by Joanne Finnegan | Nov 18, 2019 12:00pm
It’s a
good time to sell a physician practice, but a lot hinges on the practice
specialty, according to one healthcare investment banker.
“It’s
becoming a seller’s market,” Jeff Swearingen, founding partner at the
healthcare investment banking firm Edgemont Partners said in an
interview with FierceHealthcare.
Valuations
are strong and there’s still a lot of demand for good practices, which is
especially true in “hot specialties” such as gastroenterology, vision care,
women’s health and fertility, and orthopedics, Swearingen said.
“All of
these different specialties within the physician practice world seem to be
undergoing consolidation at different times,” he said.
Right
now, the market is seeing hospital-based specialties dramatically slowed in
terms of merger and acquisition activity, he said. So specialties such as
emergency medicine, anesthesia and hospitalist medicine have cooled, as well
as, to a lesser extent, radiology.
Some
office-based specialties that saw early interest have also cooled off,
including dermatology, where merger and acquisition
activity is not as active and practices are not as sought after by private
equity firms as they were a few years ago, he said.
“Investors
and others have turned their attention to other hot specialties,” he said.
Gastroenterology
is hot. Vision care has been hot for a couple of years and is probably in the
mid- to late-stages of its cycle. Orthopedics is “up and coming” and generating
investor interest. And practices are seeing the melding of traditional women’s health
and fertility specialties, which is kind of a natural add-on to women’s care.
But
it’s a bit of a roller coaster. “What we’ve seen is that these specialties are
heating up, and at an accelerated pace sort of building to that frenetic level
of activity and then falling off at an ever increasingly rapid pace,” he said.
So for
specialties that were hot five or seven years ago, the pace built to a high
level of activity that is now dropping off.
“They
seem to heat up faster and cool off quicker,” he said.
There’s
a strong belief among investors that if they jump in early, they have an
inherent advantage, so if they think they are late to the party they may be
wary and less willing to pursue a particular specialty, he said.
Practice
owners who are thinking of selling should look ahead to next year’s
election, he said. It’s already starting to get investors’ attention.
Healthcare is a hot political topic, already grabbing headlines in the
political debates. It may create an increasingly tougher environment going into
the second half of next year when all eyes are on the election. There will be
worries about not only who wins the presidential election, but what kind of
healthcare reforms the winner may propose. That uncertainty may slowdown
healthcare services merger and acquisition activity, and potentially affect
physician practice mergers and acquisitions, he said.
“It’s
hard to say how healthcare services will play out in the election,” he
said. “In our view, if you’re looking to sell you should explore your
options now.” Practices should consider starting the process, which can take
six to nine months, with the goal of closing in the first half of next year
rather than waiting to get too close to the election which could either push
deals off or push values down.
Swearingen
sees it as a seller’s market. “Just [based on] the level of interest and
activity. It’s simply a supply and demand issue. The demand for good,
high-quality practices is as strong as it’s ever been. People are eager to put
capital to work in the current capital market environment and that’s allowed
sellers to really dictate terms and the values have been very, very strong,” he
said.
Obviously,
low interest rates help, he said. “That’s allowed people to increase their
values in the practices they are looking to buy. There’s enough competition out
there they really do have to pay top dollar for practices or the practices will
go elsewhere.”
“For many of office-based specialties that I
mentioned, it’s a very attractive time to look at a sale,” he said.
Many
practices are doing transactions with private equity groups or other strategic
consolidators to avoid being forced into a transaction with a hospital or with
a payer, which is widely perceived as the two least attractive options, he
said.
The
same factors that have been driving consolidation of physician practices are
still in place, he said. Factors that have some physicians looking to sell
their practices include uncertain reimbursement practices, increasingly
burdensome administrative duties, substantial capital demands for investing in
technology and a desire among many doctors to leave administrative burdens
behind and return to the practice of medicine.
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