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12/15/2017    David N. Helfman, DPM

Venture Capitalists Target the Podiatric World (Hal Ornstein, DPM)

Having personally consulted and currently engaged
with the VC/Private Equity world and founder of
Extremity Healthcare, I would like to add some
very important and direct points to Hal’s
comments on podiatry and VC. Podiatry has always
been a bit behind other specialties when you look
at other healthcare consolidations.

The main reasons PE firms have not been able to
really see value in Podiatry as a platform
investment is because the successful PE firms saw
podiatry groups as too loosely affiliated, were
concerned about integration issues, compliance
issues, and the ability to scale to a size that
made sense for PE firms. As the founder of EHI
and consultant on Wall Street, you are going to
see PE enter the podiatry world very shortly.
Unless you are a truly fully integrated, large
scale podiatry platform, then don’t expect PE
firms to be knocking down your door.

Also, PE firms invest in management teams and
most are not looking to run Podiatry companies.
There are really two types of investors, one are
financial investors who are looking for platform
growth companies with high returns and then there
are strategic buyers, who are just looking to buy
out companies and get rid of the majority of
management teams.

PE financial investors are looking at basically
three things when deciding to invest in any
healthcare platform company;

1. Can you create EBITDA without really cutting
physicians’ salaries? Most podiatry practices
don’t have any profits so in order to sell you
would have to recast your financials and show
strong earnings potential.

2. Do you have the right management team that has
a track record of acquiring and integrating
practices and showing profitability? Most
podiatry practices are not structured properly in
order to retain any profits and generally let all
money go to partners at year end.

3. Do you have the right technology,
infrastructure, and leadership that has done this
and can show that their money has minimal risk
and significant upside? Most Podiatry practices
have not invested in a platform to grow from say
100 million to 400 million in 5 years.

As many of you know, I have been preaching this
model for past 15 years and have learned what PE
firms are looking for and you will see things
change in podiatry in the near future. However,
if you are a small practice, don’t merge with
another practice just to get bigger, unless that
practice has the right structure that makes it
attractive to outside investment.

Also, podiatry is truly one of the last verticals
that has not been consolidated and I think you
will see this change shortly. My advice to each
and everyone of you is to make sure you are all
running the most efficient, profitable, and busy
practices as you can and get proper counsel
before merging with anyone. If you merge with
another practice but the structure is not
attractive to PE world, then why do it?

Patients are the key ingredient to any successful
platform company. Can you run a successful
business without ancillaries? Then the
ancillaries will drive revenue and will only
increase your valuation.

David N. Helfman, DPM, CEO, Extremity Healthcare,
Inc., Atlanta, GA

Other messages in this thread:


12/19/2017    Lawrence M. Rubin, DPM

Venture Capitalists Target the Podiatric World (Hal Ornstein, DPM)

As always, Dr. Hal Ornstein has given PM News
readers "pearls and golden nuggets" of powerful
information. I would just like to add my opinion.
Both patients and the health care insurers who
pay their medical bills both want value based,
patient centered, cost-contained foot care -- and
your practice can deliver this care and market it
at your community level. If you are in solo or
small group fee-for-service practice, you can
start capturing your large share of the foot care
marketplace in your community by first
determining the geographic, zip code areas from
which you draw 90% of your present patients.

Place a mental podiatric services stake in that
territory. Then focus on accomplishing what Dr.
Ornstein recommends by getting the help of a
savvy medical services marketing consultant with
experience in marketing foot care to the public,
employers, and insurance companies. The cost of
an experienced consultant should be paid through
your increased revenue. Once your practice
thrives from this, and you have proof-of-concept
for your value-based business model, you can
decide if you want to market a franchise or other
business model of your practice. You may need
general business formation consultants and
investor funding for that.

Further, there is the potential for ownership of
ambulatory surgery centers. By owning and
controlling the operating environment, practices
are able to function outside hospitals, leading
to better physician economics, improved cost
containment, and better access to care for
patients. From an investor’s perspective, a
business model of an efficient successful
practice thriving in one location so that it can
be replicated elsewhere is very attractive.

In fact, the practices that are most attractive
to investors are ones that have developed
strategic plans to compete against regional
health facilities and acquiring smaller
practices. By owning and controlling the
operating environment, practices are able to
function outside hospitals, leading to better
physician economics, improved cost-containment,
and better access to care.

Lawrence M. Rubin, DPM, Las Vegas, NV
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