After a three-year absence from business headlines, recapitalization transactions for private equity-backed physician practice management (“PPM”) platforms are expected to return in force in 2026. Investing by private equity (“PE”) in PPMs dates back well over 30 years when select medical specialties (like dental, dermatology, and primary care) attracted institutional investors seeking to consolidate small practices into larger, well-capitalized and professionalized businesses supported by centralized corporate entities called Management Services Organizations (“MSOs”) that provide non-clinical support services to the medical practices. Investor interest in MSOs / PPMs exploded in the 2010’s as early PPM success fueled demand for investing in medical specialties operating in large addressable markets with significant fragmentation (e.g. consolidation whitespace).
Private equity rapidly pursued opportunities in cardiology, ENT, gastroenterology, ophthalmology, orthopedics, podiatry, urology and many others. By 2020, PE firms invested in over 350 PPM MSOs across medical specialties. Following a temporary COVID pause in early 2020, deal activity resumed with record volume of nearly 100 recapitalizations in 2021 and 2022 During this time, fierce competition amongst investors drove valuations to new all-time highs, required significant debt to be used to support high valuations and influenced investor diligence to soften typical scrutiny thus contributing to a post-COVID PPM sector bubble.
Rapid inflation, a spike in borrowing costs and over levered balance sheets caused financial challenges for many PPMs beginning in late 2022. As financial challenges persisted, investor sentiment shifted away from PPMs into other industry sectors. The number of PPM recapitalizations in 2024 declined to the lowest level in ten years, with only 13 completed transactions. Many investors shifted to alternative transactions to achieve partial liquidity, like continuation vehicles and structured capital raises, that also extended hold periods. This allowed PPMs time to deliver organic value-enhancing initiatives while also waiting for favorable investor sentiment to return to the PPM sector.
PE investors historically outbid strategic consolidators in sale processes despite no synergy value potential in a non-strategic transaction. With M&A competition from PE investors limited since 2023, well-capitalized strategic consolidators became the primary acquirors in PPM sale processes. For example, in January 2025, Cencora’s acquired Retina Consultants of America and in June 2024, Spire Orthopedic’s partnered with Ortho Rhode Island. Strategic M&A provides consolidators with significant synergy potential to drive material equity value appreciation for shareholders. Synergies largely reflect duplicative cost elimination at the MSO level and a variety of operational and financial opportunities at the clinic level. Over the last few years, PE-backed platforms in the dermatology sector (e.g., AQUA, Platinum, Qualderm, and Schweiger) completed large, strategic platform mergers and/or acquisitions of smaller PE-backed platforms in “consolidation of consolidator” transactions. These transactions represented logical strategic combinations that provided significant cost savings opportunities through MSO consolidation to drive equity value appreciation. In 2024, Cardinal Health formed a new company division, called The Specialty Alliance, that ultimately acquired three prominent PE-backed PPMs (GI Alliance, Solaris and Urology America). Cardinal Health’s vertical integration strategy extends the company’s supply chain from pharmaceutical distribution through the delivery of clinical care to the patient.
Regardless of investor type or strategy deployed, financial investors and strategic buyers recently increased the use of structured consideration in their bid proposals to de-risk the at-close capital deployed and to narrow the bid/ask spread between buyers and sellers. While historical transaction proceeds typically reflect predominantly cash at close, buyers increasingly use rollover equity, contingent payments, holdbacks, seller notes and other deferred or contingent forms of consideration. This approach shifts risk to the sellers to deliver on post-close financial performance to receive the incremental proceeds from the sale. Limited process competition is a key factor influencing the use of structured payments, which are more common in a buyer’s market and less used in a seller’s market.
Despite the muted level of M&A activity for PPMs over the last three years, the outlook for 2026 appears quite favorable as the stock market sits at an all-time high, borrowing costs have come down as inflation retreated, macroeconomic and regulatory uncertainties subsided following unprecedented volatility, and PPM sector results improved following institutional rigor in delivering organic growth and driving financial performance improvements. Investor confidence in bringing PPM platforms to market is beginning to manifest in the fall of 2025 as several high quality, large-scale PE-backed platforms hit the market for recapitalization processes with dozens more lined up for launch in early 2026. Positioning a company now emphasizes value creation at the platform through various strategic initiatives and business enhancements to demonstrate the investment merits and track record. Organic value creation, even if a derivative of a strategic acquisition, and the Company’s track record in driving these initiatives is a primary focus for buyers. PPM companies that demonstrate platform differentiation, deliver top quality patient care and achieve value-enhancing M&A are best positioned to receive robust investor interest in 2026 and beyond.
Rich Blann
Rich Blann is Healthcare Managing Director for DC Advisory.
