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.
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.
FOCUS Managing Director and Healthcare Team Leader