Alpha Sophia

How Should Your Firm Decide Upon Which Medical Practices to Acquire Next?

Winston Li
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In the past decade, competition in acquiring private medical practices has skyrocketed, seeing a 6-fold increase in deals. How do you make sure your firm is acquiring the right medical practices and not falling behind?

One of the most challenging parts of acquiring medical practices is finding the right ones. Out of the 340,000+ active practices just in the US, finding the optimal practice for your firm to acquire is like finding a needle in a stack of needles. Let’s explore how an investor should approach this challenge in 3 simple steps.

Step 1: Decide on target medical specialties

Decide on target medical specialties

Deciding on target medical specialties is the first and one of the most important steps to narrowing down target practices to acquire. With a narrow set of specialties in mind, as your firm grows, you’ll be able to pass on integration and operation know-how from one acquisition to the next. Additionally, without 3rd party tools, many companies choose to source expansion targets through personal networks and worth of mouth. This means that creating a strong brand name in your respective specialty is crucial for your firm’s growth strategy. With a specialty in mind, you’ll be able to industrialize the acquisition into integration into operation process and enable your firm to build its empire faster and stronger.

Step 2: Decide on target location

Decide on target location

Most strategic acquirers in the medical practice industry choose to focus on one or a few primary regions. It is very rare for an acquirer to operate in a slew of geographic localities. This is because when you have clusters of similar medical practices, you create a network effect. Let’s say you own an orthopedic surgery practice in San Francisco, perhaps if you also owned a rehabilitation center in San Francisco you’d be able to leverage that network to cross sell your patient post operation. Conversely, if your firm wants to hyperspecialize in one corner of a taxonomy, like ophthalmologic surgery, there is value in just acquiring those specific practices as well. Your firm’s scale within one locality, and one specialty, will afford you market power that your firm can leverage.

Step 3: Decide on target practice size

Decide on target medical specialties

Deciding on a set practice size your firm will acquire is crucial. Metrics such as procedure volume and the number of affiliated HCPs can be used as a proxy for practice size if hard financial data is not available. Acquiring practices of a certain size is a highly effective strategy for maintaining operational consistency and efficiency across your network. Operating a practice with just 5 or 10 practitioners is a vastly different ball game than operating a hospital with 500. Keeping your practices of a consistent size will allow you to motorize your integration pipeline and generate cash flow sooner.

How to use Alpha Sophia to effortlessly source the ideal medical practice to acquire

Say your firm is looking to expand its portfolio of practices, and already owns a few in Los Angeles. Your firm is already familiar with the region’s regulatory environment and wants to add onto its portfolio there to realize synergies across practices.

You can use just 3 of the many filters which Alpha Sophia offers to find potential targets in Los Angeles. Click search, then change the mode to HCOs, and then use the “Practice Location” filter to narrow down the universe to just LA.

See the practice location on Alpha Sophia

Furthermore, say the practices in LA that your firm already owns specialize in ophthalmology. Your firm already has experience in operating its current network of ophthalmology practices, so acquiring another one would allow you to grow your network in an efficient and predictable manner

Let’s use the “Taxonomy” filter, to narrow our results down to just Ophthalmology practices in Los Angeles.

See the taxonomy on Alpha Sophia

Now that we have found and identified a list of targets that match our general criteria, it is time to single out which one of these options is the best investment opportunity for your firm. Some practices might be too small for your firm to even consider. To feel out the size of the practice, let’s use procedure volume, and then rank our results from most to least volume.

See the procedure volume on Alpha Sophia

Just like that, you’ve found a target that fits your geographical preferences, taxonomy preferences, and meets your firm’s acquisition size guidelines. You’ve finished your sourcing in 3 easy steps. Stay posted to see how your firm can streamline their due diligence and lead qualification on the Alpha Sophia platform!

Use Alpha Sophia to find your next target

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