Private Equity in Ophthalmology: An Explainer

There’s a saying that trends come back around every twenty years or so. That seems to be the case with fashion, but there’s another type of trend that’s coming around again—and it will affect a lot more than what you wear. It’s private equity investment in ophthalmology practices, and like a boat returning to harbor, it’s back. (Learn more about financial trends here!)

What’s Done is Done: Private Equity’s Past

If you’re well into your career, you might remember the private equity boom and bust of the 1990s. But if you’re on the younger side, you won’t—so here’s some quick background:

Ophthalmology and private equity (PE) have a rocky history. In the 1990s, a new wave of practice consolidation coupled with a skyrocketing economy caused PE investment in ophthalmology practices to surge. Unfortunately, a lot of the ventures failed.

Why? Many of the purchases were all stock and no cash (in other words, high risk). Many were underfunded, and minority ownership led to a lack of effective operational control, says Gary Markowitz, MD, who spoke about PE at AAO 2017. A late 1990s economic downturn, plus poor management decisions, led to poor returns for equity partners and physician partners. As a result, PE interest dried up.

What’s Old is New Again

Market forces are once again moving private equity to invest in ophthalmology practices, but today’s PE transactions are different from those taking place in the ’90s. “There are many more companies, and they have much more financing behind them than back in the ’90s,” says attorney Mark Abruzzo, another presenter at AAO 2017.

Some experts feel PE investment in ophthalmology is here to stay, while others take a different view. “I don’t like business and medicine and I never did,” says Abruzzo. He favors the physician-owned, physician-led models. Doctors consolidate on their own rather than allowing themselves to be acquired by a big business. But that approach takes a lot of capital that a lot of folks don’t have, so PE may be the answer.

Keep in mind that private equity partnerships can be very expensive and emotionally draining to unwind. They’re not for every physician or practice, and they require careful planning. But if your interested in learning more, get to know the lingo.

Private Equity: Key Terms to Know

Dissenter Shareholder’s Rights

It varies by state, but this legislation effectively allows a shareholder to say “I don’t want to do the deal. Buy me out at fair market value.” It gives physician partners an easy out if they don’t want to be part of a merger or acquisition.

Due Diligence

A comprehensive review a buyer or seller conducts to evaluate a merger or acquisition. PE firms sometimes to try to manage the due diligence process for the target practice, says attorney Caroline Patterson, who also co-conducted the AAO session with Abruzzo. Be careful, she warns. It’s going to be tempting hand off due diligence because your staff is stretched, but you need to monitor the process. Be sure to talk to practices that have been purchased, and not necessarily the ones the PE firm has given as references, recommends Abruzzo. In some cases, investors have incentivized doctors from previously purchased practices to provide good reviews, he notes.


Short for Earnings Before Interest, Depreciation, Taxes, and Amortization, this is the basis for the price a PE firm will pay for a practice. Practices are valued at a multiple of EBITDA, and that multiple is negotiated. Most PE firms are paying a 5-6x multiple of EBITDA, notes Abruzzo. A higher multiple sounds better,  but those agreements are often structured differently so you essentially end up in the same place as the 5-6x deals, he explains. If your operating expenses include physician compensation, PE firms will pull that amount out for valuation purposes. This is called “normalized EBIDTA.”

Letter of Intent

Known as an LOI, this document outlines the terms of a deal. Conduct your due diligence before signing an LOI, Patterson advises, and make sure your LOI accurately represents your verbal agreements. Abruzzo gives an example about one firm that verbalized a 5-year employment term, but the LOI listed ten years.


A no-shop agreement is typically part of an LOI. It prohibits the buyer or seller from soliciting an offer from outside parties. A PE firm will likely require a no-shop agreement because shopping the deal to other investors drives the purchase price up, says Patterson. Most ask for a 90-day no-shop period, she adds.

Platform Practice

This is an attractive “prime player” that a PE firm can build around, adding additional acquisitions.  Abruzzo uses a sports analogy to further explain: It’s similar to when a team signs a superstar player to a high-dollar contract, and then brings in additional, supporting players to complete the team.

Sale Non-Compete

Employment non-competes are a standard part of physician employment agreements. But sale non-competes are a little bit different. They still protect the purchaser’s interests by preventing a seller from leaving and entering into competition. However, courts are much stricter when enforcing non-competes entered into in connection with the sale of a business. “It’s very different if you take a lot of money and agree not to compete,” says Abruzzo.

Want more private equity explanations? Stay tuned as we dig into opportunities—and the risks.

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