The End Goal for Private Equity and Physician Sellers

By Andy SnyderPublished On: September 5, 2019

Improved Patient Care, Revenue Growth, Profit Improvement

In order to gain a return on their investment, PE firms look to improve operations and grow their portfolio companies through organic and inorganic initiatives, ideally driving a much higher valuation and EBITDA multiple when the portfolio company is sold (usually in 5-7 years).

Principal areas for organic growth include developing referral networks, physician and midlevel recruiting, contract negotiations and revenue cycle and cost containment initiatives. They will also invest in practices via capital improvement projects – perhaps additional space or new technology. Each investment will present unique opportunities, such as combining multiple practices under a single umbrella for reimbursement purposes. Investors will leverage their size, financial resources, and human capital expertise to achieve desired growth outcomes.

Inorganic growth comes through the acquisition of additional dermatology practices and other complementary businesses. Investors provide capital and leverage physician knowledge and relationships to identify and pursue appropriate opportunities.

Physician Autonomy

Importantly, most physicians will be surprised by how hands-off these investors are when it comes to day-to-day practice operations. They are rarely, if ever, interested in physician schedules and local management issues, believing instead that these things are best handled by the physicians themselves and their local management teams. This emphasis on growth and improvement rather than operational change means that physicians can continue to focus on their patients while a well-funded partner works to grow and perpetuate their practice.

Successful Recapitalization at Higher Multiples

Many firms offer physician sellers the opportunity to “roll over” equity into the acquiring company, thus investing alongside its other physicians and the PE firm. That equity may be sold in later transactions at a higher value (or EBITDA multiple). This strategy allows physicians to participate in the gains private equity firms achieve.

To learn more about our healthcare investment banking services or to discuss your specific situation with no obligation please feel free to call. We are happy to share our knowledge and help you understand your options. All conversations are strictly confidential.

Eric Yetter

FOCUS Managing Director and Healthcare Team Leader

Direct: 615-477-4741

Andy Snyder, a FOCUS Managing Director, has ten years of consulting, management, and M&A advisory experience among various healthcare positions. He has significant experience advising physicians in medical practice and surgery center transactions – including the specialties of ophthalmology, gastroenterology, dermatology, and orthopedics. His current practice includes healthcare provider services, home health and hospice, and behavioral health. Prior to joining FOCUS, Mr. Snyder served as Managing Director and Physicians First, a boutique investment banking firm located in Nashville, TN. He completed a variety of healthcare transactions, many with private equity firms and PE-backed companies. In this role, he was responsible for business development and deal execution. His past clients include leading physician groups, healthcare facilities, and institutional healthcare investors. Mr. Snyder began his healthcare career at Covenant Physician Partners (previously Covenant Surgical Partners) where he was promoted to Director of Operations. Covenant is a physician services company that acquires and operates ambulatory surgery centers and physician practices. The company also built and operated an outsourced pathology laboratory, an anesthesia business, and revenue cycle management company. Based in Nashville, Mr. Snyder earned his M.B.A. from Vanderbilt University and his undergraduate degree from The University of Virginia. He is a FINRA licensed investment banker.