How is Private Equity affecting Australian optics?

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The Optometry industry has had many signals that consolidation in the industry is underway and that private equity may play a more active role going forward. Private equity owned companies are of the view that the eye care market is highly fragmented and ripe for consolidation and vertical integration.

The implications of these consolidations happening throughout the optical and vision care industry continually raise questions about how independent optometrists can survive. There have not been many investments in optical from commercial and financial players in the past, but now more prominent private equity groups are exploring optical and vision care in Australia today.

Optical is a business sector that has been highly fragmented and perhaps one which could benefit from increased consolidation and efficiency. The private equity companies examining the market are also doing more homework, about the business and its particulars.

Private equity companies know that the industry has strong fundamentals and demographics, and the aging population creates good demand, but it is still a very fragmented industry and there are concerns that, private equity firms may be investing to consolidate and fold them up.

Some of the questions and concerns we are hearing from the eyecare community in regard to this are from older, close-to-retirement practitioners who are considering their own potential exits from groups they’ve built over time. Can they transition these to other, younger partners? Is it wise to set their practice’s future with larger groups who have the resources to help smaller practices manage growth in a highly competitive future? Would it be best to spend more of their time turning over operational details to others? Is there a way for them to devote more time to direct patient care and vision solutions? Are their employees’ futures going to be secure after the deals are made? Can they still work there doing what they love without the ongoing business and management issues?

If you are considering selling you may have concerns and it can often take a long time. It depends on your current business and life cycle. For example, some Optometrists just want to sell for the highest price and get out and enjoy the spoils. For others, their concern is their staff – as often it is a priority they have a secure future. Some people are themselves, a second or third generation family business and want to preserve that name and that brand. Sometimes it’s a broader concern about remaining competitive in today’s business and health care climate that lead owners to make a sale. Everyone’s motivation and plans are different.

Quartet Ventures who own The Optical Company and Deep Optics are one Private Equity Investor looking for practices to acquire.  Others are not so well publicised but US PE firms such as Capital Vision Services, LLC, EyeCare Partners, LLC and EyeCare Services Partners Holdings, LLC, are likely to turn their attention to other markets soon.

The impending Luxottica and Essilor big merger heralds continuing consolidation in optics. However, consolidation will also occur in the small business and boutique markets eg George & Matilda.  In urban areas, the remaining independent practices may struggle to compete in a market dominated by chain stores and these equity financed outlets. It should be noted that mergers and acquisitions are not just happening in optics. It is happening to other areas of health care, including pharmacy and dentistry.

Acquisitions will likely continue for many years to come and independents will need to research their options carefully.  The best thing about a private equity investor is probably the speed with which the transaction can occur.  However, even young optometrists and practice owners should be exploring options for succession as soon as they get established.

 

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