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Private Equity Pulled Back in 2025: How Buyers Actually Value Optometry Practices in 2026
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Welcome back to the Power Hour, Optometry's biggest and longest running show. I'm your host, Eugene Shotsman. And today's episode is specifically timed for the beginning of 2026 because I had the suspicion, and it was kind of confirmed in the episode that we have today, that 2025 saw a little bit of a change or evolution in the landscape for buying and selling optometric practices. So whether you're selling or not, or whether you're ever going to be selling, I think this episode really helps you understand what the value of your practice is today. And by the way, what I mean about 2025 is that I think we saw fewer buyers in the market, specifically fewer private equity buyers in the market. There was more selectivity around deals. I think there was a noticeable shift in how some practices were being valued. A little bit of, you know, trickery maybe. And, you know, while multiple continued to soften a little bit, some people got great deals, some buyers stepped back. And I think with the conversations we were part of or some of the conversations we were hearing from some of our clients were about timing, about readiness, about whether they actually wanted to sell their practice. And on some of our clients sold were talking about whether selling actually really looked the way that they thought it would. So that's why I am so excited to bring on my guests today. They're Ann Kavanaugh and Jason Prater. These are two people who literally have seen more optometric practice transactions than anyone else in the industry over the last decade. And their perspective is truly built on. It's built on real deals, real outcomes, real patterns that they watch play out year after year. So in this conversation, we get a chance to talk about those trends, but we also get to talk about what is actually happening with people who are trying to sell practices right now and who's actually buying practices right now. What's changed in 2025? How are buyers thinking about risk, about structure, and about value of practices today? Because at the end of the day, how a buyer is thinking about it determines what you're going to get paid for your practice or what your practice is worth. Then in the second half of the episode, we also get pretty detailed and practical about what are the steps that actually increase the enterprise value of a pract way before you go to market. Even if you don't go to market, what are things you should do to help increase the value of your practice, even if that decision is years or decades out for you? So if you want to practice, whether you're planning to sell or not, this episode will definitely help you think about how you value your business and what to do in your business. But before we jump in, quick reminder to everybody, make sure you're subscribed on YouTube, Spotify, Apple Podcasts, or wherever you get your shows so that you never miss an episode. And and as always, if you have questions, feedback or ideas for future shows and reach out to me directly@eugene shotsman.com I do read and respond. Now let's get into today's conversation with Ann Kavanaugh and Jason Prater. Ann Kavanaugh, Jason Prater, welcome to the Power Hour. Excited to have you both on the show.
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C
Thank you for having us.
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B
Well, so I think I'm going to dig or jump right into it and kind of dig deep with the first question I can possibly ask because I think this is what people are really curious about, is that and the two of you have incredible background because you've done more transactions than anybody in the optometric space over the course of the last decade. So you've really gotten a bird's eye view of the industry, how things have changed, what's happening today. But we're having this conversation in 2026, early 2026, and I'm curious, as you recap 2025 and as you think about where the industry is going, what's been kind of the shift on the buy and sell, buying and selling of optometric practices? And what does that look like? Jason yeah, so I, I think if.
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A
You specifically look at at 2025, there has been ebb and flow, just as there has in every year. So optometric practice acquisitions are a little bit different than other industries because there's a fewer number of players. And so in any given year, one of those acquirers may take a break from acquiring practices. The larger ones, my eye doctor Acuity Eye Care group, have stayed active throughout the period. We've seen activity from Team Vision, which is the Essler luxottica group as well, also vsp, and then some new entrants into the market. But a lot of it depends on what area of the country you're in and your geography is to to what's really happening in a given market. So.
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B
Well, and it's interesting because I think there's a question for me of, you know, who, who is doing the acquiring and maybe we'll start there before we go into actual trends, is that, you know, when I, when I have guided clients through acquisitions on their side, meaning they're buying and also in some cases, they're, they're selling what, at least in my experience is that there's a percentage of the transactions that go to, we'll call them like private practices. Right. So a local eye doctor wants to expand and so they're buying their colleague 40 minutes away. Right. Then some of the acquisitions seem to go as kind of practice legacy stuff. So older optometrist selling to an associate. I would put that category as like, you know, private practice. Buying private practice. Then there's what I'd call like the mid tier, smaller regional private equity that somebody who's got 20 locations going to 25 or somebody who's got the kind of command of a particular market and they're trying to grow within a particular space regionally, as you were alluding to. And then there's the big guys that are kind of buying nationally. Right, and, and you, you alluded to some of those folks as well. What percentage of transactions? Ballpark, you don't have to be exact by any means, but what percentage of the transactions go in either bucket one, bucket two, or bucket three in your opinion? And how has that number shifted over the course of, let's say the last five years? Anne, what do you think?
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Yeah, so I'd have to say that probably 98% of our deals go to private equity. There seems to be a deep desire for the younger associate to just want to have a job and not to run a practice. And so what we're seeing is the buyers are the PE groups of the strategics like Team Vision, vsb. And I think that's a trend that has changed. And I think part of the reason it's changed is that the valuation is so different. OD to OD versus OD to private equity or strategic.
