The next in our series of posts sharing key takeaways from panels at the Healthcare & Life Sciences Private Equity and Lending Conference focuses on investing in surgical specialty practices. It is authored by our colleagues Royce DuBiner and Holly Buckley.


5 Key Takeaways on Top Surgical Specialty Investments

By Royce DuBiner and Holly Buckley

Investment and consolidation of physician’s practices is still on the rise, but approaches differ on strategy. At the 15th Annual Healthcare and Life Sciences Private Equity and Finance Conference hosted by McGuireWoods LLP a panel of investors and strategists spoke to colleagues about their success stories and lessons learned from investing in surgical specialty physician practices. There are a number of principals on the panel highlighted key considerations when investing in this space.

Experts included:

  • Jeanne Proia, Director, Cross Keys Capital, LLC
  • Roy Bejarano, Chief Strategy Officer, Physicians Endoscopy, LLC
  • Jason Ficken, Partner, Quadriga Partners, LLC
  • Michael Stroup, Senior Vice President for Acquisitions, United Surgical Partners International
  • Andrew Barnet, Operating Partner, CommonView Capital
  • Gregory Hagood, Senior Managing Director, SOLIC Capital Advisors, LLC

Here are five main takeaways:

1. The key to a successful platform is driving down costs and/or being a lower cost, better alternative. Further, finding the right mix of physicians and back office staff to enable a good practice is critical.

2. One core aspect of any model is calibrating the right mix of equity and salary for physicians so that incentives are aligned pre-closing and post-closing to keep moral high within the practice. Physicians are used to knowing where their income is coming from on a predictable basis. When a transaction takes physician compensation off the table, sponsors need to decide how to keep physicians aligned on a prospective basis. We are seeing more creating compensation models to this end.

3. Ancillary services are often important to the practice. In evaluating a platform, it is important to assess whether the company has an ambulatory surgical center, pharmacy, or lab and how the revenue for these services factors into the overall business. This is also an area that can create some regulatory risk and a careful diligence review is important.

4. There is a tendency for investors to engage in overbidding, in is important to stay focused on the true value of the practice and not overpay. Multiples have continued to increase in the physician practice management space and processes are increasingly competitive.

5. Physician loyalty is key. It important to articulate the value proposition to physicians, i.e. How does the transaction and compensation structure work? The platform is dependent on physicians post-closing and if they don’t understand the value proposition the platform will struggle to succeed.