local brand

This doesn’t mean solo practitioners and small practices are left out of the loop. If you’re solo, don’t assume that PE investors aren’t interested, says attorney Caroline Patterson, who spoke about PE at the annual AAO meeting. For example, if the practice is attractive, it could serve as a platform practice, she adds. Robert Wiggins, also a presenter at AAO 2017, gives this example of the phases of growth that an acquired solo practice might go through:

1. PE firm acquires solo practice as a partner for growth.
2. Practice now has money to add subspecialties and new facility.
3. ASC and retinal merger occur.
4. Practice adds satellite offices.

Flip, Or Flop?

As the 1990s private equity bubble illustrated, most private equity firms are looking for five to seven year investments—not long-term growth—so some of their business practices could be detrimental to a practice’s future. Today, many PE firms are still “flippers,” but a new buy-and-hold model is emerging that could be attractive to multiple generations of physician owners in a practice, noted attorney Mark Abruzzo, who also spoke about PE at AAO 2017.

Flippers “are people who are looking to make a big profit. Not a little bit of profit. They want to double their money in 5 years,” says Abruzzo. This narrow focus can be a big concern when it comes to your philosophy of practice, strategic plan, and even patient care. And that’s not all: there’s a lot of uncertainty when it comes to flippers because you don’t know who the future owners are going to be, or even if there’s going to be someone to flip the practice to at all. “The problem I have with the flippers [is] ‘what’s the market going to be in 5 years to buy?’” asks Abruzzo. “I think there are too many flippers and it’s going to be a buyer’s market.”

The Alternative

In contrast, buy-and-hold investors usually recognize that positive change and organic, sustainable growth take time. Consequently, that goes a long way in avoiding operational conflicts and power struggles between the providers and corporate owners. Depending on the investor, the acquired practice could also benefit from alliances or collaboration with other businesses in the buy-and-hold investor’s portfolio. And in an uncertain time, a buy-and-hold investor could serve as a sort of “safe harbor” for market fluctuations. If reimbursement takes a dive, a strong financial partner—one that’s not just using your practice as a vehicle for profit—will allow time to adapt. “The holders, there’s something about them that’s more settling for me,” Abruzzo says.