NOTE: this was a past issue of my weekly newsletter, Timeless Gems. Join my free mailing list so you don’t miss out on future issues.
Today’s gem is this Globe article on medical practice roll-ups happening in Canada right now. It’s a great summary of the various players involved, and what they’ve been up to (like paying 28x EBITDA for a local veterinary practice).
I remember reading about how, back in the 90s, private-equity-style physician practice roll-up were all the rage. I found this Washington Post article from 1993 that is eerily similar to the Globe article above. Roll-ups can be very lucrative if pulled off correctly, reducing supply is a great way to create value. However, they are difficult to execute for a variety of reasons, and success is often industry-specific and operator-specific. Long story short, the physician practice roll-ups in the 90s all ended in tears within the span of a decade. Lots of value was permanently destroyed (just Google one of the largest players, PhyCor).
In just about every single profession, knowledge is cumulative (law, science, medicine, etc). But in finance, knowledge seems to be cyclical. We learn lessons in bear markets, but quickly forget them in bull markets.
A large part of this is due to powerful short-term incentives. Inside these roll-ups, there are plenty of people who still make out like bandits. M&A lawyers, accountants, investment bankers, practice owners, even the PE firms still get to collect their fees. It’s ultimately the investors, or LPs, who end up holding the bag. There’s a great chapter in the book Billion Dollar Lessons dedicated to roll-ups and why many end up failing, citing specific examples.
But, who knows, maybe this time it’s different?
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