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B
Okay, explain that a little bit please.
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C
Yeah. So if you're an individual, your ability to borrow is different from a multi billion dollar private equity firm. Right. So purchase price can go up the more you can borrow. And so private equity has infinitely more leverage capability. And every transaction is bought with the private equities firm's equity and also their mezzanine debt, that lender that they have.
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B
So you would say that in general, private equity is driving the price up of a practice because the OD to OD sale is less likely to happen because the, the OD that's buying the practice is less likely to be able to afford or qualify for the payment that's necessary in order to buy at that particular rate. Right?
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C
Correct, Correct. So it's credit, it's desire, and then it's also credit worthiness Got it.
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B
And would you say, Jason, maybe this one's for you. Would you say mid tier private equity is doing more, more of those transactions or is it still the, we'll call them the large national players that are more likely to do the transactions today?
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I think it depends on the market. So if there's competition in certain markets with all of the buyers, then again the larger ones are able to pay more. And that's usually one of the central focuses of our clients is, you know, the amount that they're getting. This is kind of their nest egg or their retirement. So they're focused in on that and they gravitate towards usually the highest offer, but not always. But certainly the regional players in the markets that they're in have been competitive and come with strong offers as well for our clients to consider. One point just to add on Anne's comment is most of our transactions that we're dealing with are larger practices, meaning probably annual collections of, you know, 800,000 and above. If you're a practice that's below that. So it's just you as a single doctor and let's say you do a half a million dollars or, or that and collections and those are traditionally going more. Dr. Because there's not the interest level from the private equity groups. But it is getting a lot more difficult to find even doctors at that level because of desire and debt that they're coming out with to buy buy practices. So.
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Well, you know, that's kind of what I was going to ask about is that you have a unique vantage point because you guys are business brokers, right? So the reality is that the people who are hiring you may be hiring you for a reason and maybe that OD to OD transaction, you know, they might not want to hire a business broker because it's already a handshake deal. The guy is in my, you know, business or group or in my local optometry society or something like that. And I kind of, we know them and we've been fostering this relationship. But on the other side, you're absolutely right is that it seems like there is always a minimum in terms of practice size that attracts private equity. And it seems to me like that's, you know, that that in itself is like a step that, you know, private equity won't look at your practice unless it's over a certain amount of dollars or a certain number of ODs or a certain number of other qualifying features. So maybe speak to that a little bit. And what are the most popular attributes that make that make private equity get excited about a practice or that make a buyer even get excited about a practice.
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C
Yeah. So multiple. Multiple ODs. Right. Because it's key man risk. If you're a single OD and something happens to you, there's huge key man risk. So multiple ODs, multiple locations, significant revenue. The highest valuations that we've gotten for clients is when their revenues are over $10 million, because you can get a lot of leverage and synergies and you don't have any key members. The other thing that does matter is what state you're in. So each state is different, but, you know, client, the buyers like to have a strong economic environment and also a good regulatory environment as well. So those two things. But I think it's really what really drives buyers is size first and foremost, then multiple ODs in multiple locations.
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Got it. And that that makes perfect sense because eliminating key man risk is probably the number one thing that especially private equity wants, because they're just looking to grow a portfolio. And if one person stands in the way of that success, then know that that is a big deal.
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Right.
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Let's talk about trends for multiples. If I I heard, and maybe I'm mistaken, but I heard that multiples really topped out somewhere like 2021, 2022, something like that. And they've been kind of heading in a downward direction since, although they're not bad still. Jason, you want to comment on that?
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A
Yeah, I think, and I've been doing this now almost nine years, and so we've seen the ebbs and flows in general, I would say. Yeah, the peak of the market across the board was about 2021. And. And there's a couple reasons why. One, you had Covid, and so no deals were happening for the most part of 2020. And so as soon as the floodgates and the lending started up again, you had this rush of all these buyers to come in. And so they pushed values up because competition is ultimately what drives valuation. And so that led to the peak of 2021. Since that time, you've had a couple of the major buyers step out. You had Kepler, which was a good active buyer buying practices. You had eye care partners, another big buyer that was buying that they had. Neither of them have acquired practices in the last two to three years. And so when competition decreases, then offers will decrease as well. It doesn't mean that we haven't gotten the same level of multiples on our deals, but a lot of those, again, depend on geographic market and how many competitors are vying for the same practice and kind of what the parameters of the practice are. But in general it's more difficult now to get those premium offers. But we've still been successful in doing it. But you kind of have to have your practice in tip top shape more so than in the past. They don't overlook blemishes. You need to address those types of things to get the top offer and.
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We'Ll get to those blemishes and really the best actionable strategies to prepare your practice for sale later in the show. But I want to just let both of you maybe speculate a little bit on as to why some of those players have stepped out of the market over the course of the last couple years. Why do you think that Kepler and Icare Partners have decreased their transaction volume? Ann?
