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The Pros and Cons of Joining a Private Equity Optometry Group

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Weigh the costs and benefits of joining a private equity optometry group and learn key vocabulary related to private equity in eyecare.

The Pros and Cons of Joining a Private Equity Optometry Group
What is the future of optometry, and what role does private equity (PE) play in it? The answer might involve the presence of optometry groups that support the innate ebb and flow of a career in optometry.
The investment of equity capital in private practices is evolving, and it’s essential to understand the objective benefits and concerns if you’re considering a future in private equity.
One of the main benefits of private equity investment in optometry is the injection of significant capital into practices. This influx of funds allows optometrists to expand their operations and invest in advanced technology such as new visual field goggles, dark adaptation, advanced optical coherence tomography (OCT), and ultra-widefield fundus photo machines.
In eyecare, technology has changed the industry; however, the capital equipment cost of these machines can be costly and sometimes hard for independent practices to afford both in the short and long term.
With improved resources, practices could offer a wider range of services, which, in turn, might allow optometrists to expand their in-office treatment and management options. This could enhance the overall patient experience and improve patient care.
I will go over the pros and cons of joining a private equity group below.

Defining private equity

Private equity is an investment involving the purchase or ownership of stakes in private companies.1 Different from public companies, private equity investments do not offer the right for public buying or selling of shares. The role of a private equity firm is to leverage its expertise to raise large amounts of capital.

Private equity firms

Investments tend to come from a mixture of retirement accounts, institutional investors (banks), high-net individuals, endowments, and/or pension funds.2 Further, private equity firms capitalize on financials and focus on certain calibers of business. They use strategies like financial injection, operational improvement, growth, leveraged buyouts, and roll-ups.2
Firms will work closely with a company's management team to implement these strategies and drive profitability and growth. Additionally, they will name a trusted individual as CEO, pursue long-term investments, and aim to sell with high multiples.
It would be typical for a firm to use a multiple of a company's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as an efficient and effective way to estimate value, keeping in mind it can vary based on industry norms and the company's growth prospects.

The role of EBITDA in PE optometry

Focusing on the optometric space, there are standard formulas that PE firms use, which can be found online. Optometry averages a multiple of around three to six times EBITDA.
EBITDA is the most important figure for optometry offices. Most optometrists think that revenue and productivity are the most important factors to the practice value, but this is not usually the number one factor. Most PE firms want to see over 30% margins and want to make sure practices are not wasting money on extra or overpaid employees.
Eyecare providers (ECPs) can benefit by understanding how to prepare for their practice takeover and retirement. Sometimes, ECPs have no idea what it might take to make their practice more attractive for an associate or PE firm to acquire them. Therefore, it is important to be aware of the trends and strategies in the industry.3

Private equity terminology for ODs

  • General partner (GP): The team members that manage the investment fund and make investment decisions on behalf of the limited partners (LPs). GPs are responsible for fundraising, deal sourcing, due diligence, portfolio management, and generating returns for the LPs.
  • Leverage buyouts: A leveraged buyout is when one company or firm buys another company using borrowed money or loans. This allows buying much larger companies without having the cash or assets.
  • Roll-up strategies: To expand without increasing profitability, a parent company can purchase several smaller companies all within the same industry, and then merge these acquisitions into a larger, consolidated company.
  • EBITDA: This is a measure of profitability and is used frequently by businesses which shows the true level of cash generation within a business after these elements are removed.
  • Equity: An ownership interest in a company, usually in shares or share options.
  • PE fund structure: Most often set up as an LLC or limited partnership, PE funds function as a closed-end investment vehicle. This means there is a limited time window to raise funds. Once it is closed, no further funds can be raised.
  • Management fee: A recurring fee charged by the GP to cover the costs of managing the private equity fund. It is typically a percentage of the committed capital and is charged annually during the life of the fund, regardless of investment performance.
    • The management fee helps cover operational expenses and salaries of the GP team.
  • Fund size: The total amount of committed capital from LPs raised by the private equity fund. Fund size varies widely and can range from millions to billions of dollars. A larger fund size allows for larger investments and potentially greater portfolio diversification.
  • Due diligence: The comprehensive evaluation and analysis of a potential investment opportunity before making an investment decision. Due diligence involves examining financial statements, legal and regulatory compliance, market dynamics, competitive landscape, and other factors to assess the investment's risks and potential returns.
  • Exit strategy: The plan for monetizing or exiting an investment. Private equity funds typically have a fixed investment period, after which they aim to exit their investments and return capital to the LPs.
    • Recapitalizing, selling to another investor, and going public through an initial public offering (IPO) are all common exit strategies.

