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Private equity funds are sourced from high net-worth individuals and financial institutions. These firms use their funds to invest in privately held companies with the intention of creating a successful partnership that leads to substantial growth and an eventual return on investment (ROI) with a sale to either a larger private equity firm or strategic partner who will look to continue to accelerate the growth of the platform. Generally speaking, a private equity fund is looking to return a 3-5x return on equity on any given investment. Reputable and experienced healthcare private equity firms seek to empower the platform by providing capital and supplementing the team with experienced management, board level executives, and other relationships to achieve attractive levels of sustainable growth. Within the Urology vertical, some of the primary goals of private equity include gaining enough scale to begin negotiating with payors, capturing ancillary services in-house and centralizing infrastructure and operations to grow the business exponentially. Successful organizations result in physician shareholders having the ability to participate in multiple “bites of the apple” throughout their careers, while continuing to lead with quality of care
The most successful healthcare private equity firms do not look to interfere with clinical practices. The private equity partner will look to drive growth, create efficiencies, alleviate the administrative burden of the physician owner, and put experienced human capital in place to achieve a successful, sustainable strategy. For shareholders, the biggest change is associated with receiving a liquidity event while resetting your compensation closer to market level for an associate provider. However, there are different mechanics that may be negotiated in your go-forward compensation structure to achieve “income repair,” and eventually approach pre-transaction compensation levels. Private equity firms want to maintain strong alignment with the group that they have invested in, which is why they seek to have the founding owners typically invest between 20% to 40% of the purchase price into equity. This results in a shared goal of growing the organization and achieving a “second bite of the apple” within a 3-7 year timeline. Private equity groups seek to generate a 3-5x return on capital in a subsequent transaction.
Every private equity fund views the world from a different lens relative to motivation, strategy, expertise, etc. While the partnership is not forever, a practice will still work very closely with their private equity partner for several years. Having a strong professional relationship and like minded strategy is imperative for the success of the private equity partnership. Physician Growth Partners (PGP) works on behalf of independent physicians to ensure their goals and succession planning needs are met through a transaction. Our process is tailored around maximizing value, while identifying and engaging investors that will be a strong cultural fit with experience in the healthcare space to ensure a successful go-forward partnership. It is essential that you partner with a healthcare private equity group that has a similar vision. While many urology groups may initially feel they can navigate a transaction without an advisor, those that have gone through the process with an experienced and reputable firm in their corner will be quick to highlight the significant value add from both an economic, partnership and educational perspective. Ensuring that each physician partner is prepared and fully understands the dynamics within a transaction is crucial for the future success of the business. A seasoned healthcare transaction advisory team can ensure that the most attractive outcome is achieved. Through a formalized competitive marketing process, an advisor is able to ensure the practice maximizes their economics and transaction terms. A transaction process also allows the urology group to interview multiple private equity partners and choose the group that presents the best ‘fit’. Even if a group is approached by a buyer or have a buyer in mind, it is essential to run a process considering the practice has one opportunity to choose the right private equity partner, supplemented by the value a process drives in regard to both deal terms and economics.
The consolidation within urology continues to accelerate exponentially. Whether a practice outwardly desires private equity partnership, questions the rationale and effectiveness, or downright disagrees with private equity, it is essential to get educated to ensure your urology platform is positioned accordingly. For those that choose to go down the path, it is absolutely imperative that partnership, not simply economics, is the first priority. The role of an advisor can be the difference maker not only in knowing who can be trusted and who has a track record of success, but in ensuring an economic outcome that is satisfactory when transferring the ownership of your business. If interested in pursuing a transaction, learning about private equity, the private equity strategy, transaction dynamics, or activity in your market, please utilize the information below to contact the PGP team and schedule a discussion.
Physician Growth Partners is focused on client education and executing transactions that maximize cultural fit alongside economics. Our belief is when transactions are focused around fit, odds of a successful long-term partnership are maximized.