The Ophthalmology Sector

The Dragonfly Capital team has over 30 years of experience in the Ophthalmology sector, a market in the US that has all the characteristics that make it ripe for consolidation. 

Buyers' Perspective:  Ophthalmology practices are extremely fragmented in the US, with 90+% of all businesses independently owned.   There is no shortage of patients seeking ophthalmology services and well-run practices generate significant cash flow.  Ophthalmology practices' relative independence from hospitals also makes them attractive to the buyer community. Many ophthalmology practices own their own Ambulatory Surgery Centers (ASC), which are often very profitable.

Sellers' Perspective:  The higher risks and costs of practicing medicine today make a sale more attractive to physicians than 10 or 20 years ago.  In addition, the financial aspects of a sale of an ophthalmology practice have become more compelling over the past 5 years, both in the actual sale as well as the post-transaction economics to the physicians.  Finally, the focus on a more physician-friendly model post-acquisition has more ophthalmologists weighing the trade-off of loss of independence vs. the benefits or more freedom to practice with less financial pressure.  Typically, the buyer will want the selling physicians to remain working with the practice for a few years.

New Entrants
The Ophthalmology sector has seen major changes with the entrance of healthcare private equity investors over the past 5 years.  This new class of buyer is flush with capital and looking to partner with physicians vs. manage them.  These private equity groups ("PEGs") structure performance incentives for physicians and leverage local knowledge, relationships, and expertise to grow the business within their region.  In addition to committed capital for expansion, the PEG becomes a growth partner that provides strategic guidance and best practices for the acquired business. Private equity investors also help their companies recruit talent and offer attractive work environments for young physicians, usually with some equity upside. These structures can provide an attractive combination of income stability and a wealth creation opportunity, without the personal debt load often associated with partnership buy-ins.

Private equity firms looking to make their first acquisition in Ophthalmology will do so directly as their "Platform".  Their objective is to grow both internally (by increasing revenue and profit at the acquired practice) as well as externally (through the acquisition of additional practices and complementary assets).  These "Add-On acquisitions" (to the Platform) provide operational advantages that come with scale.   This Platform/Add-On model has been executed in many other healthcare specialties and has been well received by many physician groups

PEG-backed Ophthalmology platform companies offer differing levels of service. All will have some sort of corporate management structure whose job it is to grow the practice and keep things running smoothly. Some platforms will offer additional services to their physician offices such as human resources management, accounting, information technology, and other back-office functions. Most physicians are surprised by how hands-off these PEGs are as they are rarely interested in physician schedules and local management issues, believing instead that these are best handled by the local teams.

Today, there are approximately fifteen platforms in the Ophthalmology sector and they are all seeking additional practices.   Most are focused on a specific geography, but many have an interest in expanding to new areas with the right acquisition.  In addition, there are numerous other healthcare PEGs seeking a platform acquisition from which to start a new build up in this fragmented specialty. 

Traditional Corporate Buyers

Corporate buyers offer certain advantages to selling doctors, including robust management services and a national presence that can create leverage in contracting and purchasing situations. Selling a smaller percentage of the practice may be attractive to certain physicians who wish to monetize a smaller portion of their practice and/or ASC so as to retain more cash flow, post close. Corporate acquirers are more interested in physicians retaining local ownership of their practice or ASC, as opposed to some form of equity ownership in the global Ophthalmology company. Physicians may prefer their investment be tied to local operations more under their control rather than a global company whose success depends on market conditions and the performance of many practices. For these reasons, traditional corporate acquirers remain a force in the Ophthalmology buyer market.

Other corporate acquirers may be backed by a wealthy family office, assets from insurance companies, or retained capital by a larger group of doctors.  Transaction terms are variable, in part because these acquirers are funded and organized in different ways.  It is typical for deal structures to mirror those of private equity acquirers, with one important difference. Because these buyers do not necessarily plan to sell down the road, compensating physicians with equity in a parent company may not be possible or compelling. Instead, these buyers utilize earnout structures and other equity arrangements designed to provide upside and align interests. Physicians may be attracted to these type corporate acquirers because of their unique operational characteristics. They also offer additional long-term stability without a need to sell in the (near) future.

Dragonfly Capital typically represents the owners of an Ophthalmology Physician Practice or a Surgery Center.  If you are considering selling your practice, please contact Dragonfly Capital for a no-charge consultation.


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