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C
Yeah, so they, you know, our understanding and it's, we're pretty knowledgeable in the market is when you run into covenant issues on your, with your mezzanine lender, which I know with Kepler is galoob, you know, you can't buy deals, you have to straighten out your operations and so the, the lender will restrict you from buying. And so you know, both of them, I think, you know, had some operational issues which they're addressing and once they have them fully addressed, they'll be back in the market.
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B
Got it. And when we think about what happens when you sell your practice to private equity and maybe this is a little bit of a different tack, but I want to ask the question anyway, is that when you think about selling your practice to private equity, is it better to stick around and be, and try to get part of the money as an earn out and you know, take, take the time but possibly get more money. Or is it better to get all your money up front and not have to stick around? And what's making me ask that question is thinking about when you say operational issues at the, at the parent company level. Well, there's probably some things that have to happen operationally or that happen almost immediately operationally when someone buys a practice and you know, what's your tolerance as somebody who's run that practice for, you know, the last decade, two decades, three decades to have to kind of deal with some of those operational changes. So what have you seen? What do you advise your sellers that work with you, Jason? Start with you and then maybe you can.
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A
Yeah, and it's a great question because we get it a lot. Not, not all of the buyers offer equity as part of their structure or earnouts or other things that, that Put future payments somewhat at risk. But we remind our clients that if they are taking equity or something in the future, that it is not a guarantee. So it depends on their risk tolerance. We've had some clients that have sold to eye care partners, to my eye doctor, some of the, the larger ones that have actually done a transaction that have done very, very well with their return on their equity. But it is equity. There's no guarantee. And so that's kind of the advice that we give. It depends on, you know, what their, their risk tolerance is, certainly, and their timeline. So the other unknown as it relates to taking, you know, future payments is when, when will those payments come in? So some of the current ones, acuity being an example, where they're looking to eventually sell their portfolio or do something, it's been delayed by Covid and the interest rates and other things. So that's. It takes things that are in your control when you get money and put it, you know, it makes it out of your control and so it makes it a little bit more difficult to deal with.
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Yeah. Anne, what do you think?
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Yeah. So, you know, each private equity firm and Strategic has a different structure. So for instance, you know, VSP and Team Vision, there's no equity opportunity. Right. Whereas with, and I think mbd, we had, you know, a number of clients that made a significant amount of money, but they're not offering equity anymore. So aeg, I think, is the one equity play that is still available for buyers. But the odd, typically the deal is contingent on the OD signing an employment agreement for three years as well as his associates. And the reason is simple. The buyer is buying revenues and cash flows. So if you're the OD seller, typically what we see is you're the number one producer because you're the owner. Right. And so the buyer wants to have a, you know, if you're, you know, in your 60s or whatever, they want to have a ability to have at least three years more if you want, but to transition. So you can't. We've done a deal, only a few deals where we've been able to structure like a one or two year employment agreement. But typically it's three years is what people are looking for.
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Yeah. And, you know, it's so timely we're having this conversation. Literally yesterday I got a call from a client of a very, very frustrated doctor in his early 60s who sold his practice, I would say about a year ago, year and a half ago, and he said to me, they're just running this thing into the ground. They're just destroying the value that I have built for X number of years and I still have to work for them for another three years and you know, I guess I can quit but like I got this earn out coming. If we hit certain benchmarks, if we hit certain revenue targets, if we, but they're making all these changes, I'm never going to hit these revenue targets because of these changes that they're making that I would never make now. And by the way, their practice is not run by any of the people you just, you just mentioned, but it is, it is a kind of, we'll call it a P and we'll, and I am curious what you think when or what you would advise to a seller to either prepare for the pain and know that a pain like that will exist, but you've got to get enough money up front to make it worth it. Or you just say, hey, maybe there's a way you can negotiate to not have to deal with that pain. Jason, what do you think?
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Yeah, I mean it is, it's, it's a tough thing to deal with because we, we have clients that come to us at times where they assume nothing's going to change. They're just going to get this windfall of money. And that's not a good assumption. So if you're at the point where you're looking to transition your practice, whether it's to an OD or private equity or whatever, there are going to be changes that happen. You won't be the sole decision maker of your practice. And some people have a really difficult time dealing with that. And so we let people know and we try to tell them what are the major changes that happen and occur. And so we can give them insight into that. But we also think it's important for them to talk to others that, you know, they have friends or colleagues that have gone before because they're, they're going to be able to tell them more, you know, what happens in the day to day and what, what are the things that they, the nuances that they have to deal with or get over and get comfortable with. But certainly if you want to sell, you're going to have to be able to deal with change. And, and so we let people know going in that that's the expectation and, and that we haven't got a lot of feedback that practices are getting run in the ground. You know, certainly there's bureaucracy and other things that frustrate some of our clients and we stay involved throughout the whole period with the new buyer. And are happy to get involved, but there's change that will be coming if they decide to go this route.