Advantages and disadvantages of joining a private equity group

Recent developments in optometry and private equity have proved the importance of their relationship. The stability, growth potential, and recurring revenue streams of eyecare appeal to firms looking to evolve in this space.
While exciting and innovative, it’s important to have a 360° view of a future in private equity before committing to the change. Be sure to consider the firm’s culture, investment focus, and team dynamics, as these factors can significantly impact your experience and job satisfaction.
I encourage you to research the firm thoroughly, understand its investment philosophy, and consider how it could align with your career goals and personal preferences.3,4
Table 1 breaks down a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis of joining a private equity group.
StrengthsWeaknessesOpportunitiesThreats
Enhanced networkingCultural changesProfessional developmentMany competitors are developing and may affect new opportunities
Financial supportLoss of autonomyHigh earning potentialConsolidation of practices
ResourcesFocus on financial metrics
Growth opportunities
Professional development/support
Table 1: Courtesy of Joshua Fabriziani, OD.

Pros of private equity

1. Professional development

Working in a private equity group provides exposure to complex financial transactions, deal structuring, and investment analysis. In optometry, this experience can enhance your financial and business acumen, making it a valuable learning opportunity.
For ECPs, this can be a weak point and can hinder growth and practice efficiency. An optometrist knowing the finances of their practice is an essential skill that can help transform a practice's culture and growth. Subsequently, one benefit of knowing the financials is if an ECP has plans to own their own practice one day.

2. High earning potential

Private equity is known for offering competitive compensation packages, including base salary, performance-based bonuses, and carried interest in successful investments. For optometrists specifically, the industry average salary has dramatically increased due to an increase in PE acquisitions in recent years.
It is known that PE firms can usually pay more and provide more benefits due to scale. This can potentially lead to significant financial rewards for ECPs in the short term. However, the long-term financial picture is still a relatively unknown quantity for optometrists.
PE firms, over the long haul, may not be able to maintain their standing as the industry matures due to pressures from rising inflation and resultant wage cost(s).

3. Networking opportunities

Private equity firms often have extensive networks of professionals, including industry experts, entrepreneurs, and executives. This can provide valuable networking opportunities that may benefit your career both within and beyond the private equity industry.
For optometry, this can be huge for a young ECP. Personally, I have had many connections with PE firms and ECPs that have opened many doors along with providing grounds for advancement in my career. These experiences can be meaningful, especially for a young doctor navigating the earlier stages of their career.

4. Challenging and dynamic environment

Private equity is typically characterized by fast-paced deal-making and strategic decision-making. This can offer intellectually stimulating work and a dynamic environment that keeps you engaged and constantly learning.
For optometry, solo practice is becoming less common compared to 30 years ago. Conversely, multiple OD and OD/MD practices are now more common and have become the norm. We are seeing this mainly because of certain characteristic financial hurdles such as high rent, increased wages, and advanced capital equipment costs like OCT, intense pulsed light (IPL), and visual field units (portable and freestanding).
Essentially, it has become a significant challenge for a solo doctor to bring in enough money to cover the overhead. The practices that tend to be more agile in adapting to the changing financial environment are now sharing the cost of rent and equipment over multiple doctors while keeping overhead very low. This model is refining the way optometrists are practicing today.

5. Financial resources

Joining a private equity group can provide optometrists with access to significant financial resources. This can enable practice expansion, investment in advanced technologies (i.e., OCT, fundus camera, Neurolens, dark adaptation, visual field, and topography), and improvements to infrastructure (optical frames and build-outs) while potentially enhancing the quality of care provided to patients.

6. Business expertise

Private equity firms often have experienced management teams with extensive knowledge of how to run and grow businesses. ECPs joining a private equity group can benefit from this expertise, gaining access to strategic guidance, operational support, and best practices in practice management.

