PPMs Emerging from the COVID-19 Pandemic
- March 29, 2021
Let’s start with the obvious: COVID-19 had significant impacts throughout all aspects of our lives, both personally and professionally. The “pause button” was pushed on many deals, transactions were put on the back burner, and healthcare administrations and partners turned all of their focus to keep their practices afloat amidst a global pandemic.
Healthcare mergers and acquisitions saw one of the largest declines of any sector. According to industry benchmarking, healthcare M& dropped by almost 40% in 2020. That’s the bad news. The good news is that deal volume increased towards the end of 2020 and looks poised to continue this trend into 2021. The Bloom Organization advised on all stages of transactions throughout the pandemic and is now seeing accelerated deal volume as physicians look to posture for the future.
COVID-19 Effects on Subspecialties
Practice subspecialties were affected differently. Bloom has a cardiovascular client whose RVUs (and subsequently revenue and Partner compensation) dipped in Q2, but returned to pre-COVID volumes in Q3 and are surpassing year-over-year benchmarks. Patients don’t wait to see the doctor when they have chest pain. Management meetings for this practice are underway with Private Equity at a high single-digit multiple.
Alternatively, Bloom advises practices whose productivity is heavily weighted in elective procedures, or a world that leads to doctors’ visits or surgery. For example, Bloom has a pediatric ENT client that saw patient encounters and payments cut in half in Q2, and saw a sluggish increase through Q3 and Q4. With children staying at home, not seeing friends, and minimizing exposures to normal school environments, the need for pediatric ENT services was stifled. An otherwise phenomenal practice, basing a transaction on most recent numbers was just not feasible. Bloom was able to market and garner IOIs and LOI off of pre-COVID performance, or what is now referred to as “EBITDAC” (Earnings Before Interest, Taxes, Depreciation, Amortization, and Coronavirus).
Bloom has been authoring Confidential Information Memorandums (CIM), marketing, and negotiating for clients based on EBITDAC. The trailing twelve months (TTM) of February 2020 may seem stale, but it has been the best and most reasonable method of depicting what a practice is capable of, and what it will return to in a post-COVID world. Private equity has accepted this method, and Bloom has attained offers and closing multiples off of EBITDACs that are two times or higher than that of mid-COVID performance.
As we approach the hopeful conclusion of the Coronavirus pandemic, the delta between pre, mid, and post-COVID-19 metrics are paramount to confident investing. Bloom and investors are able to now more accurately project a return to practice and financial normalcy, and frame transaction terms with this consideration.
The Way Forward
The Bloom Organization is currently advising and consulting with PPMs throughout the United States, in almost every subspecialty. Virtual meetings have been force multipliers, and are becoming the standard in facilitating transactions. Deal volume is increasing, and there is private equity money looking to invest in solid practices. Reports show that nearly 70% of independent physician practices are currently open to a merger or acquisition.
Physicians, executives, and practices at large are realizing that being a part of a larger organization with capital and infrastructure is the way forward. It presents a liquidity event in the near-term, the ability to maintain clinical autonomy, upside potential on second and third bites, and the expertise and experience of proven entities.
The Bloom Organization is a leader in guiding practices through this process. To learn more or inquire about transaction opportunities, contact me at APeterson@BloomLLC.com.
About the Bloom Organization
The Bloom Organization2 specializes in healthcare transaction advisory. Our clients turn to us for negotiating the strategic partnerships, joint ventures, acquisitions, leveraged buyouts, and other transactions that maximize return. With closed transactions representing more than $5 Billion in market capitalization, our leadership team of professionals has developed unmatched relationships with healthcare providers and industry professionals. We understand that healthcare, more than any other industry, requires a deep understanding of the strategic value of both buyer and seller. We seek to create value for both the short term needs and long term goals of our clients.
Interested in more? Catch up on other insights from the Bloom Team:
2020 Healthcare Year in Review
Your Practice: When is the Timing Right to Consider a Partnership?
Considerations for a Pandemic: What does it mean for your practice?
COVID-19 | The Impact on Telehealth
Five Reasons to Consider an ESOP
The Top 5 Characteristics of a Successful Physician Practice “Platform”