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Yeah, and by the way, I've seen with OD to OD transactions, oftentimes it's a little bit less of an employment agreement that's required from an OD to an od because the OD is less worried about the cash flow that comes from that. And sometimes they're like, I just want the old doctor to get out of the way. Because in reality, I have a new plan for how I'm going to run this practice and make it more profitable. And I don't want the old habits potentially messing with that. And I've got, you know, I've got OD capacity that I can throw in there because usually OD to od, they, they have a, they have a plan for how they're expanding and it doesn't necessarily involve employing the old doctor or right doctor who was there previously. I guess they don't necessarily have to be old. So the, the idea is, you know, maybe that's, that's one of the benefits of OD to OD sales. But I, I, I do, I mean, and I've seen this a lot. It's like, well, they're answering the phone wrong. I, I'll hear this from clients and it's like, oh, my God, they're answering the phone wrong. They switched, they switched our calls, you know, from local to this awful call center that barely answers the phone, schedules the appointments at the wrong location, does whatever, right? Like, and like, and that's hurting my ability to earn as a doctor and to whatever, or as a, as a former seller. But at the same time, it's, you know, to your point, it's, well, you took the money up front and you handed over the keys and now you're, you know, in the back seat, if not the trunk, while somebody else is driving the car. You know, so you just got to, you gotta kind of know that that's part of the transaction. Ann, you wanna comment?
- [23:02]
C
Yeah. We stay very involved with our clients post deal, but I think the one thing that we do upfront is we do tell clients there's gonna be change when they have get multiple. Lois, the differences between the buyers, it's their choice who they wanna partner with, but each one has a different level. PMS system, call centers, et cetera. We've never had a client say that they wish they had not done a deal. And we will follow up on any, like, I've got a client right now. This issue from three years ago. I'm dealing with it right now because that's what we like. We'll stay with the client, and if there's something that the buyer is doing incorrectly, we will, you know, speak to the buyer and try to get things corrected, because we want to have happy clients and we want to see the private equity firms and the strategics really do well.
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B
Right. And sometimes the strategics don't even have that feedback. They don't know that they're answering the phone wrong because it's somebody who is operationally delegated to, and the person at the top doing the transaction doesn't understand that they're destroying their own enterprise value. So having you as a resource to help provide that feedback is great. Now, I do want to ask the question about multiples, and I know that you said the size, the number of ODs, the overall kind of enterprise risk is the thing that kind of. That could probably dictate what multiples look like. But give me an idea. What's the range of multiples that you saw in 2025, for example, and how does that compare to those highs of 2021? Jason?
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A
Yeah, I think the, the, the range was pretty wide and, and offers that we got, even for the same client, the offers were pretty, pretty wide. And, and so to answer your question directly, the multiples that we typically see, we don't usually get anything less than a six. And we can see, you know, above 10 at times. It, it depends on the practice and the competition. The one thing to note, and your audience needs to note about multiples is the buyers have clued into the fact that multiples can be manipulated a little bit. So there's two components that generates an offer. There's the actual cash flows of the business and then the multiples that the buyer is willing to apply to that. And so to artificially inflate the multiples, the buyers will come in and they'll knock down the cash flow and make all these adjustments and things. And so then they can go back to the people that are selling and say, hey, we're giving you this really high multiple, but in reality, it's not as high as maybe someone else. So you just have to be a little bit careful, just looking strictly on a multiple basis. But the multiples are still pretty strong, and we're still seeing good valuations across the board for the most part.
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B
Yeah, And I guess you make a really good and very valuable point is that I think people have been talking about multiples a lot, and I just want to clarify for the audience, we're talking about multiple on probably EBITDA with some adjusted ebitda. Right. Adjusted ebitda. So if you put some of the owner's discretionary income and, you know, like their cell phone bill and that kind of thing that the practice pays for maybe back into EBITDA that we're saying, what's the multiple of that, Jason? So what are other kinds of things that you just alluded to that they do to kind of, you know, claw back the earnings so that. Or to lower the earnings so that the multiple, while it might seem like a high multiple, but it's actually the overall transaction might be at a lower multiple technically. So what are the kinds of things that they, that they dispute or they. They lower?
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A
Yeah, and it's probably a little different if you're represented or you're not represented. But in general, you know, they're going to come in and say, well, we're a big organization, we offer healthcare benefits. And most of our clients being, you know, single locations or small organizations, they, they may not offer the, the robust, you know, 401k or health benefits. They're going to come in and put in a negative cost associated with that. Or they may say that you're running really lean on your employees and so you need to give raises to, to people to make them happy and start the, you know, partnership off well and things like that. So which. Some of those may be accurate, some of them may not. And that's kind of where we come in and negotiate and work through that. But again, some of those adjustments are simply to lower the ebitda. And they had all, you know, the whole time plan to offer this amount of money for the practice, and it allows them to go back and say, oh, well, we're giving you this great multiple, so you should accept it and be happy.
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B
Yeah. And any, any. Anything you want to add to that?
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C
Yeah, I think, you know, some of the other things that happen is, oh, you. The, the office needs an office manager that's 100 grand. So that's a. Try and do a minus 100 EBITDA adjustment. So if you times that a multiple of six, like, that's a $600,000 reduction in equity. So obviously we fight like crazy, you know, with the buyers in terms of any adjustments on the ebitda.