7. Networking and growth opportunities

Private equity groups typically have extensive networks, including industry experts, suppliers, and potential partners. Optometrists can leverage these networks to forge partnerships, explore growth opportunities, and access resources that may otherwise be challenging to attain independently.

8. Professional development

Joining a private equity group can provide optometrists with opportunities for professional development. The exposure of optometrist to a broader range of business functions, financial analysis, and strategic decision-making can enhance their skill set and broaden their career prospects within and beyond optometry.2
For example, many optometrists who want to get into product development or research can make these connections with PE groups that usually invest in biotechnology and product development as well. I have personally seen many optometrists transition from the clinical side to the biotech side, helping companies bring new products to market.
This can be a huge benefit to doctors who do not want to perform clinical duties for their 40-year career.

Cons of private equity

1. Work-life balance

The high stakes and financial pressures associated with private equity can create a stressful work environment. Meeting performance targets, negotiating deals, and managing investor expectations can create a demanding and high-pressure atmosphere.
Optometrists can be limited to how many patients they can see an hour. In high-pressure environments, quality of care and stress can impact patient outcomes and satisfaction. With this said, the demand for optometrists is growing and will continue to be an important consideration for PE firms during practice mergers and acquisitions.

2. Uncertain exit opportunities

Private equity roles are often seen as stepping stones to other career opportunities, such as executive roles in portfolio companies, investment banking, or venture capital positions. In optometry, the opportunity for career growth is limited.
Therefore, as a doctor, this could be viewed as a deterrent since they likely would not be able to grow within the PE firm to the executive level. Observationally, I have seen ophthalmologists becoming CEOs of established vision companies backed by PE firms.
However, these exit opportunities can be competitive and not guaranteed, requiring careful planning and networking.4

3. Loss of autonomy

Optometrists joining a private equity group may experience a loss of autonomy in decision-making. PE firms usually make strategic decisions from the top down such as how they might handle the purchase of capital equipment or medical against the needs of the ECPs in the practice.
This can be frustrating to optometrists as they have been calibrated to have more control over these types of operational decisions. Even though I would assume that the COO and CEO would ask the ECP's opinion on which products they prefer, money and cost may trump that decision.
The group's management team may have a significant influence on operational and strategic decisions, impacting the way the practice is run and the provisions designation for patient care.5

4. Focus on financial metrics

Private equity groups often prioritize financial metrics and profitability. This can create pressure on optometrists to meet revenue targets and may lead to a shift in practice priorities, potentially compromising the emphasis on patient care and quality outcomes.6

5. Cultural changes

ECPs joining a private equity group may experience cultural changes within their practice. Private equity firms may have different values, priorities, and business approaches than independent optometry practices, leading to adjustments and possible conflicts of interest in practice culture.7

6. Potential exit strategy

Private equity groups typically have a defined investment horizon and exit strategy. This may lead to uncertainty for optometrists in terms of the future direction of their practice, potential changes in ownership, or the need to seek alternative partnerships or ownership structures in the future.8

Is private equity right for you?

For ECPs, consider the following questions when engaging an interested private equity group to make an informed decision. It is imperative to determine whether it is an appropriate financial match to sell the business, understand professional aspirations, values, and the quality of patient care all parties strive to provide.2,7
To determine your decision, ask yourself the following questions:9
  1. How do the vision and goals of the private equity group align with your professional values and goals?
  2. How does joining a private equity group change my freedom as an optometrist and my ability to make patient care decisions?
  3. What is the long-term vision and growth strategy, and how does it plan to expand and improve its services in the future?
  4. How does it affect my career, and how can I benefit from the PE’s growth plan?
  5. Have other optometrists/colleagues within a group had positive experiences, and can I speak with them to gain insights into the day-to-day operations and overall satisfaction?

