According to data captured in the LevinPro HC database, 2022 was a historic year for the Physician Medical Groups (PMG) sector with 607 deals, an approximate 33% increase from 2021 when 457 PMG transactions were announced. Private equity firms, and/or their portfolio companies, dominated the PMG sector, accounting for 423 of the transactions last year, or approximately 70%.
The most active subsectors were dental with 226 deals (37% of the transaction total), eye care with 87 transactions (14%) and orthopedic with 35 deals (6%). From the previous year, dental increased 151% from 90 transactions, eye care decreased 11% from 98 deals and orthopedic increased 25% from 28 acquisitions.
MB2 Dental Solutions, a portfolio company of Charlesbank Capital Partners, was the most active PMG buyer in 2022 with 41 transactions. In the year prior, MB2 completed three deals. For more information on MB2’s acquisition activity, click here.
The largest disclosed PMG price in 2022 was Partners Group’s (SWX: PGHN) acquisition of Forefront Dermatology for $1.5 billion from OMERS Private Equity. This marks Partners Group’s largest disclosed price in the LevinPro HC database.
Founded in 1977, Forefront Dermatology is a network of more than 220 dermatology practices providing care along with related laboratory services across 31 states. Partners Group is a global private market investment management firm with $91 billion in investment programs under management in private equity, private real estate, private infrastructure and private debt. OMERS Private Equity is a Toronto-based firm with a healthcare portfolio. It has more than $14.7 billion ( C$19.8 billion) in assets under management. Deutsche Bank advised Partners while Harris Williams advised Forefront Dermatology.
In addition to the price, this deal underscores the increased interest in the dermatology specialty. The 34 dermatology deals reported in 2022 represent a four-year high for dermatology transactions and the numbers are anticipated to keep rising.
Regarding the rising interest in dermatology, Charles Busch, vice president of the Healthcare & Life Sciences Group at Harris Williams, said, “Another key emerging trend is greater utilization of physician associates and nurse practitioners. The scarce supply of board-certified dermatologists has historically been a challenge to sector growth. However, an increasing number of practices are employing a higher ratio of physician associates and nurse practitioners to better leverage their physicians.”
By utilizing physician associates and nurse practitioners, dermatology offices can work around the labor shortage and treat their influx of clients. Within the last few years, addressing dermatology concerns has become increasingly important for patients due to the rise in treating cosmetic concerns to know how to prevent hematomas and skin cancer that are more likely to occur in older people.
Another company that has made notable transactions is Bregal Partners’ Total Vision, which completed four transactions in 2022 while adding 16 physicians to its network.
The practices that were acquired are Old Town Optix Optometry, which is based in La Quinta and is run by four optometrists; Golden Vision has seven providers and locations in Arcadia, Cupertino, Dublin, Irvine, Milpitas, Rowland Heights, San Diego, San Francisco and San Gabriel, California; with offices in Santa Cruz and Aptos, California, Santa Cruz Optometric Center is owned by four providers; Eyetopia Optometry has one office in Santa Clara, California and is run by one doctor.
The acquisitions of these California clinics bring Total Vision’s network to more than 130 physicians and more than 60 offices across California, caring for more than 100,000 patients annually. By carving out a place for themselves as a top eye care provider in California, Total Vision is grabbing the attention of a large percentage of the aging American population that will need eye care. Total Vision is displaying how eye care will never be out of favor for patients as patients will always need routine eye care such as glasses prescriptions to more complex procedures such as cataract treatment.
A significant dental practice acquirer is Allied OMS, which purchased 10 dental practices through seven transactions in 2022.
Allied OMS, a portfolio company of private equity firm DuneGlass Capital, is collectively owned and governed by doctor members and founders, leveraging decades of private equity and management consulting experience to maximize practice value. Headquartered in Southlake, Texas, Allied OMS has more than 20 partner practices serving patients from more than 25 locations in six states.
The practices acquired are: Loudoun Center for Oral Surgery in Sterling, Virginia; Memorial Oral and Maxillofacial Surgery in Houston and Katy, Texas; Paramount Oral Surgery in Staten Island, New York; Three Rivers Oral and Facial Surgery in Tualatin, Oregon; Napa Sonoma Oral Surgery & Dental Implants in Sonoma and Napa, California; Rancho Oral and Facial Surgery in Murrieta, California; Corona Oral Surgery & Implant Center in Corona, California; Alameda Oral Surgery Group in Burbank, California; Newhall Oral and Maxillofacial Surgery Group in Santa Clarita, California; and Antelope Valley Oral Surgery in Lancaster, California. With the addition of these practices to Allied OMS’s portfolio, the company added 25 providers to its growing network. The activity experienced by Allied OMS during 2022 is a big jump from the activity in 2021 when Allied OMS announced only one transaction.
An interesting connection between eye care, dermatology and dental care is that while all three specialties address major medical issues, they also have an element of cosmetic concerns that have contributed to the increased interest. Providing a wide range of services contributed to the subsectors’ success because there’s not just one service to entice patients and create revenue.
When thinking about what’s to come in 2023 for the PMG market, we spoke with Steven Carmen, Managing Principal of Bayshore Growth Partners. He said, “Established platforms may see slight compression on exit multiples due to rising interest rates and uncertainty in the broader markets. However, the investment merits on the physician practice consolidation strategy remain sound, so we anticipate overall deal volume will continue at the same pace.”
While noting the headwinds of higher interest rates, Mr. Carmen remained positive that PMG activity in the coming year will remain on the upswing. As of January 17, there have been 20 PMG deals announced. Without meaning to sound like a broken record, we’re hopeful that PMG deal volume will continue to show strength as the year progresses.