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B
Got it. Yeah. And that's a really good tip. I think it makes perfect sense where they, it's not necessarily the EBITDA that you did last year or the year prior. It's their Estimated EBITDA for them taking over the practice that they're paying a multiple on and the adjustments that they anticipate making. But of course, they're also probably not taking into consideration all the efficiencies when they're making those adjustments. So you know what they are. But whether it's the cost of the software that you're using or the cost of the. Of whatever platform that they get a massive enterprise discount for, that you already, you know that, that you, as a practice are paying for. So they're probably not giving you credit for some of the platform benefits, so to speak, when they're calculating that adjusted ebitda.
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C
Yeah, that's true. Buyers call that synergies, and they don't give the seller credit for synergies because it's their cost of goods, you know, it's their enterprise value on the software.
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B
Yeah, right.
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C
Yeah, good point, Jason.
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A
And I would just add that, and that's why it's important to get multiple people interested, if possible, is because some buyers will give maybe more value on synergies than others. And so when we start out with our clients and send out their valuation package that we create, it's the same number to get sent to everyone. How those buyers take that number and make their adjustments is kind of their own decision. But ultimately they come back with an offer for the practice. And so we can compare apples to apples, at least from the beginning, as to what one's willing to pay for the same numbers as what somebody else is.
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B
Yeah. Okay, good. And I guess we've been talking a lot about kind of from the perspective of you're definitely selling, but what are the reasons that people are selling and how have those reasons changed from maybe five or ten years ago?
- [30:26]
C
And yeah, so I think the biggest driver. So the average age of our seller has come down quite a bit post Covid. And so we saw like 2021 was probably the record multiple record, you know, in terms of sales, because I think owners went through the period of COVID where there were no deals done for six months. You know, some states were open, some states were shut. But you had all these HR issues, operational issues, getting PPP money. So I think it's more being driven by post Covid hr. You know, there's still the collection issue from, you know, managed care and doctors just wanting to be doctors versus recruiting, all of the HR function. So I think HR has come to the forefront as a major reason for sale.
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B
That makes perfect sense. Jason, anything you want to add?
- [31:26]
A
I would say even more recently as well. Just another point is with the introduction of Team Vision, VSP being more active in buying practices in more states, it's becomes a little bit more difficult to compete because now they can leverage their purchasing power, all the products that they have to kind of prioritize their practices that they may own in a given market and drive patients to their locations and things like that. So some. Some of our clients are coming and saying it's a challenge to. To compete anymore. And it's. It's just hard to run a business with all the different facets that you have to manage.
- [32:02]
B
Yeah. And it's interesting. So I do a lot of speaking, and when I. When I ask people, oftentimes during a talk, I'll ask them from stage to take a poll on what are the biggest challenges in your practice. And you're. I mean, you hit the nail right on the head. Is that for the last four or five years, really the biggest challenge? And I was hoping that 2025 would make a little bit of a turn towards something else. But staffing tends to be the biggest challenge for most audiences. And, you know, it's a big word, staff, but it's, you know, dealing with. Dealing with team development, dealing with team reliability. The cost of the staff and the work ethic is like, these are all complaints that I think I hear all the time. And I. You're absolutely right. I had one client reach out and say, I'm ready to, you know, I'm. I'm ready to sell one of my locations. I'm done with this one. And I asked why. It was like, it's just hard to fricking manage. Right. Like, I'm constantly. I have to go in there and I have to talk to people in a way that I don't want to talk to people. And my associates are not doing what they're supposed to be doing. And, you know, you kind of listen to that and you're like, yeah, that does make sense, because it is harder to manage a business and it's harder to run a business. And it seems like that trend also fits with what you were saying earlier in the show, Ann, and you're saying, you know, younger associates don't actually want to own a practice as much as they did in the past. Is that the trend you're seeing as well?
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C
Absolutely. They really want to come in, work and go home. They don't want to have the headaches of running a practice. And, you know, an OD is a doctor. Uh, they have to manage the staff and the Location. They also have to, you know, have somebody themselves or others like merchandise the product. It's, it's significant skill sets.
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B
Yeah. But, you know. Oh, go ahead, Jason.
- [34:05]
A
Yeah, I was just going to add and, and something that's been unique that just really shows this is playing out is we have several clients that have the, you know, the, the parent is the OD and owner and they have their children who've gone on to optometry school. They're working in the practice as an od, so they have a built in transition period and the children don't want to take over the practice. And, and so there's definitely been a trend away from, from younger ODs wanting to own practices.
- [34:36]
B
That's interesting. Yeah. Even when there was a, even when there was a preset succession plan.
- [34:42]
A
Exactly.
- [34:43]
B
Yeah. Very well formulated by the parents. It seems like it's still not always the case that that works out. And you know, on the other side, the opportunist in me says if you're running a private practice, knowing that there is a lower appetite for private practice amongst your colleagues and knowing that, you know, private equity, as they gobble things up, are experiencing operational issues, it is a really great time to have a private practice because you can, you can outperform in many ways running just a, you know, running a practice that's more connected, where the doctor is more connected to the patient and the doctor and the enterprise owner has more control as of what happens and can potentially adjust quicker in the marketplace. There's, I think, more opportunity to run a profitable practice so that when you are ready to exit, you can, you, you can have, you can have the kind of enterprise that's, that private equity can't actually compete with until, and even if they acquire you, they probably won't be able to, they probably won't be able to replicate some of that magic. You guys think about that, Jason?
