McKesson’s acquisition of PRISM Vision Group is an important milestone for private equity’s investments in ophthalmology practices.
McKesson Corporation’s acquisition of PRISM Vision Group, one of the leading private equity-backed ophthalmology platforms, marks an important milestone for private equity investment opportunities in ophthalmology practices, identifying potential buyers for these types of companies. McKesson, a public company with approximately $76 billion in market value, will purchase an 80% interest in PRISM for approximately $850M.
PRISM was founded in 2018 with Quad-C Management’s acquisition of NJ Retina, a large Retina practice in New Jersey. Since then, PRISM has partnered with more than 20 ophthalmology groups throughout the Northeast. The McKesson deal is notable because it indicates there is a strong marketplace for large ophthalmology platforms like PRISM despite a tentative market over the last few years.
Overcoming Marketplace Uncertainty
Rising interest rates introduced a difficult environment for private equity recapitalizations (where private equity groups sell a portfolio company to another buyer), so few of the older PE-backed ophthalmology organizations traded hands over the last few years. At the same time, there has always been uncertainty about the ultimate home for these assets, since private equity does not keep its investments forever.
Traditional terminal exit routes for private equity-backed companies are to larger strategic acquirers (often public companies) and IPOs, where a private company becomes publicly traded. However, the type of larger company that would be interested in buying physician practice management (PPM) companies has been unknown. That is because this iteration of PPMs is new, generally beginning after 2015, and PPMs in ophthalmology and other medical specialties do not have much larger peers that could acquire them.
McKesson-PRISM Deal a Model for Strategic Acquisitions
Generally, two ideas emerged about who the ultimate buyer would be. It would be either:
- payors (United Healthcare/Optum),
- provider networks (HCA, Advent Health), or
- other strategics in the healthcare ecosystem seeking some kind of vertical or horizontal integration.
The McKesson acquisition is an example of type C, and it has been a growing and dominant theme so far. McKesson is primarily a distributor, meaning that it sells pharmaceuticals, medical supplies, and other medical devices and services to healthcare providers. By acquiring the providers themselves, McKesson is securing a customer and capturing profitability downstream from its current operations.
We have seen similar themes recently with Cencora (another distributor) acquiring Retina Consultants of America. There have also been several vertical acquisitions by distributors of oncology focused PPM organizations. The McKesson announcement is important because it shows upmarket interest in PPMs with less of a drug component, which is most of the PPM community. The theme is not entirely new, however. Pet food manufacturer Mars, for example, started acquiring larger veterinary organizations years ago.
As the PPM space continues to mature, we expect like-consolidation where larger PPMs acquire some of the smaller ones. At the same time, we expect further strategic acquisitions like McKesson’s, where a larger, sometimes publicly traded company has a special interest in the physician specialty. It is also likely that IPOs will come to PPM, perhaps first to those specialties with the largest assets (e.g., dental).
What This Means for Sellers
We expect many of the 30+ private equity-backed platforms will engage in transactions in the coming years. It’s likely many of those organizations will seek acquisition opportunities now rather than later to expand their operations before a sale and attain a higher exit valuation.
At the same time, the number of ophthalmology PPMs that have recently been sold will increase. We believe the merging of these two categories of buyers—one being newly recapitalized and motivated to demonstrate ongoing growth and the other driven by its own incentives to expand prior to a sale—will create a highly competitive landscape for independent practices entering the market in 2025.
This combination of competitive dynamics and a favorable economic forecast is expected to further enhance momentum for ophthalmologists and retina transactions during 2025. And despite current elevated interest rates, private equity firms are overall optimistic we will see an eventual decline in these rates, which would stimulate considerable activity in the market.
These converging factors suggest a strategic opportunity for independent ophthalmology groups to contemplate a sale, and FOCUS Investment Banking stands ready to assist. With extensive experience advising ophthalmologists and retina specialists in their dealings with private equity firms, FOCUS is well-equipped to navigate the complexities of ophthalmology practices and customize its approach to highlight their distinctive advantages.
Physicians seeking further information about the sale process are encouraged to reach out to Eric Yetter, Managing Director, at [email protected].
