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As 2024 gets underway, investors remain optimistic about opportunities in the vision care space. The U.S. population continues to grow and age, creating a robust environment for optometry and optometric practices, according to industry experts. They note that a rising need for eyecare and eye health services, fueled by growth in the population of patients aged 65 years and older, continues to make the landscape a stable and attractive target for those who are looking to invest, or to grow their career.

Further, according to leaders who spoke with VM, the expectation is that needs in the area of eye disease detection and related subspecialties will also continue to grow, driving investments in technology and people. Indeed, population statistics support these industry observations, with U.S. Census Bureau data showing that the American population didn’t just grow in 2020, it also got older, with 1 in 6 people, or approximately 55.8 million, aged at least 65 years. Driven largely by the Baby Boomer population, this growth has impacted not just the need for regular eye exams, but also the need to detect eye diseases more commonly found in older populations.

“Optometry continues to be a very attractive place for both investment and career opportunities,” said Eric Anderson, CEO of AEG Vision. “The need for vision care is accelerating with our aging population—and an escalating incidence of eye pathology among patients. Advancements in technology have elevated optometrists’ ability to both diagnose and treat patients. The outlook for the profession has never been stronger.”

“Investors continue to be interested in vision care due to the stability of the sector,” said Sue Downes, chief executive officer of MyEyeDr. “With consistent global turbulence over the past four years, optometry and the optical industry remains strong and growing.”

While that may be true, it’s not to say that the picture is completely unblemished. Experts are also observing that the increasing cost of money in the U.S., with the federal fund rate hovering around a 23-year high of 5.5 percent as of press time, has had a slight cooling effect on deals and may continue to do so in the short term. Investors may also tighten their criteria when assessing practices for purchase or acquisition. Meanwhile, skittish consumers, inflation concerns and worries around recession risk have also left a mark on the number of transactions taking place as well as how deals are being structured, they observed.

François Huré

Although these broader currents can’t be ignored, experts and industry leaders alike generally align on the sentiment that the vision industry itself remains appealing to investors. François Huré, partner and co-founder at CapM Advisors whose representative transactions include the sale of PECAA to VSP Vision, the acquisition of Advancing Eyecare by Cornell Capital, and the sale of Luxury Optical Holdings to New Look, among others, shared his perspectives on the attractiveness of the optical industry.

“There are secular growth dynamics in the industry that have been there and that will continue,” he said. “As the population ages, the need for vision care gets greater. The growth in the demand for vision care services and products is greater than the number of doctors that come out of school, so that creates a dynamic where the supply and demand, the balance between those two factors, continues to go in favor of the profession.

“There’s more need and not enough doctors to service that need,” he added. “That’s a dynamic and a trend that will continue, and that’s very attractive in terms of what it means for the whole industry going forward. And from a supply and demand standpoint, that’s very promising.”

When looking at how the climate and criteria for deals has changed over the past year, Huré points to the cost of money in the U.S. and, from a broader standpoint, how rising interest rates affect the cost and availability of capital, which in the near future could dampen the pace and number of private equity transactions, slow investment in practices, and affect how sales are structured.

He also noted a trend in which investors and buyers are prioritizing transactions with practices that are in geographic proximity to existing locations, are move-in ready, and that also align with existing, tried-and-true strategies. These preferences, he said, have led to a decrease in the volume of practice transition deals.

Chris Harris

Notable industry expert Chris Harris, managing partner at FFL Partners, leads health care services investment activities and has been active in the eyecare space for several years. He echoed Huré’s observations regarding the industry’s continued growth potential and the impact the U.S. economy has had, and will have, on the buying and selling of practices.

He observed that interest rates, inflation, consumer sentiment and recession risk are more volatile now compared with five years ago, which impacts private equity transactions, and likely means that investors will look to generate higher returns to compensate for the increased risk.

“Vision is at the intersection of health care and retail,” he said. “It plays a critical role in our health care system, and I think that its importance will only grow over time. A lot of people underestimate the importance of optometry from a population health perspective: every day, optometrists are uncovering life-threatening diseases for patients. They are unsung heroes in this industry.

“Deal volume has slowed down quite dramatically, as some of the consolidators have taken a step back to integrate the acquisitions completed in 2021 and 2022,” he said. “I expect deal volume will start to pick up in 2024, especially the second half. I don’t think the criteria have changed, but I do believe there will be more deal activity in 2024 than there was in 2023. From a business perspective, the industry has experienced steady growth over a very long period of time, and I would expect that to continue in the next 2 to 3 years.”

Anne Kavanagh

Kavanagh Consulting’s Anne Kavanagh, CEO and managing member, and Jason Preator, CPA and managing partner, who have represented doctors/owners across several hundred transactions and whose clients span the vision care industry, shared similar sentiments around the cooling trends in deal volume over the past year. Similar to Huré and Harris, Kavanagh also pointed to the impact of higher interest rates and broader economic and geopolitical uncertainties, while also calling out tightened debt markets. Preator, while echoing that deal-making has cooled, shared this perspective:

“Doctors should know that PE market consolidations typically have a somewhat limited duration, and eventually private equity interest will shift to other markets,” he said. “The transaction activity peaked in 2021, and, depending on the geographic area of the practice, there may be limited to no interest from the consolidators.

“As a result, doctors must be aware that the most favorable market conditions may have passed, and if they were ‘trying to time the market,’ then they have likely missed the best valuation and options,” he added. “Great partnerships and valuations can still be found, but the window has closed and is closing in some areas.”

Kavanagh pointed to the high-profile failures of Silicon Valley Bank, Signature Bank and First Republic Bank in 2023 as precipitating a “mini banking crisis” that led to pullbacks in lending and an increased cost of financing. Additionally, she noted, uncertain geopolitical and macro environments in the past year, as well as rising interest rates, have also contributed to a slowdown in private equity consolidations as well as greater selectivity when identifying practices for acquisition, with a more stringent focus on size, multiple optometrists, location volume, and consistent revenue growth and profitability.

Although 2023 was challenging from these standpoints, both Kavanagh and Preator noted the continued attractiveness of the optical industry for investors. They attribute this to expectations for continued growth, fueled by both an aging population as well as availability of vision care coverage, and demonstrated, promising resiliency despite rising interest rates and declining economic trends. With that in mind, private equity momentum is starting to pick up in 2024, they said, but perhaps with a more cautious approach.

“The start of 2024 is encouraging, with stabilization of interest rates and a more stable macro environment,” Kavanagh said. “In addition, several private equity consolidators are looking to exit this year either through an IPO [initial public offering] or M&A [merger and acquisition] transaction. The buyers/consolidators will be more disciplined, i.e., targets, price, geography, etc., and will be looking to acquire healthy practices, not turnarounds, in the current environment.”

“We have seen an increase in overall deal interest and activity, but there is a level of cautious optimism from the consolidators,” Preator added. “As a result, the consolidators are not looking for ‘projects’ among partnership opportunities, so a practice owner needs to have dealt with uncertainty in staffing, changing locations, or other practice modifications deemed as necessary before considering a potential partnership opportunity.”