To Sell or Not to Sell to Private Equity

Wouldn’t it be great to be a fly on the wall and hear directly from ophthalmologists who are considering selling their practices to private equity? Thanks to Ruth D. Williams, MD, glaucoma consultant and CEO of the Wheaton Eye Clinic in Wheaton, IL, you can. She spoke with 8 ophthalmologist owners from 6 states, and presented her findings during the American Academy of Ophthalmology’s 2018 annual meeting in Chicago. 

The practice size of the respondents ranged between 6 and 33 clinicians, and half owned an ambulatory surgery center (ASC). Dr. Williams asked 4 questions of each respondent. She shared selected responses, as well as overarching themes. 

1. What factors are causing you to consider private equity?

• “We would like to grow, but it requires time and money to expand.”
• “We have untapped value in our practice and need help to access it.”
• “Our younger colleagues aren’t interested in buying out my partner and me. We have developed our careers to building this practice and we can’t give it away.”
• “The junior ophthalmologists in our practice don’t want to take on the risk of owning a practice, so we need to find a buyer.”

Two common themes emerged, said Dr. Williams.  Physicians consider private equity because there are concerns about transfer of equity. “How do you transfer the value of the practice, the property, and the ASC?” The second issue concerns growth, specifically challenges raising capital, having the expertise to make deals and finance and manage the deal, and having the time and energy for it.

2. What are the perceived advantages of private equity?

• “I’ve been the machine behind this practice for nearly 30 years. I’m tired. Let someone else steer this ship.”
• “Scale is increasingly important. We’d like to grow, but many of our junior partners can’t or won’t invest the money and energy to open new offices and hire new ophthalmologists. Partnering with private equity provides both the capital and expertise to expand our footprint in a strategic and wise manner.”
• “Private equity offers me a multiple that my junior employees aren’t willing to offer.” 

Three common themes emerged, explained Dr. Williams. “Number one is access to cash. People like cash. Second, they need help with management and governance and feel as if running a practice is becoming increasingly complex. Finally, they want help with growth. The basic assumption is that a network of practices or multiple offices provides the scale to compete. Bigger is better, and that private equity can accomplish growth more quickly.”

3. What are the perceived risks of selling to private equity?

• “The real value of the group is the quality, stability, and culture of the physicians. [Under private equity], the culture and relationship between the physicians is permanently altered.” 
• “I feel very loyal to my employees, some of whom have worked in our practice for more than 30 years. I am afraid that selling our group to a private equity firm would undermine our culture. I am afraid that no one would take care of our people like I have.”
• “We have a well-run practice, which is why we are attractive to private equity. What if they can’t deliver additional value as promised?” 
• “Will there be a shift from quality to profit?”
• “Will I be pressured to increase the percentage of patients that convert to femtosecond [laser procedures]?”
• “We have well defined core values and a great culture. No private equity firm share our core values.”
• “Will partners still be committed to making the practice work if they no longer have a large equity stake?”

Dr. Williams saw two common themes: 1) A wish to preserve the practice’s culture and values and 2) concern whether private equity can really deliver. 

4. What are your colleagues/partners thinking? 

• “The employed ophthalmologists in our practice ask me if I’m considering private equity. I think they are nervous. We’ve cultivated a great environment for practicing ophthalmology and no one wants to change.” 
• “They don’t know I am talking to private equity.”
• “Our younger doctors are intrigued too. None of them want to run this practice as things get more complex. Most want to do what they were trained to do–be great ophthalmologists.”
• “The younger partners don’t want to give up control or a fraction of the income stream, but they’ll have to put up the equity to buy out the senior partners and put in the commitment to run the practice.”

“I see two camps,” said Dr. Williams. “There are people really worried that private equity might be bad for younger partners, and others who believe that ophthalmologists should do what they were trained to do, leaving the management and financial experts to run the business side.”

Williams R. To sell or not to sell. Talk presented at: AAO 2018 annual meeting; October, 26-30, 2018; Chicago.