Abstract
Purpose :
Private equity (PE) buyouts of healthcare practices typically involve practices raising substantial amounts of debt to meet the cost of acquisition. The financial strength of a practice, along with market forces and interest rates, dictate its debt valuation.We performed a cross-sectional study from 2017-2021 to assess the financial stability of eye care (ophthalmology and optometry) practices acquired by PE groups using publicly reported debt valuations as a proxy.
Methods :
Business Development Companies (BDCs) are a form of private equity fund that invest in developing companies and must file quarterly and annual reports with the Securities and Exchange Commission. BDCs lending to private equity backed ophthalmology and opometry groups were identified using the 2021 BDC Report, and the filings of these groups were searched to tabulate the cost and market value of debt associated with each practice. A panel linear regression was used to evaluate changes in valuations across financial quarters.
Results :
2997 practices affiliated with 14 unique eye care groups and 17 BDCs were identified in 2021. Debt valuations of eye care groups decreased 0.46% per quarter over the study period (95% CI: −0.88 to −0.03, P = 0.036). During COVID pre-vaccine (March 2020 – December 2020), there was an excess (additional) 4.93% decrease in debt valuations (95% CI: − 8.63 to −1.24, P = 0.010), which stabilized during the post-vaccine period (February 2021 – March 2022). Over the study period, there was an increase in practices that reported average discounted debt valuations from 20 practices (1.6%) associated with 1 eye care group to 1213 practices (40.5%) associated with 9 eye care groups, despite stabilization of COVID related debt effects.
Conclusions :
We report a significant decline in valuations of debt held by PE acquired eye care groups from March 2017 to March 2022. An excess (additional) decline in valuations was observed during COVID prior to vaccine dissemination, with trends in excess debt valuations returning to baseline pre-pandemic levels by December 2021. Discounted and declining debt valuations raise concerns about the financial viability of eye care practices acquired by private equity, particularly as private equity investment in eye care has demonstrated exponential growth over the past decade.
This abstract was presented at the 2023 ARVO Annual Meeting, held in New Orleans, LA, April 23-27, 2023.