With health care reform creating more covered beneficiaries (many of whom do not have a primary care physician), a shortage of physicians and advance practice providers, and an emerging financial incentive to keep patients out of the ER, urgent care is fast becoming a key component in the health care delivery system. What makes the sector unique is the breadth of acquisition strategies – and buyers – in play. While there are many private equity sponsors pursuing traditional roll-up strategies, we also are seeing hospitals, physician groups, and insurers get in the action – not just for the revenues urgent care can generate, but also for the role it can play as an entry-point into the system that can be leveraged to direct patients to the most effective venues of care.
Although the sector remains at elevated levels, for the first time since 2010 there was a fall-off in transaction activity in urgent care. The decline is largely due to reduced activity from private equity (see left). That said, if you are a smaller provider (five or less units), the market is moving in your direction as acquisition strategies shift from building size, to creating market specific density.
Based upon declines in activity over the past two years, it appears that, collectively, private equity is slowing its pace of acquisitions in urgent care. This comes as (a) the first class of consolidators exit their investments, and (b) investors rethink the value proposition from amassing hundreds of locations across the country, to creating regional density that would appeal to a hospital system, insurer, or large physician practice.
The downward trend here is favorable as the number of deals per unduplicated buyer remains at historic lows. This clearly indicates that the market is not dominated by serial buyers and that demand extends across the size continuum (see left).
Particularly in urgent care where the conventional wisdom is that if you don’t have 5-10 units or more, there is little acquisition demand, this statistic is quite telling. In 2016, the median number of units per transaction fell to its lowest level since 2010. What’s more, when we examined the detail further, we found that 36% of the deals in 2016 were for one unit; 50% for two units or less.