Two new private equity platforms were established in the orthopedic sector in the third quarter of 2019, according to Provident Healthcare Partners' "Q3-2019 Physician Services Update."
Robert Aprill, a senior associate at Provident, spoke to Becker's ASC Review about the recent transactions and what's on the horizon for orthopedics.
Note: Responses were lightly edited for style.
Question: What stands out to you about third-quarter activity in the orthopedic sector?
Robert Aprill: In the third quarter of this year, we saw the first "second bite" when Frazier-backed The CORE Institute [in Phoenix] was acquired by Audax Group. Not only is this substantial because Audax is a blue chip investor in the middle market of physician services, but it demonstrates that there is a path to a successful exit. This will be noted by PE groups in the market that are working on their orthopedic investment theses. Additionally, orthopods around the country have taken note, and this exit provides a road map for them to follow.
Additionally, the transactions involving [Cincinnati-based] Beacon Orthopaedics (Revelstoke Capital Partners) and [Greenwich, Conn.-based] Orthopaedic Neurosurgery Specialists (Kohlberg & Co.) continue to demonstrate the healthy appetite the PE market has for strong platform-capable orthopedic practices. While only three transactions, this was the most active quarter to date and likely will set the tone moving forward.
Q: Why should orthopedic practices be paying attention to this kind of activity, even if they're not interested in PE investment?
RA: As with other physician spaces that have seen years of consolidation fueled by PE dollars, once PE begins moving into a space, there tends to be a wave of investment. PE has had a profound impact on spaces like dermatology, ophthalmology, interventional pain management, dental, etc. Even if groups don't think they will be particularly interested in the PE model, it behooves surgeons to better understand how PE functions in the orthopedic world, as its presence will only grow moving forward. While your practice may not transact with a PE group, the practice across town may, and it is beneficial for groups to understand how these models work.
Q: What's in store for this sector in the fourth quarter and heading into 2020?
RA: We have now seen multiple "platform" investments made into the space, but the add-on or true "consolidation" has yet to really start. We saw our first true add-on acquisition when the Varsity Healthcare-backed platform The Orthopaedic Institute in Gainesville, Fla., acquired the widely known Steadman Clinic in Vail, Colo. These "add-on" or "follow-on" transactions to existing platforms will be more common moving forward as the eight-plus current orthopedic platforms look to expand their footprint both in their local geography and more nationally. I expect that we'll continue to see PE groups make investments into the space, while in addition starting to see a more robust add-on marketplace where smaller practices partner with and are acquired by existing PE-backed platforms.
Want to participate in future Q&As? Email Angie Stewart: astewart@beckershealthcare.com.