Varsity Healthcare Partners entered the gastroenterology space when it partnered with Colorado Springs, Colo.-based Peak Gastroenterology Associates in early December.
Varsity's investment marks the firm's establishment of a PE platform in gastroenterology, the sixth such platform to date.
Here, David Alpern, Varsity Healthcare Partners founding partner, and Peak Gastroenterology leaders Bhaktasharan "Buck" Patel, MD, and Prashant Krishnan, MD, elaborated on the deal and discussed the future of the partnership.
Note: Responses were edited for style and content.
Question: How did Varsity identify Peak Gastroenterology and why did it pursue a partnership?
David Alpern: Varsity Healthcare Partners began researching the GI space two years ago and validated its attractive secular trends — sustained growth in utilization due to the patient/payer efficacy of colorectal screening at a young age; digestive abnormalities correlated with an aging population; and supply/demand imbalance with respect to providers, particularly in secondary markets. Those trends led us to a variety of platform targets, one of which was Peak.
VHP was intrigued by the uniqueness of Peak's model, which emphasizes partnerships with hospital systems, whereby Peak manages the outpatient GI function on behalf of the hospital and is a partner to the hospital in all local ambulatory endoscopy centers in both Colorado and Arizona. Also the proven clinical leadership and strong, team-oriented culture of Peak, was an attractive product resulting from the values and practices of Peak's leaders Dr. Buck Patel and Dr. Prashant Krishnan.
Q: How does Varsity view the current state of PE investment in gastroenterology?
DA: Much like ophthalmology and dermatology, two spaces where VHP has had successful past investments and remain coveted by PE buyers — given the strong secular growth, high seller awareness — we remain highly cautious in GI. Valuations are full, despite few well-capitalized competing platforms.
VHP/Peak will prioritize those acquisition opportunities that are accretive to Peak's service capabilities for its hospital partners, enable Peak to participate in multiple GI revenue streams, and open new markets where there is sufficient white space for consolidation, leveraging Peak's infrastructure and consistent with its values.
Q: What can Varsity offer practices that other PE firms can't?
DA: I don't like to spend a lot of time on what makes us special, other than to say that we've been underneath the covers of enough practices and made enough mistakes in scaling our outpatient platforms to be able to steer the Peak team away from both operational, strategic and organizational landmines.
Q: What made Varsity an attractive partner?
Drs. Bhaktasharan Patel, Prashant Krishnan: We interviewed several PE firms, including a few that already have a platform in the GI space, prioritizing two things: whether the PE partner had sufficient operational and financial experience building other outpatient businesses at a similar place in our company's lifecycle and whether the personal chemistry and values of the PE partner matched our own. We chose to partner with VHP on that basis.
Q: Why did Peak seek out a PE partner?
BP, PK: Our practice has experienced substantial growth in the last five years, as we have expanded with our hospital partners to many communities across Colorado.
Our demonstrated growth led to more growth opportunities via providers seeking us out, and us managing our own expansion capabilities. But the challenges of growth, like the need for additional resources — including both financial and operational talent that we didn't even know we needed years ago as we were building our business — is what led us to the hard decision to seek out a capital partner who has done this type of growth adventure before.