- [35:55]
A
Yeah, no, I definitely think that's accurate and true that, you know, as practices and will continue to evolve, I think they need to focus on, on different aspects of the practice in terms of specialties and things like that that will make them more adept at, you know, interest in the future. And, and, but there's, there's certainly practices and people that we come across that run a really good practice and it is hard for private equity to replicate that whether it's the, the customer service or the patient care and all those things. So you still can be successful running the practice. There's just a lot more balls to juggle and a lot more things to deal with and manage. And so over time, unless you become, in my opinion, kind of more focused on specialty care or cash based services and things like that, if you're just running the mill, it is going to become a little bit more difficult to stand out. But we see practices all the time where the owners stand out, they do a great job and we tell some people it doesn't make sense for them to sell that if they, you know, have the, the heart and the desire to continue running and be successful, they can be.
- [37:10]
B
Yeah. And I think that's where private equity just has not necessarily consistently demonstrated success is those specialty specialty services and being able to get a lot of traction with those specialty services, dry eye, myopia management, sclerals even, but you know, expanding that and some, some practices have aesthetics, but all of those specialty services and what success means with those specialty services is just not a knot that most, that I've seen private equity be able to crack at scale. So when we come back from break, I'm going to ask you all to list your top strategies for how you increase the value of a practice. If you're considering selling sometime in the next five years, what can you do now? If you're considering selling in the next five years? And we'll talk about that right after the break. All right, we're back in the power hour. I've got Jason Prater and Cavanaugh and I am super grateful for all the advice that you've already offered to our audience when thinking about sales. But now let's get hyper, hyper tactical. When a practice is thinking about selling, when is the right time to start setting your practice up for sale? Is it, you know, a month before, a decade before? And what should we be doing? So Ann, I'm going to turn it over to you first is, you know, give me a tip or two that if I'm listening to the show and I'm thinking, you know what, maybe, maybe I will consider an exit in a few years, what should I be doing right now?
- [38:47]
C
Yeah, I think you want to be doing is always looking at your metrics, right? Because what drives value is ebitda. Right? EBITDA is your number one driver of value. And so what buyers are looking for is consistent growth in revenue and good profitability. And so, you know, we had a client who had a super high cost of goods. And so we, we actually took the extra step of helping them lower their cost of goods through an RFP process. And then once they did that, we launched them because it was such A meaningful difference. Right. So somebody that has a cost of goods of 30% versus 20% is 10%. Right. And that's very significant. The bigger the revenues are of the practice. So you want to make sure that you're maximizing, you know, your EBITDA on a sale. Two is labor. So what we find is that, you know, for whatever reason, maybe it's because the HR issues have become so significant, people are running labor a little heavier, but that does impact your bottom line significantly. So just making sure that you are running your practice mindfully and within the metrics.
- [40:04]
A
Got it.
- [40:04]
B
That makes good sense. And I think you hit the nail right on the head with we gotta make sure that we're keeping track of those metrics. So we'll dig into which ones, specifically leading indicators that you might want to watch. But cogs, the percentage of revenue, we've talked about that before on this show, definitely makes sense. And labor, for sure. Jason, what about you? What do you think?
- [40:27]
A
Yeah, I think just to add to what Ann said, I think one, at first you need to look at your timeline, because again, if you're going the route of transitioning your practice, if you're looking to do it immediately, your options are going to be limited. The value that's going to be, you know, available to you is limited. But if you have more time and space than I would, and Runway space, I would say continue to stay current, invest in technology. Now, that doesn't necessarily mean go crazy and. And start getting into all these specialties that you don't really have a passion for. And. And that. Because that can be, you know, expensive to tad those or you don't see the value. But. But it helps to go into a practice that looks like it's been remodeled at some point, that has new equipment and those types of things. Another would be to mitigate the risk of the practice, whether it's, as Ann said, with staffing or even just yourself as the production. If you're at a point where you can start to transition some of the duties that you've been doing, then that's good to do it as well, because sometimes that takes time.
- [41:32]
B
To.
- [41:32]
A
To do. But there's a lot of little things that you can do depending on the time frame that you give yourself to, to make your practice more desirable for a part.
- [41:42]
B
What's the ideal time frame? What do you think?
- [41:44]
A
Certainly, you know, having three to six months ahead of time, I think for people to do it. Yeah, I think. I think if it's. It's hard to say. And the reason I say that is because the market's evolving very quickly and you could spend two to three years making your practice perfect. But if there's not a buyer in two to three years, then a lot of that effort maybe for not if you're not able to realize the value for it. So you do need to be kind of quick and nimble and think through things. But certainly as it relates to your own personal timeline and horizon, if you're only wanting to work one or two more years, then you need to immediately start on doing the things that you need to do. If your timelines 3, 5, 6 years from now or even longer, then, then you can start to implement things over time. And we've, we've worked with some of our clients for two to three years before, before they've actually sold. So and given them these types of points and, and things we don't do, you know, necessarily consulting. There's, there's other groups that do a great job of doing that. But, but we do give tidbits of what they, what they can do to go focus and implement.
