August 15, 2017
5 min read

Thriving in today’s merger and acquisition environment

Whether you are selling or want to leverage your investment, it pays to understand added value.

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Many doctors ask me how the increased mergers and acquisitions activity by existing companies and emerging private equity and venture capital-backed entities will affect their business. As one of the initial employees at NovaMed, I spent more than 15 years in the first era of eye care consolidation. Almost two decades ago, eye care physician practice management companies such as PRG and Vision 21 were buying optometry and ophthalmology practices and ASCs. My role was acquisition of practices and ASCs, along with same-practice growth initiatives. I led the “development team,” which included the analysts that valued practices.

As a result, I acquired knowledge and experience specific to successfully negotiating and closing practice and ASC transactions. More importantly, I understand what determines value in these transactions. For doctors looking to prepare for what is next, it is key to follow market activity and to always maximize your practice value.

Tom Chirillo

Should you sell?

The basic business premise today is that eye care is getting more complicated and competitive. Can a single practice or even a group practice survive or grow? If so, how? Medicare and commercial payer rates are going down, not up, while operating expenses are rising. A practice must grow to stay even.

By selling or partnering with a larger entity, practices are able to diversify their assets instead of tying them all to eye care. Consider a large practice tied to real estate and an ASC, all driven by eye care. A prudent businessperson should consider monetizing the value for at least some portion of these assets.

At NovaMed, a “sit or sell” analysis considered the value of cash in hand at capital gains, plus the time value of money, vs. the ongoing cash stream from profitable operation at ordinary income. We also assessed the risk and probability that a practice or ASC could continue to be successful if any new competitor appeared.

Those thinking about selling or partnering should think about what the acquirer/partner brings. Does this new entity have more resources? A bigger, better management team? More capital to fund acquisitions? Resources and willingness to add new technology? Marketing dollars and expertise? The answers will offer ideas on how selling or partnering will impact the practice.

For some, practice or ASC physician partner transition strategy offers a compelling reason to consider a sale or partnership. The leadership compares what senior partners or equity holders have in place with the benefits of consolidation.


Who is buying?

Currently, several companies are acquiring ophthalmology and optometry practices, ASCs and optical labs. Some, such as Surgery Partners, Amsurg and SCA, only buy ASCs. For practices combined with ASCs, Vision Group Holdings, Eyecare Service Partners and Eyecare Partners have been aggressive.

Practice buyouts

In February, Waud Capital Partners, a leading private equity firm in Chicago, purchased Minnesota Eye Consultants, creating United Vision Partners, “a holding company to support MEC’s continued expansion in Minnesota and to complete future partnerships with leading providers of eye care in other markets.” In other examples, New Mainstream Capital announced a strategic investment in Omni Ophthalmic Management Consultants LLC at the beginning of July; Varsity Healthcare Partners and Harvest Partners announced recapitalization of EyeCare Service Partners. This trend will continue based upon the size and attractiveness of the eye care business.

Many more private equity firms are preparing to enter the market and compete aggressively for acquisitions. Why? It is simple: Eye care is a huge but fragmented high-growth, multibillion-dollar market. The combination of predictable, growing medical/surgical business and the expanding private pay segment is extremely attractive.

What is your practice worth?

How do consolidators determine the value of a practice or ASC? To get perspective from someone who is currently purchasing ophthalmic practices, I spoke with St. Louis ophthalmologist and president of ophthalmology at Eyecare Partners, Joseph P. Gira, MD.

“Now health care consolidation is all about earnings. It’s a paradigm shift to private sector thinking,” Gira said. “We don’t evaluate a practice’s physical assets and patient volume at all — only its earnings before interest, tax, depreciation and amortization (EBITDA). Buyers pay a multiple of those earnings. If a practice’s EBITDA is $1 million, for example, then its appraised value is $7 million if the multiple is seven.”

Gira pointed out that by this method, anything a practice does to increase earnings increases that practice’s value. For example, if you add a new procedure or test that brings in just $1,300 per week, translating to about $5,200 per month for the 11 months of the year that the practice is open, you make $57,200 per year. Using the seven multiple, that $1,300 per week raises the practice’s value by just more than $400,000.

“This approach makes great fiscal sense for many practices that can use new treatments to elevate patient care as well as earnings,” Gira said. “Practices that plan to sell will do better by raising their EBITDA. Even if a practice doesn’t plan to sell, raising EBITDA makes it more profitable and puts more money in your pocket.”


Multiples vary significantly, determined by the market, the size of the practice, its strategic significance, sustainable profitability, growth and other factors. An easy way to get an idea of the multiple for your practice is to ask around about what consolidators are offering in your area.

Can you add value?

Buyers look for sustainable earnings. To add value to your practice, add predictable, scalable EBITDA. In my role at TearScience, I often discuss the untapped (or under-tapped) potential of dry eye testing and in-office treatment of meibomian gland dysfunction (MGD). MGD causes 86% of the cases of dry eye, a chronic condition affecting about one in six Americans and 81% of cataract patients. As a result, every practice already has a dry eye patient base.

Using TearScience devices, LipiView or LipiScan and LipiFlow, practices evaluate and treat MGD. LipiView or LipiScan assists practitioners to identify MGD. Patients can be treated using LipiFlow, shown to clear the glands to restore function and return tear film quality. Patients have treatment for MGD alone and now increasingly to prepare the ocular surface for surgery.

At a patient price point of $990 for LipiFlow, minus a direct product cost of $350, the gross margin for LipiFlow is $640. For a procedure performed in 12 minutes by a technician, the practice brings in revenue similar to Medicare reimbursement for cataract surgery. Adding five $640 treatments per week, 11 months a year, with a multiplier of seven, boosts the practice’s value by more than $1 million.

What’s more, patients can have repeat LipiFlow procedures every 1 to 4 years. And more patients with MGD enter the practice every day. This is a predictable revenue stream. Buyers factor in revenue streams such as these once they have demonstrated 1 year of income data.

Are you ready?

Today, consolidators have such robust pipelines that they sustain their current growth objectives through acquisitions. It is a feeding frenzy as they pay for a market “footprint,” momentum and some brand recognition in the market. Investment bankers are looking for practices they can package together to sell to private equity firms, while some firms are approaching practices directly.

If you have not been called already, you probably will be.

Acquisitions are still in phase one — when companies are established in the marketplace, the ability to do something with the acquired practices becomes more important. Ultimately, they will need to deliver growth through operations and synergy, and that means EBITDA growth. Make sure your practice is ready.

Editor’s note: At time of press, Johnson & Johnson Vision announced it will acquire TearScience through Abbott Medical Optics, its surgical vision operating company.

Disclosure: Chirillo reports he is senior vice president of sales and marketing at TearScience. He was a founding member of the senior management team at NovaMed, a physician management company, where he headed acquisition and sales of practices and led growth strategies for eye care practices and surgery centers.