Question for healthcare investors - rollups and HCIT
Two questions, wanted people's thoughts on
- What are your thoughts on physician practice management (PPM) roll-ups?
- It seems like there's lots of headwinds: reimbursement pressure, labor costs going up, along with purchase multiples of solo practices going up (docs have caught on?)
- Seems like there's been quite a bit of continuation vehicles and challenging exits (who is there to flip it to other than other PE?)
- I'm not sure if it's an overstatement to say PPMs are totally dead, but it seems like your average plastic surgery or derm roll-up is past its prime
- What's the investment thesis for these EHR companies? Lots of activity and most seem to have a similar play of building out the platform and going to into more specialities. My question is more around exits. Biggest question of all is who are the exit buyers? It seems like very few strategics.
Sorry for the basic questions. I'm in industrials, so the above is just what I've heard from the grapevine. Do correct me if any of my above statements were false.
I'll let others chime in (ignore title, says Analyst 1) but have covered PPM prior in my banking days and haven't really touch much since.
I think overall, there was a time period where there was a window for multiple arbitrage (you buy up a practice for 8x and then sell it at 12x), so these roll-ups started to just become a 'buy-buy-buy' strategy with not much thought put into integrating these practices (i.e. making sure they are all on the same RCM function, etc). So now it's all a complete disaster
I also think sponsors that got in on the PPM hype back in 2020,2021 are starting to realize that they have absolute donuts which makes it harder to retrade for another sponsor. i think there are some angles where it starts going to some of the large strategics (i.e. we saw some of the distributors buy some PPM assets like RCA/Cencora, i think cardinal bought something but isn't publicly disclosed. didnt someone also buy PRISM vision?).
as for cv dynamic, i think sponsors with these PPM deals are realizing that it's a tough environment to trade a ppm business and just put it through a CV now meaning it'll come back out in a few years (hoping that the market gets better) is my rationale but ill let others tell me im wrong.
i wouldnt say ppm is completely dead to my point on distributors recently buying it up but the market for ppm does certainly seem bleak and i dont see any light at the other end of the tunnel unless there are unique subspecialty ppm assets that are clearly differentiated (there arent many).
Really informative. Slight tangent to this, how do you think about valuation for PPMs? There sometimes aren’t a ton of public comps (sure you can look at HCA Healthcare or you can look at adjacent medical specialties, but neither seem all that appropriate) and precedents transactions (with disclosed terms) seem hard to find. How do you figure out an appropriate entry valuation range? (e.g., 8-10x EBITDA? 10-12x? 6x EBITDA for each tuck-in?) Rookie question, maybe, but curious thoughts
McKesson bought PRISM Vision. Interviewed with them before for a Corp Strat role prior to their sale. Integration across multi-state practices definitely seemed like a big painpoint.
Actually know one of the seniors leading the integration of RCA into Cencora's portfolio. Hoping to reconnect with him at some point to see how that's going.
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