My personal experience with PE

From my experience, PE firms have permanently changed the industry. I think it has given optometrists a huge opportunity to serve their patients better. It is often said that PE firms are taking over and making it very difficult for young associates to either buy a private practice or buy out an older doctor.
In my professional opinion, however, I think that is more myth than reality. With the proper skill set to adapt to current market conditions, young ECPs can provide value for retiring doctors to be able to possibly compete with PE firms. Because PE firms are more corporate-run and have a franchise model, private practice optometrists have an opportunity to pivot.
PE firms can make it easier for optometrists to grow and eventually own their practice for the following reasons:
  1. PE firms are injecting significant cash considerations into the optometry/ophthalmology sector to seed the industry for exponential growth and return on their investment.
  2. PE firms are providing their technological expertise to create platforms and medical devices that could help drive efficiencies within patient care.
  3. PE firms are facilitating an expansion in cash flow from mergers and acquisitions which has led to increased press publicly for optometry.
  4. PE firms are providing young optometrists a competitive salary with generous benefits to get their careers started along with training them how to run a business efficiently.
  5. PE firms are sharing their business acumen with young optometrists to be more creative when conducting business negotiations.

Understanding what a PE firm can offer you as an ECP

As a practicing optometrist, I have interviewed and have gone through several deals and negotiations with these PE firms. Their goal beyond financial gain is to enhance efficiencies within practices while maintaining patient care management and treatment patterns.
Anecdotally, I had a conversation recently with an ophthalmologist after selling to PE where he explained that he was able to increase his salary while seeing more patients prior to the acquisition. In his opinion, the PE firm provided him with the necessary resources he needed to focus on patient care and make the office way more efficient.
He also told me that he did not consider it “selling out to PE” but rather becoming a partner with the PE firm, which he feels has been the perfect marriage. Obviously, ECPs may have varied experiences when working with a PE firm.

Conclusion

Joining a private equity firm as an optometrist can present unique opportunities and considerations. The decision should be based on a thorough evaluation of the objective information discussed above, as well as individual goals, values, and practice objectives.
By conducting due diligence, seeking advice from trusted professionals, and carefully considering the fit and alignment, you can make an informed decision that can ultimately align with your vision for the future of your optometry career.
  1. Del Piero J, Parikh R, Weng CY. Driving forces and current trends in private equity acquisitions within ophthalmology. Curr Opin Ophthalmol. 2022 Sep 1;33(5):347-351.
  2. Chen EM, Cox JT, Begaj T, et al. Private Equity in Ophthalmology and Optometry: Analysis of Acquisitions from 2012 through 2019 in the United States. Ophthalmology. 2020 Apr;127(4):445-455.
  3. Shah CP, Wolfe JD. How private equity achieves return on investment in ophthalmology. Curr Opin Ophthalmol. 2022;33(5):362-367.
  4. Khan MA. Private equity acquisitions: physician considerations at different stages of career. Curr Opin Ophthalmol. 2022;33(5):381-384.
  5. Patel SN, Groth S, Sternberg P Jr. The Emergence of Private Equity in Ophthalmology. JAMA Ophthalmol. 2019;137(6):601-602.
  6. Moscow S. How private equity affects optometry. Optometry Times. Published May 8, 2019. Accessed August 5, 2023. https://www.optometrytimes.com/view/how-private-equity-affects-optometry.
  7. Patil SA, Vail DG, Cox JT, et al. Private equity in ophthalmology and optometry: a time series analysis from 2012 to 2021. Digit J Ophthalmol. 2023;29(1):1-8.
  8. O'Donnell EM, Lelli GJ, Bhidya S, et al. The Growth Of Private Equity Investment In Health Care: Perspectives From Ophthalmology. Health Aff (Millwood). 2020;39(6):1026-1031.
  9. Desai S, Memon R, Chen E, et al. Financial Health of Private Equity-Backed Groups: Perspectives From Eye Care. Cureus. 2023;15(5):e39582.
Joshua Fabriziani, OD
About Joshua Fabriziani, OD

Dr. Joshua Fabriziani is one of the Managing Doctors of Fab Eye Care. He attended Pennsylcania college of Optometry and interned with Neuro-Ophthalmic Disease with Dr. Malloy. Dr. Fabriziani worked directly with Dr. Malloy at the neuro-ophthalmic disease clinic and received intense training in the examination, diagnosis, treatment, and management of neuro-ophthalmic disease.

Dr. Fabriziani also enjoys private practice and practice management. He started optomassist (optomassist.com) which is a tech-based app that helps with selling contacts and glasses. Dr. Fabriziani has 5+ years’ experience of corporate and private practice experience. Found new growth opportunities and created a culture of positive performance.

Joshua Fabriziani, OD
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