The Formula for Growth
The faster growing practices are creating platforms with a broad array of services, such as PT, urgent care, MRI, and pain management, which create highly effective patient volume magnets.
Private equity can help to fund this growth.
Most private equity-based transactions are structured so that the investor group buys a majority or minority stake in the practice—generating significant cash proceeds for physician shareholders.
At the same time, the new capital creates a vehicle for growth—both by funding a platform of services and creating the potential for mergers with other orthopedic groups. Under these scenarios, selling physicians continue to own a significant stake in their practice and manage the day-to-day clinical operation while retaining the opportunity to benefit economically from accelerated growth in the practice, in terms of both increased income and equity appreciation.
Consolidation is happening on both a national and a regional level. As this occurs, it will place additional competitive pressures on smaller practices, and likely trigger more transactions. Radiologists, dermatologists, ophthalmologists, and other specialty groups are further down the road in this process and provide a road map for what orthopedics can expect.
There are multiple factors to consider when buying or selling a practice or joining with a private equity firm to grow in a consolidating environment. These include everything from practice valuations to taxes to real estate considerations. Most physicians will only go through this process once, so professional guidance is critical to maximizing value and avoiding potential issues.
If, and when, the decision is made to sell or pursue a strategic partnership/investor, understanding both the broad market dynamics, and your interests as an owner of an orthopedic practice, will be vital in maximizing value.
Jeff Swearingen is co-founder and Managing Director at Edgemont Capital, a leading healthcare investment banking firm. Edgemont Capital has represented dozens of independent physician practices in mergers, acquisitions, and private equity transactions.
