In a recently published report, the Healthcare Provider Services Group at Brown Gibbons Lang & Company provides a breakdown of the primary care and urgent care M&A market and trends driving the industry. The LevinPro HC team spoke with Jonathan Bluth – Managing Director, and Kyle Brown – Managing Director, about the report to gain additional insights into the state of the market. Both are leaders within the Brown Gibbons Lang & Company’s Provider Services Group and authored the report.
Q: Can you break down more of your role in some of the deals you mentioned, such as AllCare? Were there any challenges in getting those deals done? And how did you get through those?
Jonathan: “As an M&A advisor, Kyle and I are retained by companies to help find different acquirers and partners for their business. We help with both legal and tax issues, making sure the company is prepared to withstand diligence during the transaction process. We also help the company think about how they view themselves so they can better identify the proper financial partner to deliver investment into company to position them for next the state of growth.”
Q: Since 2021, transaction volume has trailed off, but that slowdown in activity in 2023 and 2024 is more a function of the broader appetite for reimbursed services models.” Can you elaborate on this quote? Do you mean FFS? And if so, how come?
Kyle: “Activity has been down but it’s not tied to the reimbursement model, it’s more a culmination of factors. Provider services has been on a bull run for decades leading up to COVID, so we would say activity is relatively down. Interest rate environments are tough, and there are some regulatory issues surrounding non-compete. But I do want to say it’s more the higher end of the market ($30 million+ EBITDA) that’s seeing a slowdown because of the cost of debt. The lower part of the market has still been plenty active. There are some positive signs that larger deals are getting done, clear cracks of day light in terms of larger provider assets transacting.”
Q: Why do you think we’re seeing managed care companies buy urgent care centers? That’s usually the strategy of a health system, but these are payors. What does all this cross-integration (or the breakdown of silos) mean for the future of the healthcare industry? Are there potential drawbacks for both investors and patients?
Jonathan: “They’ve been trying to figure how to manage the spend for their healthcare population. It’s based off the Kaiser model and driven by value-based care, which is trying to deliver the best quality of care while also effectively managing the spend across a population. The idea that if you keep patients in a network with a provider you own, you can keep costs down. To add to that, what’s going to really help drive down costs and help these payers differentiate themselves is how well they use technologies such as analytics, patient engagement and physician prescribing technology. These are all crucial when it comes to value-based care.”
Q: Why do you think so many consumer-focused companies (like CVS, Amazon, so on), are pushing into urgent care so much? It’s a pretty competitive market. What can they do better or differently?
Kyle: “It’s an interesting trend because how you perform in that market ties into quality, how you measure it. The patient experience is very important, and that’s connected to the look and feel of the facility, how easy appointments are to schedule, and so on. These large companies can benefit from economies of scale and good providers and can tailor the experience to the patient/consumer. However, there is a ceiling in this market. It doesn’t play well in higher equities. The patient is not going to walk off the street into a storefront to see a cardiologist. Retail medicine only goes so far when a lot of reimbursement goes toward higher specialties.”
Q: What are valuations like? Do they mirror other industries (high in 2021 but have since gone down due to other economic pressures)?
Kyle: “Broader physician multiples have dropped from the 10-20x we saw in 2021, but primary care is more stable and more resistant to downside pressures, especially compared to more surgical specialties. Deal transactions are scarce right now though, so it’s mainly high-quality providers that are trading, so there it looks like valuations have held.”
Q: We’re seeing several deals on our end that are just the real estate of urgent care clinics. Are you seeing demand for both operations and real estate?
Kyle: “Yes, albeit the level of activity on the operating side is still down off historical averages, commensurate with the broader provider services landscape.”
Q: In the report, you wrote that “strategies and market dynamics have evolved in urgent care over the past decade, and more acutely over the past five years.” What market dynamics do you mean specifically? What’s the most important to highlight for investors in this space?
Kyle: “Access to care (convergence of primary and urgent care, and further emergence of concierge care), extension into a broader suite of ancillaries, continued premium on regional density.”
Q: What does the 2025 market look like?
Kyle: “The volume of deals is driven by tuck-in acquisitions. These are dependent on the capitalization and M&A appetite of the larger platforms. We believe that a number of the larger platforms are poised for a transaction, which will cause a rippling effect throughout the market. M&A activity will be higher than evidenced in 2023 and 2024.”
The Healthcare Provider Services Group at Brown Gibbons Lang & Company is one of the most experienced and respected financial advisory teams in the U.S. for physician practice M&A, with a long track record of expertise in successfully advising private equity firms, physicians, and alternate site providers through strategic transactions.
