Dermatology deals are popping up like, well, you can imagine. Five acquisitions have been announced in May 2016 alone, bringing this year’s total dermatology deals to nine, and equal to the number announced in all of 2014. Those nine deals put this year on track to surpass 2015’s total of 11 deals. Private equity firms or their portfolio companies are by far the busiest players buying up dermatology clinics, accounting for 88% of acquisitions in this space since 2014.
Finding a decent-size platform is a tough task in health care these days, as panelists at a recent health care deal summit noted. Outpatient physical therapy, behavioral health care, anesthesia practices are all in play. But dermatology is a perfect example of a market in which platforms can still be created, although they can be hard to scale.
Witness Audax Private Equity’s nurturing of Advanced Dermatology and Cosmetic Surgery (ADCS), which it acquired in February 2012 for an undisclosed price. At the time, ADCS had 53 affiliated clinics in Florida and Ohio. By the time Audax announced the sale of a majority stake to Harvest Partners LP on May 20, the company had grown to become the largest dermatology practice in the country, with more than 140 clinics. ADCS accounted for three of the five dermatology acquisitions announced in 2014 and eight of the 11 acquisitions in 2015.
The dominance of PE firms is a testament to the fragmented nature of dermatology. A day earlier than ADCS’ sale, ABRY Partners announced its deal for Dermatology Associates, which provides services in 42 locations across Kansas, Missouri and Texas. And on May 2, Anne Arundel Dermatology Management, a portfolio company of New MainStream Capital, acquired Montgomery Dermatology Associates in Rockville, Maryland.
Private equity firms will stay active in this market as long as there are platforms to be built and sold to larger firms. With the aging population—and we include Millennials with the Boomers—this segment promises to having customers filling waiting rooms for many years to come.