BUSINESS Seeking Solutions ODs Explore New Options for Practice Ownership and Transition By Mark Tosh Monday, August 12, 2019 12:30 AM RELATED CONTENT Private Equity-Backed Firms Seek Bigger Slice of Health Care Pie MyEyeDr.: Valuing Doctor-Patient Loyalty EyeCare Partners: A Doctor-First Approach Acuity: Launched in 2017, but Growing Quickly Keplr: A Change of Name, But Not Philosophy Vision Source Next: Building a Community of Support for Independent ODs VSP Ventures: Care-Focused Alternative for ECPs in Transition Pearle Vision’s Ignite: Providing a ‘Strategic Conversion’ Program ‘Demystifying Private Equity’ Seminars Launched by Review of Optometric Business Click here to download a PDF of Seeking Solutions.In the world of optical retailing and eyecare, the arrival of the year 2020 might be seen as the best of times for the profession. Demographics, especially an aging population, higher incidence of diseases that may impact eye health (such as diabetes), and new areas of practice focus—namely myopia and blue light protection—are opening up avenues of opportunity for eyecare professionals. At the same time, advances in telehealth, industry consolidation, the digital revolution and broad changes across retail in general are creating tough challenges for independent practitioners who are battling to maintain success in the face of this adversity. Consolidation activity—involving both big corporate players and private equity-backed groups—continued apace in 2018 and 2019, following a trend that began in eyecare almost a decade ago. For eyecare professionals who have practiced for many years, and even younger doctors still dealing with student debt and indecision about their career path, these challenges are great. Perhaps there has never been as many important career choices to make or options to consider in their professional planning. This year already has seen a fair amount of transaction activity in eyecare by private-equity backed firms seeking additional growth. One of the larger PE-driven deals in health care was announced in June as a Goldman Sachs fund acquired MyEyeDr./Capital Vision Services from Altas Partners and CDPQ, a Canadian pension fund. This deal is pending, but is “tracking toward a successful third-quarter closing,” MyEyeDr. chief executive officer Sue Downes told Vision Monday. She noted that MyEyeDr. (which has about 510-515 locations as of late July) is working toward adding another 50 practices between August and the end of the year. Another significant development in the industry came earlier this year when VSP Global announced its intention to become more actively involved with optical retailing with the launch of VSP Ventures, and the subsequent VSP Global planned acquisition of 725-store Visionworks. VSP Ventures already has acquired two former independent OD practices in a joint-venture type transaction. (See separate story beginning on Page 32.) Richard Edlow, OD, a founding partner of the Catonsville Eye Group who has been tracking trends across eyecare for several years, said he believes that 2019 will turn out to be an active year for dealmakers in the optometry sector. “I tend to think that it’s going to equal or slightly exceed 2018 as far as the number of deals,” he said. “The size of the deals may not be as big because a lot of the private equity players who want to get into the eyecare space have already gotten in with their big platform practices.” Edlow said many of the “big platform practices with 20 to 30 doctors and several locations,” and with vertical integration already in place, have been acquired by consolidators. Most of 2019’s deals will be “tuck-in deals,” he said. Still, only about 8 percent of the estimated 44,000 optometrists in the U.S. are practicing with PE-affiliated groups as of mid-July. For ophthalmologists, the breakdown is about 6 percent of 16,000 doctors in practice, according to Eyeconomist research data developed by Edlow. Jeff Fronterhouse, a managing partner of Riata Capital, said he believes ODs across all age groups are more closely considering their options with respect to joining alliances or buying groups, remaining independent or selling to private equity. (Riata launched Acuity Eyecare Group in 2017.) There probably is “a relatively large percentage of the market” of ODs who want to remain independent, Fronterhouse noted, but there’s also an increasing percentage of practices and groups that want to sell their practices and be “paid well for their hard work and what they built.” He added, “They see some challenges in operating independently and maybe new pressures that are emerging in the market that they have some ambivalence about.” Still, Fronterhouse said he expects that with all of the different options that are on the table, there will continue to be a large segment of the market that chooses to remain independent because they like what they’re doing. On the other hand, there is a segment of younger, progressive practice owners who look favorably at joining a PE-backed group because of the tools and resources that are provided and allow them to operate a more successful practice. Chris Harris, a partner at the private equity firm FFL Partners (which owns EyeCare Partners and Eyemart Express) acknowledges there are “a large number of ‘platforms’ out there” seeking to consolidate eyecare, but the competition for deals is “still modest because the supply is so great.” He added, “There are still over 10,000 independents and approximately ten-ish consolidators looking for opportunities. The competition is more pronounced for the larger opportunities with more than 10 locations,” he said. Harris sees other implications of the current PE trend. “I believe the pace of consolidation will accelerate over the next five years and continue to be a trend for 20-plus years,” he said. “It is not easy to be a value-added partner to hundreds of doctors across the country and my guess is there will be consolidation among the PE-backed groups—where some of the smaller consolidators partner with larger ones that have built the infrastructure to operate at scale.” Against the backdrop—some would say threat—of PE further consolidating the optometry sector, a number of groups have stepped up to offer alternative career options for ODs who want to continue practicing on the independent side of the business. One of these groups is Vision Source, the leading franchisor of independent eyecare practices in the nation, which has developed its Vision Source Next program to support ECPs who are committed to practicing as an independent and seeking new opportunities for growth. “As a country, we need more time for [addressing] eye health,” said Vision Source vice president of business development Gregg Groenenman. “We have 10,000 seniors each day aging into Medicare …. A giant section of the population needs care and hospital and health care systems can’t handle it.” He noted that Vision Source believes that by strengthening the independent sector of eyecare, these ECPs will be better positioned to do more than just screen someone for eyeglasses. “Instead, you can do a true eye health exam and you [may discover] the person has hypertension and could be at risk of a heart attack. That’s how you change the world,” Groenenman said. “That’s why we believe so strongly that the doctor should own their own practice and be able to make the decisions that are in the best interest of the patient,” he added. Another option for practice owners is the Pearle Vision Ignite program, which allows practice owners to participate in a program that retains their independence, but with the backing of a comprehensive franchise infrastructure provided by Pearle. “We’ve had a positive response to the program across the industry,” president Alex Wilkes said. (See related story, page 34.) Mark Wright, OD, professional editor of Review of Optometric Business, said he believes the topsy-turvy nature of optical retailing and eyecare today is similar to the changes seen several years ago. Wright said the new twist is that PE deals have become a three-stage process, moving from acquisition, to consolidation and finally stage three where a group of 1,000 to 1,500 acquired practices will be converted into a retail chain. “Honestly, my belief is that when all of this settles down, we’re really talking about 15 percent of the market [being consolidated],” he added, noting that not all of the independent practices out there are attractive. “Will we get a new retail chain out of this, or perhaps two or three?” Wright asked rhetorically. “Yes, we probably will. Will it dramatically change the marketplace? Not really.” VM checks in with the active players in the practice transition and PE space in vision care with more detailed interviews on the following pages.