Why Now is a Good Time for M&A in Your Healthcare Business

Updated on December 20, 2022
Mature Doctor Involved In Serious Discussion With His Patients
Dena Jalbert

Merger and acquisition activity (M&A) is high in the medical field right now, and not just with billion-dollar deals like Amazon’s recent proposed acquisition of Medical One. Private equity (PE) activity for physician-owned practices is also high – which means you don’t have to retire to realize the financial potential of your practice. In fact, with this type of M&A, you can focus more on what you love (practicing medicine and seeing patients) and less on what you might be ready to hand over (the administrative side of a clinic).

The Best Fit M&A for Physician-Owned Practices

If you’re a physician who owns their own medical practice, that practice could be a good fit to become a physician practice management or PPM. That’s what the platform is called when private equity (PE) firms invest in medical practices. These PPMs are at the heart of healthcare investment strategies. (PPMs as a structure are designed for PE-backed consolidators that are physician owned and operated.)

In fact, healthcare services is the largest sector within PE investing, comprising 10% of overall PE deals in 2022. It is one of PE’s favorite “buy-and-build strategies,” due to its consistent growth, anti-recession characteristics, and fragmented market.

Now is the Time

If you’ve considered M&A specifically, or have just wondered how to do more of what you love and grow your business at the same time, now is the right time to investigate options. Concerns about inflation affect the “mega deals,” not the lower middle market, which is where most physician-owned practices fit.

PE deal count continues to be strong, especially in the lower-middle-market. Deal volume through the third quarter of 2022 is already in line with pre-pandemic levels and the PPM platforms that already existed are growing through acquisition. (Not to mention strategic buyers such as CVS, Walgreens, and Amazon entering the market.)

Three Reasons Physician-Owned Practices Are Attracting Private Equity

  • More leverage: Private equity is attracted to the ability to preserve elements of self-governance (versus large corporate structures) while creating economies of scale. That scale creates stronger bargaining power with payors and suppliers.
  • Better care: Serving patients through a multi-specialty group provides more convenience and better communication between patient and provider, which leads to better care and outcomes.

Benefits for You, as the Physician/Owner

What does this mean for you, as the physician/owner of your own practice? When PE buys a physician practice, the structure changes to one with a Centralized Business Office (“CBO”) or Management Services Organization (“MSO”) that supports the administrative and business functions. 

Many physicians who started their own practices after medical school are ready for other options. Becoming a PPM can be an attractive exit strategy that allows them to liquidate the wealth built up in their practice, without having to find a successor to continue the practice or do a merger of equals (which rarely works equitably in practice). 

If you’re not ready to retire, but simply want to grow while focusing more on patients and less on paperwork, PPMs offer that flexibility. Practitioners can go back to being clinicians instead of having to wear the multiple hats of business owner, boss, facilities manager, and all the other functions of a small business owner. 

By dividing up the responsibilities, the practice can scale and optimize. A physician owner can actually generate more revenue as the practice grows, without having to orchestrate the growth — the proverbial “win-win,” which in this case is a triple win for the practice, the physicians, and the patients.

Dena Jalbert
Dena Jalbert

Dena Jalbert, MBA, CPA, is the Founder and CEO of Align Business Advisory Services, a top-rated mergers & acquisitions advisory firm for lower-middle-market businesses. Align is comprised of former business owners, operators, and executives who leverage their experience and extensive network to maximize the value of clients’ business.