The Dealmaking Continues

PE-Backed Groups and Practice Transition Programs Resume Activity, as ODs Explore Their Options

By

Click to download a PDF of The Dealmaking Continues.

NEW YORK—The outlook was rosy in January and February. Business was strong, the eyecare and eyewear sectors were firing on nearly all cylinders, and, from the perspectives of many involved in practice transitioning and the acquisition of independent and group eyecare practices in the U.S., fueled by private equity firms and other investment models, 2020 was going to be another active year.

Until the pandemic arrived. As the shutdowns began there was a “hard pause,” primarily because those practices and platform/group operators had to prioritize managing their own existing practices, doctors, associates and patients and assessing what was and would be needed there.

From mid-March to at least late May or early June, there were few deals closed. But things shifted in late June and early July and now there is more momentum toward closing deals again, executives tell Vision Monday.

As of this writing in late July, COVID-19 cases were hitting record numbers in 30 U.S. states, and while much remains unknown, deals from PE-backed groups are proceeding. Other practice transition options, from programs facilitating investments in new practices and franchising, too, have started back up. Management services execs, known as “consolidators,” and PE executives do acknowledge that the current economic climate makes future projections more challenging. These execs note that they need to assess a practice’s fundamentals, and also the engagement and commitment of the current owner to determine who would be a prioritized acquisition candidate now.

Kavanagh Consulting, an advisory firm with extensive experience in health care and a specialty in vision care, represents clients in sell-side transactions to primarily private equity backed groups. Principal Anne Kavanagh pointed out, “Health care is a defensive sector, and is not generally considered discretionary spending but essential, so it bounces back faster than other business sectors like retail, consumer goods and restaurants. Coronavirus slowed the pace of consolidation but it’s rebounding now as vision is more resilient than other sectors.”

Added Francois Huré, a co-founder and partner of CAPM, an investment banking advisor that has been involved in several optical and vision care business transactions over the years, among those in other sectors, told VM, “Vision is a ‘need,’ and so people’s view is that the demand and need for vision correction and eyecare remains consistent. Fundamentally, this is still a sound industry. How fast the deals will resume will depend on several things. We may see prioritization where deals are done in areas where the firms already have clusters of practices or density, perhaps they won’t open in brand new markets for a time.

“It will be interesting to see who the real operators are and who is intent on adapting to the new health care and business environment,” he said.

Kavanagh noted, “The buyers have been prioritizing further scale and development within existing markets but also expansion into new markets targeted for 2021. As for sellers, their priorities have remained the same but interest in selling has certainly increased with many doctors previously on the fence wanting to consider selling their practice to mitigate risk that has resulted from practice shutdowns and market uncertainty. Overall, we have seen a large uptick in interest from both younger and older ODs as the current market uncertainties that they face post-COVID, which are very challenging and require practice management and investments to compete in the current climate, has made fewer owners want to have to deal with the unknown.”

In this Special Feature, VM talks to execs with the major PE-backed firms focused on the vision space as well as groups who are exploring ways to show practices transition options other than equity sales to help them navigate the future.