PE: Freedom isn't free

The calls started a few years ago: Do you wish to sell your practice, Dr. Patterson, asked the private-equity representatives.

Initially, I paid little attention to them, but in the last six months I realized private equity was becoming a big deal in ophthalmology, because friends were getting calls, too. Soon they were asking me my thoughts on this subject. As always, I have a few.

This topic is large enough to warrant a few articles in this issue. First, Shareef Mahdavi gives an excellent overview of private equity in our field. (I can’t quite commit just yet to using the abbreviation PE, since like many of you I immediately think pulmonary embolism.) We also have a shorter piece that recounts comments from those, involved with or representing these firms, who attended the OCTANe event early this summer.

While I’m not an expert in this arena, I wanted to hit some cautionary notes.

First, this is private equity, not venture capital. The VC guys are more into startups. (Yes, VC makes me think Viet Cong, but that was long ago.) With private equity, these investors look for established companies to help — or hope to make — them become more profitable, via growth and cost savings, so they can sell these companies at a profit to another private equity company.

But remember: Freedom isn’t free. Be careful about selling your freedom for money. The list of public companies whose main regret is occupying that list is growing (see Steve Jobs). This isn’t taking your company public per se, but it does mean giving up a certain degree of control over your practice. Which may not actually be your practice anymore. Will you still have the ability to practice like you want, setting your own hours and vacation schedules?

These transactions all rely on a provider (MD, DO, OD, RN) showing up to work every day, year after year. Our company is a perfect example: Years ago, an early morning car wreck on Christmas Eve day killed one of our optometrists. Beyond the emotional tragedy of that event, it also could have cost us millions of dollars of investment had we not had another OD available to take over his practice.

Private equity guys are making multi-million-dollar bets based on your past performance and extrapolating that onto their (and your) future growth and profits. It will be interesting to see how these companies fare over the long term, especially after the initial buyer sells to the next round of investors.

Two decades ago, consultant John Pinto spoke about managed care from the podium at the Royal Hawaiian Eye meeting. Said he: “If you’ve seen one HMO, you’ve seen one HMO.” Similarly, every private equity deal will be different. And every practice being acquired will be different.

I’m not anti-private equity; in fact, we are cautiously open to it as a future option. I’m just going to tread very slowly. OM