We have previously discussed the rapidly growing private equity interest in the urgent care space, the reasons for urgent care’s current favored status and some of the challenges for investors. A large transaction announced this month is another example of private equity activity in the space.

NextCare Holdings Inc. has acquired 11 PrimaCare Medical Centers locations in the Dallas/Fort Worth area. With the acquisition, NextCare, one of the nation’s larger providers of urgent care services based in Mesa, Ariz., now operates 86 clinics nationwide. This is the latest acquisition in a string of expansions for NextCare. NextCare is a portfolio company of investment firm Enhanced Capital Partners, which invests in a broad array of smaller businesses in various sectors.

Gordon Maner, of health care-focused investment banking and wealth management firm Allen Mooney & Barnes (AMB), represented PrimaCare in the transaction and offered this additional insight on the transaction: “With its long-standing presence in the DFW market and reputation for providing quality health care services, PrimaCare created a strong brand unmatched by most competitors. NextCare has a fantastic opportunity to gain increased market share by leveraging the existing brand and management team. This transaction highlights the type of opportunity that many strategic and private equity investors are searching for in an urgent care partner.”

According to an American Medical News report, the Urgent Care Association of America reported that from 2011 to 2012, the number of new urgent care centers opening has doubled, from an estimated 300 to 600 per year, for a total of about 9,000 nationwide in 2012. And in the first half of 2013, in addition to the NextCare-PrimaCare deal, we have seen activity across the urgent care market by both strategic and financial buyers, including through merger and acquisition, as well as organic growth. Examples include:

  • In April 2013, the joint venture between CareSpot and HCA Holdings’ TriStar Health has acquired Nashville-based NeighborMD. The joint venture, formed to develop urgent care centers in Middle Tennessee, will acquire five NeighborMD urgent care centers and open five additional centers by the end of 2013.
  • Capital Group Holdings (CGHC) (Arizona) reported in mid-April that its board has determined that material expansion opportunities exist that will increase the number of OneHealth Urgent Care (OHUC) clinics. OHUC is a wholly owned subsidiary of CGHC.
  • CareWell Urgent Care, which is backed by $11 million in venture capital money, plans to open six new urgent care centers in Boston during the summer of 2013. According to CareWell’s Founder, Renee Lohman, their goal is to open 35 to 42 additional centers in the region in the next five years.

The industry is poised to continue its growth trajectory. It is expected to increase from the approximately 9,000 centers with $13 billion in revenues in 2012 to more than 12,000 centers and nearly $18 billion in revenues by 2017, driven by the Patient Protection and Affordable Care Act of 2010, which expands health care coverage to include over 32 million Americans within the next decade.

Private equity firms are positioning themselves to capitalize on the burgeoning urgent care market. Thomson Reuters data shows PE firms invested nearly $4 billion in health and medical services in 2012, up from $3.5 billion in 2011 and up from less than $1 billion in 2009, with urgent care centers driving much of the increased investment.

Mr. Maner agrees, stating that, “Over the course of multiple completed urgent care transactions, our team has experienced heightened participation by PE investors in our urgent care auctions. In several cases, investment professionals have either left a firm to capitalize on this opportunity independently or have created dedicated groups within their firms to explore nascent business models expected to undergo significant growth due to changing health care reform. The urgent care industry is a recipient of much of this interest.”

The recent expansion activity reported by NextCare reflects this rapid growth — in just the past 10 months, the company has opened or acquired 28 new clinics and plans to open additional clinics in both new and existing markets in the near future.

Investors already in or considering urgent care opportunities should work with a knowledgeable business and legal support team to determine appropriate markets, develop a model for sustainable growth, and navigate the complex health care regulatory landscape.