Gary W. Herschman, Member of the Firm in the Health Care & Life Sciences practice, was featured in the whitepaper “US Orthopedics Deal Activity Shrugs Off Pandemic,” a Q&A with Dana Jacoby, published by Vector Medical Group with data provided by Pitchbook.
Following is an excerpt (see below to download the full article in PDF format):
Please share your thoughts on 2021 PE deal activity—specifically what drove it and whether the orthopedic market can expect more of the same in 2022.
A few basic metrics are driving PE deal activity across all specialties, including orthopedics. First, there is approximately $2.3 billion in dry powder looking for investment opportunities. This unprecedented amount drove much of the activity in 2021. Second, the average physician age in the US is 56. Many physicians are looking at retirement, an ownership transition, or a work/life rebalance; the orthopedic specialty is particularly hard-hit with retirees. Coupled with COVID-19 burnout, this fact has catalyzed and drawn forward the “change of life” conversation. A third major factor was a concern about the potential new capital gains and taxation laws, which haven’t happened yet. However, other regulations continue to pressure specialties including orthopedics. The ever-changing policy landscape around payor reimbursement and fee schedules continues to complicate the practice of medicine.
Many orthopedists are seeking to monetize the value of their practice ownership due to strong demand and currently high valuations. Although it often isn’t, a physician’s ownership share in their group should be recognized as a meaningful asset in their personal wealth. Pursuing a transaction with an investor allows physicians to partially cash out the true value of their practices (usually 70% to 80%) and retain the balance in rollover equity, which gains value as the investor’s equity grows in value and is realized in whole or in part upon the investor’s exit from the platform. This is much more lucrative than retiring and receiving a generally modest buyout of their interest in the practice—in accordance with the terms of their Shareholder, Buy-sell, or Operating Agreement—which doesn’t equate to the true value of the practice or constitute a material asset in their personal wealth portfolio. …
