Private equity firms have solidified their place in healthcare over the last decade. 2012 saw just 75 PE transactions in healthcare –– in 2021, that number reached 484.
Although PE transactions decreased in 2023 compared with previous years, an Aug. 8 blog post by Troutman Pepper, a PE firm, suggests that many firms are "holding onto large amounts of uninvested capital," and that healthcare is drawing investors.
In the post, Troutman highlights a new acquisition strategy that emphasizes equity "rollover" rather than all-cash purchases. In this strategy, the buyer forms or uses an existing management services organization sponsored by the PE firm to manage the non-clinical aspects of the acquired practice. The selling physicians then receive shares in the MSO, as well as cash at closing.
According to Troutman, this arrangement serves to reduce the cash required upfront by the PE firm. It also gives the selling physicians opportunities to share in the growth of the MSO. At the same time, PE firms can meet regulatory requirements that prohibit non-physician ownership of medical practices and other compliance regulations.