- [42:54]
B
And so as a growth strategist, my immediate impact or impact driving metrics that I'm thinking about if I was to try to help a client get ready for sale, I mean, you guys are approaching it from one angle. I'm thinking like, okay, drive your schedule fill rate immediately and then also drive your revenue per patient immediately. So we got to make sure that your schedule is as full as you can get without adding physical space. Or maybe you might even want to add ODs, because that reduces your risk. So, you know, just drive your fill rate and then revenue per patient. I mean, that's almost a, you know, that's growth up. That's just meaningful EBITDA being added. And I think about the, the concept of, okay, so if I've got a single week where I can see, I don't know, just five more patients, and in that, in those five more patients, I can take. And you know that. Let's just say my revenue per patient is a 400 bucks. Okay, well, now that's an extra $2,000 of that $2,000. I just took that $2,000 and maybe, I don't know, two thirds of that is going straight to the bottom line because I probably didn't have to pay for additional. All I have is cogs on that. Right. So that's an extra 1600 bucks multiplied times 50 weeks multiplied times six. I mean, that's millions of dollars I just added.
- [44:26]
A
Absolutely. Yep.
- [44:28]
B
And Just five patients a week. And I'm, you know, that's one of the things I'm thinking about. But then you say, okay, well, if I could just add an extra, I don't know, $100, I don't know, whatever, not even $100. If I could add an extra $50 to every revenue per every transaction, that, that I could possibly eke out an extra $50 to every transaction a year. Okay, well that's 2,400 transactions per OD. And you know, times, times 50 bucks, that's an extra $120,000 again, if 2/3 of that went to, to EBITDA. Okay, well, I just add another half a million dollars to practice valuation per OD that I have on the practice. So it's kind of like in my mind, those are the front end metrics. But, and, and also to Anne's point, and if I can drive the cogs down from 40% to 30% on that, and you know, now I've got kind of a double whammy. But those types of changes, I mean, they don't happen in my opinion. They don't happen in a month or two months or even six months. Sometimes. Sometimes it takes a couple years to get your operation right to be able to do that, but might be worth it. And what do you think?
- [45:40]
C
Yeah, I mean, I think really, really good points. But the other is just the handoff from the OD to the optician. Right. And getting that conversion to product we see sometimes it done very casually. But to your point, adding the revenue per patient, making sure you get that conversion, don't let them walk out to go to a Warby Parker, like show them that you have the frames that are, you know, they're looking for. So I think that's absolutely spot on.
- [46:13]
B
And that's my take on revenue per patient is the easiest place to look at it as your exam only rate. And so that's one of the, that's one of the like the leading metrics, I would say. So if you're saying, okay, EBITDA is the metric that ultimately we're trying to accomplish, well, what other numbers would you recommend to, for practices to look at that ultimately lead that EBITDA and say, okay, if I focus on this one, that's going to have the greatest impact on, on ebitda. And so, you know, exam only, to your point, I think is, is a big one for that. So if I go from, you know, 50% exam only to 35% exam only, all of a sudden I had A massive impact on my EBITDA because I didn't have to add ODs, I didn't have to, I probably didn't have to add staff, but all of a sudden I just made a ton more money with every single one of the patients that I saw. And that would be a, you know, that would be a massive improvement to revenue per patient. But what other like front end metrics would you say people should start monitoring super closely if they're considering selling their business? Jason?
- [47:18]
A
Yeah, I think, I think this discussion just highlights that you do need to be monitoring certain statistics. We deal with a lot of people that aren't. They're just, they've been successful just because of the market and their patient base and their customer service. But if you can tweak some of these things, whether it's capture rate, it's your revenue per patient, you know, those revenue generating type things, those flow straight to the bottom line like you mentioned, and that creates a ton of value. You also should look at what we tell our clients is, is look at as it relates to your expenses, where are you spending your money? For most practices, the vast majority of their spend goes to their labor, their cost of sales and their, their facility related costs. And so those are the three major buckets facilities not as easy to control. Some of our clients own the building, some of them are in third party leases. So that's a little bit more difficult to control your labor. You need to at least have a certain level of labor. Some people go way above that. But one, one thing that we do see, and Anne kind of mentioned it, that we, we did with the client was go and do an RFP for their, their vendor relationships. You always need to continue to be looking at, you know, what, what you're selling. Oftentimes opticians get good relationships with the reps that are coming in and they may give them some spiffs or take them to lunch or other things and they don't really take a critical look at, you know, what of our products that we're selling that are really the most profitable for us, that meet the patient needs, provide the customer satisfaction that we have, but also lead to a better bottom line for us. And so just looking at those, you know, cost per frame, you know, what are your high runners, what are the, you know, inventory that you're turning over. And some of those metrics can, can go a long way to helping improve your cost of sales.
