Experts at the 16th Annual Healthcare and Life Sciences Private Equity & Finance Conference, held in February in Chicago, determined orthopedic practices are likely to soon see massive interest from private equity funds, according to JDSupra.
The experts included Larry Barr, senior vice president of Kinsella Group; Kevin Becker, vice president of LLR Partners; Mike Horrell, principal at Foundation Surgical Affiliates; Michael J. Milne, MD, founder and former CEO at Motion Orthopaedics; and John C. Riddle, managing director and principal at Brown Gibbons Lang & Company.
Five key points from the panel discussion:
1. Investments in orthopedic practices could be the next wave in private equity but it also presents challenges for investors. Orthopedic practices usually have more complex and diverse payer mix than other healthcare sectors and their growth strategy depends on internal capital instead of outside investment.
2. Competition is rising. Private equity companies must bring value to orthopedic groups beyond capital fusion and the panelists predict competition for profitable practices will grow.
3. Investments are expensive and as investors examine orthopedic practices, the price for investments of scale mirrors demand. Market EBITDA multiples are increasing from tens to high teens and are rationalized by the organic growth potential linked with orthopedic practices and potential future tuck-in transactions.
4. Orthopedic practice group's "eat-what-you-kill" compensation models present difficulties for investment. Private equity presence will require practices to transition compensation to structures that generate revenue growth and are feasible for established orthopedic practices.
5. Typically orthopedic groups have grown organically and inorganic growth opportunities are untested. Success could be dependent on the company's ability to infiltrate markets where this density can be developed.