A Deep Dive into Medical Practice Mergers and Acquisitions (Part 1)

Listen or watch as host David Mandell takes a deep dive into healthcare mergers and acquisitions (M&A), with investment banker Clint Bundy and private equity firm principal Matt Ebbel. They discuss the advisory and strategic roles they play, aiming to maximize value and find the best partnerships for business or practice owners looking to sell or raise capital.

Clint shares insights into the process of advising healthcare practices, emphasizing building trust, understanding client objectives, and assessing the market for potential transactions. He provides case studies to illustrate the varied scale and scope of deals he has worked on, ranging from solo practices to multi-location consortiums.

Matt offers a private equity perspective, highlighting the importance of selecting the right partners and platforms for growth or sale, especially in a changing economic landscape influenced by interest rates and market consolidation. He stresses the significance of operational excellence and strategic planning in achieving successful outcomes in healthcare M&A.

The discussion also touches on the challenges and opportunities within the healthcare sector, including regulatory hurdles, the impact of economic factors on transaction viability, and the strategic importance of aligning with partners who can add value beyond capital.

Key Takeaways

Takeaway 1: The Importance of Understanding Business Objectives in Transactions

Clint emphasized the importance of gaining an understanding of business objectives in medical or dental practice transactions. He highlighted that motivation is a core fundamental of any M&A transaction and that the investment banker’s role is to guide the practice owner towards their next step in their growth cycle or in a succession or exit planning cycle.

Clint explained, “At the outset, a big element for us is, one, build trust with the practice owner. Because at the end of the day, if we’re going to represent them at some point in some kind of sale or capital raise, there has to be a high degree of trust they have in us.”

He further highlighted the importance of understanding the client’s objectives, “we’re also trying to ensure we understand what their objectives are. Is now the right time for them to consider a sale? What are the overlying goals?”

Takeaway 2: The Current State of the Market for Physician Practice Management

Both Clint and Matt touched upon the current state of the market for physician practice management. They discussed the challenges that have arisen due to changes in interest rates and wage inflation, particularly for sub-sectors that do not control their pricing.

Clint noted the significant number of private equity-backed platforms in the healthcare sector, “just to give you an isolated dermatology space, there are probably 40 to 50 private equity backed dermatology platforms.”

Ebbel highlighted the challenging conditions in the market, stating, “The last two years have been tougher sledding, interest rates have gone north of 5% and there’s been wage inflation which has hit the PPM industry particularly hard for sub-sectors that don’t control their pricing.” He suggested that consolidation would likely occur amongst these platforms as a result.

Insights surfaced

1. Investment bankers act as advisors and representatives to business or practice owners who are exploring or in the market for selling their company or raising capital.
2. Private equity firms invest in the equity of private businesses, looking for new opportunities, underwriting those businesses, and working with them after making an investment.
3. The healthcare sector has seen a significant increase in M&A transactions and interest from private equity groups since the 2010 timeframe.
4. In the M&A process, understanding the motivations of both the buyer and seller is crucial.
5. The current market has numerous buyer options and investor options for healthcare businesses.
6. Interest rates and wage inflation have impacted the private equity industry, leading to tougher conditions for M&A transactions.
7. The consolidation among private equity-backed platforms is expected due to over-leverage and the lack of top management teams in each of the sub-sectors.

Links:

• Clint Bundy Bio
• Matt Ebbel Bio
• Host, David B. Mandell Bio