2021 GI Outlook (GO) Conference | November 2021-Evaluating Private Equity

Pdf Summary

In this document, the author discusses the topic of evaluating private equity in the context of gastroenterology. The document begins by highlighting the consolidation happening in the gastroenterology field, with large GI groups leading the way, followed by mid-size and small evolving groups. <br /><br />The author explains that private equity involves a PE fund buying a company, restructuring it, and then selling it to distribute profits. The investments made by LPs, such as pension funds, are typically a mix of cash and debt. Private equity has been increasingly active in gastroenterology, with a significant increase in transactions between 2018 and 2020.<br /><br />A case study of the Illinois Gastroenterology Group is provided, illustrating the private equity investigation and due diligence process they went through before eventually entering into a Letter of Intent with GI Alliance.<br /><br />The author also delves into the concept of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) as a measure of profitability and how PE companies value GI practices. Gross revenue, total expenses, and additional factors like interest expense and taxes are taken into account to calculate the EBITDA, which is then adjusted to derive the valuation.<br /><br />The document also emphasizes the importance of considering various factors when contemplating private equity, such as the impact on technology, infrastructure, management, and culture. It warns about the potential risks and challenges associated with PE investments, including changes to the business model, market conditions, clinical autonomy, and pressure for ROI.<br /><br />The author concludes by advising readers to lead and reinvent GI care regardless of whether they choose private equity or not. They emphasize the need to make decisions that align with doing good and shaping the future of gastroenterology.

Asset Subtitle

Praveen Suthrum, MBA

Keywords

private equity

gastroenterology

evaluating

consolidation

GI groups

LPs

transactions

case study

EBITDA

valuation