Physician Exit Strategies and Private Equity

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Physician Exit Strategies and Private Equity

Doctors as sellers. How did we get here?

Some years ago, I was co-managing a chain of Urgent Care centers in Denver. Urgent care was a young industry started by emergency and family practice physicians that sought a different working environment. For most practitioners there was no discussion of exit strategies.

That was until Humana started buying up Urgent Care centers. (they now own the largest Urgent Care chain, Concentra) At the next industry conference, a class titled “How to value your Urgent Care center” was being taught by Humana’s VP of Acquisitions.

I thought I would stop by to hear what they were saying and could not believe the size of the crowd. Almost overnight, the mentality in the industry had gone from “this is how I am going to practice medicine” to “how much is my practice worth, and can I sell if I want to?”

What changed? The answer is that once hard-working people see other people like themselves sell for significant amounts of money, the natural inclination is to consider this option.

It takes two to tango. Who is buying medical practices and why?

In 2000 we had a client that ran a large neonatology practice at Presbyterian Hospital in Dallas. We had been advising their group on and off for 10 years. Up until this time there were no buyers for practices such as this. That’s when we noticed a change. Specialty funds had appeared that were buying out doctors. They were called Private Equity funds. They bought mature businesses as compared to Venture Capital funds that were investing in new technologies. We helped this group of doctors sell their practice to a top Private Equity fund named Welsh Carson and within 3 years this was part of a New York Stock Exchange company named Mednax with the stock symbol MD.

Why? Healthcare companies are resilient. With an aging population and new technologies coming online daily, the industry is ripe for growth and consolidation. Management of Private Equity owned companies know how to take advantage of these factors. According to a report by Bain & Company, the average private equity fund generated an annualized return of 13.5% from 2006 to 2016, compared to an annualized return of 9.5% for the S&P 500 over the same period. Healthcare private equity funds raised over $50 billion globally in 2020, which was up substantially from the previous year. Market corrections like the one in 2023 when Silicon Bank collapsed have had a limited impact on investments in healthcare companies. Healthcare industry focused funds appear to have enough earmarked capital to fuel healthy levels of buy-out activity in 2023.

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