With choppy debt markets, 2023 has proven to be the "year of the tuck-in" for PE buyers. PE firms largely have looked to shore up their existing physician practice platforms while seeking opportunistic acquisitions of smaller practices, in some cases bolting on to practices in existing markets. Although some buyers have looked to availability under their existing credit facilities to finance acquisitions, others have looked to non-traditional financing, including seller financing and earnouts, similar to the early days post-COVID-19.
Buyers also continue to navigate physician alignment issues, such as division of proceeds among selling physicians, participation of junior physicians in transactions, structures for rollover equity, and the ability to use incentive equity as a retention tool. In addition, buyers are now navigating new state filing requirements for certain healthcare transactions, including physician practice transactions, with a number of states having enacted or considering legislation in the double digits. And, with the pause button pressed on many platform exits earlier this year, existing sponsors have looked to special-purpose vehicles as a potential avenue for liquidity for their LPs.
All of this points toward a pent-up supply of smaller physician practice platforms that will be looking for exit opportunities with upstream PE buyers or their portfolio companies as debt markets stabilize and PE firms continue to seek to deploy capital. With multiples reported to have peaked, those buyers will be placing additional scrutiny on the financial and operational aspects of potential targets. Existing platforms looking for exits in 2024 should use the remainder of 2023 to get their house in order in these five key areas:
- Scrub current financials and/or consider engaging in sell-side Q of E in preparation for future buyside Q of E.
- Evaluate staffing levels, expertise and needs to determine where certain areas need to be bolstered or where operational efficiencies can be achieved.
- Evaluate progress on the integration and implementation of synergies for recent acquisitions.
- Ensure that the platform is operating under a cohesive and comprehensive compliance program.
- Consider a select internal billing and coding audit now to surface any billing issues that can be corrected prior to a sell-side process.
Evaluating these key areas now can help existing physician practice platforms prepare for future scrutiny from discerning buyers.
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