Current M&A Market in the Urgent Care Industry
Last week, The Ambulatory M&A Advisor hosted a webinar that focused on the state of the current Urgent Care industry. On the webinar, the panelists discussed issues like the Affordable Care Act’s impact on Urgent Care, current development trends and the current M&A market. For a full recording of the webinar click here.
When discussing the current M&A market in the Urgent Care industry, Blayne Rush, owner of Ambulatory Alliances LLC says that at this point everyone should understand that the market is busy.
“I predicted last year and early this year that hospitals overall will move more aggressively into the urgent care space, and they have in a large way,” Rush says.
“They are either partnering with urgent care management development companies or they are buying centers and platforms.”
According to Rush, there are a number of hospital systems that are looking for a platform to buy, but the opportunities for these types of acquisitions are getting tougher.
“There are not many of those guys still out there as far as platforms go of size. I think urgent care companies of hospital joint venture models are well positioned for growth, especially in that space,” Rush says.
Rush says another observation of the market is that deal sizes are getting smaller in terms of the number of clinics that a business owns. Rush says that with around 60 percent of the current market being owned by three and less type clinics, smaller deals is where the majority of the opportunities are.
“The pricing of smaller deals are picking up a little but I think the larger deals are flattened a little down. I have seen some large form transactions that have ended up not happening here recently because the sellers could not get the price that they wanted,” Rush says.
“I’m not ready to say that the huge multiples that everybody has discussed over the last few years are gone just yet, but I think we have seen the peak as far as multiples go. The investors appear to be less ready to pay for the hyper growth rates that have been projected out there and predicted.
Some of the larger players that have been on the sidelines are prepared to execute some growth. Those guys that have had old investors exit and new investors come in, they had growth capital invested in their business system. Competition for the most attractive cluster of centers is up, and I think we will see a peak as far as the number of buyers within the next year or so, that enter into the market at one time. I think that some buyers are becoming more critical in the evaluation of their target which tells me that those are prepared for an exit. They are not pulling the trigger on deals that they might have 12 or 18 months ago. In many markets and sub-markets, there is the saturation. Some are overbuilt, and this matters as far as M&A because some of these sellers out there; the mom and pop, 3 or 4 center businesses have been toying with the idea of selling, and I think they are waiting for some magic to happen before they commit to selling.”
Rush warns that when the market it moving like it is, and everybody is playing theoretical musical chairs, someone is going to end up without a chair when the music stops.
Peter Lamelas, MD, CEO, MD Now Urgent Care says that he sees the market in a slightly different light.
“I think the multiples are still going to stay high, but there is going to be a flight to quality just like in the stock market. People are going to pay a higher multiple for a higher quality group of centers. That doesn’t necessarily mean size. There was a recent deal that came out but didn’t go through. It was a very large provider but there were issues with that provider,” Lamelas says.
“There is going to be a flight to quality but multiples will still remain with a quality provider of urgent care that has enough facilities to be attractive. The industry is still growing, there is still a value proposition, and the industry is still fragmented. Actually, the long-term value of proposition is really compelling for the right provider of urgent care services; not necessarily the single or smaller providers. Those are going to have to roll up and be consolidated. Or, they may be a little niche provider, boutique urgent care that can stay in business in the country somewhere providing more customized VIP type service.”
However, Lamelas says the 2 or 3 center operator is going to feel intense pressure to be consolidated.
“I think urgent care is going to have to show something much more than “Open 24/7” and great customer service. They are going to have to look at referral rates. These are referral rates to the hospital, referral rates to specialists, referral rates to the emergency department. That is what is going to give an urgent care facility much higher value and a much higher multiple, especially if there are hospitals getting into the game,” Lamelas says.
Lamelas says that as far as earning higher multiples, business owners need to keep in mind that everything is local. He says that like politics, medicine is local and you can’t cast a broad net over everything.
“But, the high valuations, the crazy deals that are being thrown around, on the urgent cares that can’t show their value, I think are really gone,” he says.
Manoj Kumar, CEO of Hometown Urgent Care agrees with Rush’s thoughts about the markets.
Kumar says that outside of M&A, he is seeing ‘mom and pop’ facilities facing a challenge because they cannot provide the competence of the Urgent Care and Occupational Medicine model. Kumar says that in order to achieve success in the industry, it means a lot of work rather than just opening one’s doors.
“Urgent Care is a great thing as a service to the community, but somewhere the math has to work for everyone, and the challenges of a smaller operator of 1, 2 or 3 urgent cares will remain,” Kumar predicts.
“This is especially with the big players expanding and telemedicine moving up. The pie is growing, but it is still not growing as fast as new opportunities are coming. So, only the people that are providing the patient experience will see patient loyalties sticking to them.”
Kumar adds that on the M&A side, he thinks the market is seeing the second round of consolidation by large players.
“From our view point, what we definitely see is some smaller groups starting to feel the pressure of operating and operating profitably. I think there will definitely be some cleaning up in the market where those urgent cares will be acquired by regional players or they will have to close down. However, if they do a good job they will survive. I think it definitely comes down to who is truly committed to what we are about and that is providing great care, consumer driven, at a low cost and a high quality,” Kumar says.
If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or Blayne@AmbulatoryAlliances.com.