- [49:09]
B
Got it. Makes perfect sense. Ann, anything you want to add?
- [49:12]
C
Yeah, I think also just equipment. So I think One of the highest ROIs we've seen with our clients is the optos. So number one does an unbelievable evaluation for the client's, you know, the patient's eyes. But from a diagnostic standpoint, but just we've seen tremendous roi. So we do have some clients that are equipment junkies. Like you can't just go out and buy like every piece of equipment. You have to like look at, you know, each piece of equipment and what is going to be the IRI or projected roi. And you know, and when you get a multiple by the buyer they are looking at, you know, is our, how are the lanes, you know, what diagnostic equipment? What's the state of the diagnostic equipment? What does the frame boards look like? What is the, you know, is it hardwood floors? Is it, you know, 20 year old wall to wall carpeting? So the, you know, how the location and the offices look that does matter. And how, it's the, how the equipment is and the, you know, the state of the equipment. No. Do you have optos? Do you not have optos? Do you have an ipl? Do you not have an ipl? Like what is the technology that you have within the practice does matter as well.
- [50:27]
B
And what I'm happy to not hear from you is jam the EBITDA as much as you possibly can. And so, you know, I've talked to brokers and I would say not the best ones by any means, but they basically create an artificial profit or they recommend to some practices to create an artificial profit that is not sustainable. But hey, we're going to sell your practice six months from now. So let's basically like fire half the staff and you know, just squeeze and give these people like $2 an hour raises just to do a little bit more. And you know, the patients are already on the schedule. Even if they don't come back, it doesn't really matter. So like it. Maybe the experience isn't so, so great, but we're just going to squeeze every ounce of profitability. We kind of, we can. But based off of the prior conversation you said, well, the buyer's probably going to forecast the profitability that they need anyway by looking at how much are you paying the staff and how many staff do you need and what's the operating model that, that's not a sustainable strategy anyway. Was that ever a strategy in the marketplace before, Ann?
- [51:36]
C
Not, not for us. So that's not a sustainable strategy to tell your client, first of all, the buyers are very sophisticated. So they look at payroll registers, they look at a turnover, they Ask why there was turnover. So if you advise a client to go and get rid of 30% or 40% of the staff to try to maximize EBITDA, they're going to look at that and they're going to say, we're not going to give you credit for that because you need an office manager, you need an optician, you need a patient coordinator. So we never advise that patient first, always. And so, you know, we've had, in the middle of a deal, we've had clients like lose, you know, something breaks and we say, you get a, you get a buy or lease and replace it because the buyer is coming in and that those are assets, you know, of the purchase. And so the practice has to be in working condition. We don't make that advice because we don't believe you're going to, I don't, we don't believe the buyers will give you credit for it, number one. But two, you know, it's, it's a misrepresentation.
- [52:49]
B
Yeah, and I completely agree with that. I just, I know the, the, the pump strategy was something that people said, well, private equity is going to do that anyway. Right? They're probably going to fire, you know, they're going to say I'm overstaffed and they're going to fire people, so might as well, you know. And, and again, I, I don't agree with the strategy by any means, but I've seen people try to do that and I've heard people say, oh, I got an extra half a million dollars in my valuation because I, you know, fired an extra front desk person. It seems to me like this is not advice that you would give. And I appreciate that and sort of puts my mind at ease hearing you say that, because it seems like that strategy has never been really long term sustainable for anybody. Okay, so as we wrap up the show, I'm going to ask you each to kind of share one, I guess one parting piece of advice. So if somebody is thinking of selling five years from now, not right now, but five years from now, what is the type of thing they should be if they're listening to this show and what are the kinds of things they should have at the top of their mind or what piece of advice would you give to them to make sure that they think about when, when they do, when they are ready to sell.
- [54:08]
C
So you always have to be ready. So I grew up in investment banking from the capital markets side. And so even though your plan is five years, markets change. Right. So you always want to make sure that your metrics, that you're growing your revenue, you're growing your ebitda, that your labor costs are market, your cost of goods are market. So you can at any point in time decide to sell.
- [54:31]
A
Great.
- [54:31]
B
Jason.
- [54:33]
A
Yeah, I would just add just, just be forward looking. You know, a lot of people manage just even if they're, they're intense to sell five years from now, they're managing just today only and they're not really looking beyond. So get a longer term perspective. You know, start putting in strategies, take a step back from the practice, allow yourself to do it, to kind of come out of the forest and look at the, you know, the trees from afar to see where it makes sense to put your time, your attention, your efforts, look at your metrics and, and modify things accordingly.
- [55:07]
B
Perfect. Well, thank you both for joining me on the show. We're going to post information links to for how people can find you in the show description and in the, in our show notes. Again, great wealth of knowledge. Appreciate that both of you have shared here and thanks for being on the Power Hour.
- [55:25]
C
Thank you.
- [55:25]
A
Thank you, thank you for having us. Great.
- [55:27]
C
Thank you.