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Healthcare M&A Remains Active


M&A activity in the healthcare market has been heating up for quite some time. In 2018, M&A total deal volume reached a whopping $121.5 billion, an increase from 2017, which was itself a record year, according to PricewaterhouseCoopers. The first half of 2019 continues to be just as busy. 

“The market is frothy. Healthcare is typically viewed as a safer end-of-cycle play. Investors know we are late in the cycle, and they are beginning to buy businesses that would be resilient during a downturn and that they are comfortable owning,” says Geoffrey Smith, a managing director with Harris Williams.

What’s more, buyers see a very clear exit strategy as larger strategic acquirers continue snapping up strong healthcare businesses that can help them grow their bottom line. “You can see the linear pathway to an exit. There is a universe of buyers prepared to step in and acquire companies that are ready to go to the next level,” says Faraaz Kamran, a senior partner at Twin Brook Capital Partners.

That said, the healthcare market is broad and there are many different subsectors garnering attention from investors. Here’s a look at some of the subsectors have been getting their fair share of attention from middle market private equity firms and beyond.

Physician Practice Management

Gone are the days of the standalone physician. Today, it is extremely difficult for single practice physicians to get ahead. As a result, private equity firms have increasingly been focused on buying and consolidating various types of medical practices. Twin Brook Capital Partners, a middle market lender that only lends on private equity transactions, has  committed $2.8 billion to 20 of these types of deals since 2015. 

Dermatology, dental, gastroenterology and ophthalmology are all popular practice areas that have seen private equity investors come in and apply roll-up strategies. “Not all deals are created the same. Just because you have a dental or dermatology practice, it doesn’t mean you are a candidate for a roll-up, but – if you have a good business – there is opportunity,” says Kamran. “Given increased regulation and the intensifying push for providers to adopt a risk sharing model, there is a growing need for investment. Government reimbursements are based on patient outcomes, so the risk profile has changed. There is a more limited ability to keep individual practices open today.”

A bunch of private equity firms have invested in the space. In July, Pamlico Capital completed a growth investment in US Eye, a newly formed entity that combine two Florida-based eye care platforms. US Eye has established a strong footprint in the Sarasota market. In June 2019, US Eye completed a partnership with Montgomery Eye Center in Naples, providing entry into the Naples market and further strengthening its presence in Florida.

In June, Sheridan Capital Partners invested in Atlantic Vision Partners, a vision practice management company. The company has achieved scale in its core market of Virginia. The plan is to grow Atlantic Vision beyond Virginia. Sheridan already successfully did that with Smile Doctors, a Texas-based provider of orthodontic services in 2017. The firm made more than 20 add-on acquisitions to Smile Doctors during its ownership. 

Healthcare-Lite Deals

Consumer-focused healthcare deals have also piqued private equity’s interest. These deals are often called healthcare-lite deals because while they have a healthcare component, investors need not be experts in healthcare. “There is now a whole category of retail in healthcare, and consumer investors have turned their attention to it. It’s a unique angle,” says Smith.

These deals tend to be in the derma, veterinarian, and dental spaces. For example, Sun Capital Partners, which has traditionally invested in consumer products and services, bought ClearChoice, a national provider of same-day dental implant services in the U.S., while TSG Consumer, which typically invests in consumer products, invested in Perricone MD, a marketer of premium clinical skin care products. 

“These healthcare-light deals are an easy first step into the healthcare market, which has increasingly become more consumer focused. A key component of these companies is that they are viewed as having multiple pure retail dynamics, in addition to delivering a healthcare service,” says Smith.


Justin Ishbia, managing partner of Shore Capital Partners, says the veterinarian space is one of the hottest subsectors of healthcare today. The sector is growing with 68 percent of U.S. households owning a pet, according to the 2017-2018 National Pet Owners Survey. This is up from just 33 percent in 2000, according to IBIS World Report. What’s more, the space is still highly fragmented; Harris Williams reports that only 10 percent of the veterinary market is consolidated. 

Private equity started showing strong interest in the space more than a decade ago and that interest has not waned. Big named private equity players such as KKR and Ares Management led the way with purchases of PetVet Care Centers and National Veterinary Associates respectively. 

“The vet business is a healthcare lite play. You don’t have the same regulatory requirements you have in human healthcare. You don’t have that barrier to entry,” says Ishbia. 

To take advantage of the opportunity in the market, Shore Capital’s lead vet partner, Mike Cooper, led the purchases of dozens of vet practices to form Southern Veterinary Partners and Midwest Veterinary Partners. Southern Veterinary now has 87 locations, while Midwest Veterinary has 41 locations. 

Shore Capital plans to keep buying practices through its two platforms. “This area should remain active. It has great characteristics and I don’t see that changing,” says Ishbia. 

Medical Devices 

The medical device manufacturing market is expected to reach $91.3 billion by 2024 from an estimated $55 billion in 2019. With numbers like this, it’s no surprise that the private equity industry has shown interest. Additionally, the exit opportunities are strong with strategic acquirers like UnitedHealth Group and Boston Scientific purchasing ripe medical device companies consistently. 

Medical Device continues to be a sector of rampant private equity interest as it allows sponsors, including more generalist investors, to take advantage of the strong healthcare industry fundamentals without assuming certain reimbursement and regulatory risks that many healthcare investments are subject to,” says Adam Willis, the Head of Healthcare with Madison Capital Funding, adding that the globalization of healthcare and improvements in care technology will continue to drive investor demand.

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