There are several trends popping up in relation to healthcare mergers and acquisitions, including the interest of private equity firms, combination transactions, consolidation of physician-owned practices and formation of more management services organizations.
During a panel discussion at the Becker's ASC 25th Annual Meeting: The Business and Operations of ASCs Oct. 18 in Chicago, Matthew Searles, partner of Merritt Healthcare Advisors, and Jay Pruzansky, MD, principal of Honolua Healthcare LLC, discussed these trends in ASC and MSO deals in greater detail.
Here is a breakdown of what the two experts in healthcare M&A had to say:
1. Private equity firms are interested in healthcare. Wall Street is pushing into the healthcare space because it views private practices and ASCs as safe investments, explained Dr. Pruzansky. "What we are seeing is private equity is willing to come in, pay large multiples to buy a part of the cashflows of a practice. It is a way for physician practices remain competitive, independent and own stake in their company," Dr. Pruzanksy said.
2. Combination transactions. Though ASC deals traditionally didn't cross over to practices and practice deals didn't cross over to ASC deals, that is beginning to change. "In the past, you really had separate buyer pools and valuation metrics between practices and ASC deals. But now, healthcare reform is favoring scale and integration of care," Mr. Searles said.
3. Consolidation of already sizable physician run practices. Market trends are driving healthcare deals that can consolidate providers and services across the continuum of care, explained Mr. Searles. As a result, practices are consolidating at a rapid pace.
4. Why more MSOs are forming. MSOs are entities designed to help practices with non-medical work, including administrative duties like payroll and human resource issues. They can be owned by non-provider investors, physician groups, hospitals or health plans. However, these organizations are morphing as the push to value-based care continues. "MSOs are a way physician practices can stay independent and own their brand," Dr. Pruzansky said. "The goal of the MSO is to grow by adding on ancillary services, including things like dermatology, orthopedics, physical therapy… with a goal of the MSO being sold again in three to five years at a much higher rate."
Private equity has been very interested in owning MSOs, Dr. Pruzansky added.
So far, Merritt Healthcare Advisors and Honolua Healthcare have seen positive effects on valuation trends with ASCs in combination deals and MSO deals, the two presenters said.
For example, for practices or ASCs entering into combined deals, they often trade at higher multiples. Traditionally, if valued between six to eight times earnings before interest, taxes and amortization as a standalone, the practice can trade at eight to 12 times EBITA when combined, Dr. Pruzansky said.