Analyzing the Health Care Valuation Effects of Buyer Concentration

Article

In any health care segment, buyer concentration can have an effect on valuation pricing and is one of the key macro-dynamics that should be considered in a health care valuation analysis.

7 minute read

April 29, 2024

Elliott Jeter

Managing Director, Health Care Valuation Services

Health Care Valuation

Never miss a thing.

Medical-team-discussing-with-each-other-at-the-table

Select Physician Practice Segments in Focus

In any health care segment, buyer concentration can have an effect on valuation and is one of the key macro-dynamics that should be considered in a health care valuation analysis. Buyer concentration for physician practice specialties experiencing elevated M&A activity has varied greatly and has evolved over the past five years.

By the Numbers

We analyzed total annual transaction volume in each active selected physician practice segments over the past five years (2019- 2023) to evaluate buyer concentration.

	Top Two Acquirer Percentage of Total Transactions
	2019		2020		2021		2022		2023
Cardiology/ Cath Lab	Top Two: 2 Total: 13	15.4%	Top Two: 3 Total: 13	23.1%	Top Two: 4 Total: 12	33.3%	Top Two: 7 Total: 20	35.0%	Top Two: 14 Total: 31	45.2%
Orthopedics	Top Two: 4 Total: 29	13.8%	Top Two: 6 Total: 32	18.8%	Top Two: 9 Total: 52	17.3%	Top Two: 12 Total: 51	23.5%	Top Two: 10 Total: 47	21.3%
GI – Gastroenterology	Top Two: 12 Total: 21	57.1%	Top Two: 12 Total: 24	50.0%	Top Two: 18 Total: 51	35.3%	Top Two: 16 Total: 31	51.6%	Top Two: 8 Total: 22	36.4%
Dermatology	Top Two: 18 Total: 65	27.7%	Top Two: 11 Total: 47	23.4%	Top Two: 13 Total: 46	28.3%	Top Two: 14 Total: 60	23.3%	Top Two: 10 Total: 53	18.9%
Total	Top Two: 36 Total: 128	28.1%	Top Two: 32 Total: 116	27.6%	Top Two: 44 Total: 161	27.3%	Top Two: 49 Total: 162	30.2%	Top Two: 42 Total: 153	27.5%

Source: Weaver analysis of transaction data from Scope Research

This data highlights varying buyer concentration over time by selected physician practice specialty. While total annual buyer concentration percentage has not varied significantly, buyer concentration has varied over time in certain specialties.

Cardiology transaction volume has become extremely concentrated. The top two buyers, which represented 15.4% in 2019, increased to 45.2% in 2023.
Of the specialties analyzed, dermatology is the least concentrated, ranging from 27.7% in 2019 to 18.9% in 2023.
The orthopedic specialty has a low level of concentration, ranging from 13.8% to 23.5% over the five-year time period analyzed.
Gastroenterology has always had a high buyer concentration (over 50% in three of five years).

Why it Matters

The number of buyers can affect the valuation environment because the seller typically benefits from a large number of buyers competing for the same assets.
A high concentration of buyers in any health care segment may give the buyer unusual power and the ability to dictate price and other terms of the transaction.
If buyer concentration is high, the seller may be at a further disadvantage if not adjacent or co-located to that buyer’s geographic market. In such a case, “add-on” value to may be less attractive relative to other opportunities the buyer is pursuing, further reducing the seller’s universe of buyers.

Health Care Valuation Takeaways

In the physician services market, buyers are unlikely to purchase businesses outside of their segment, making the available universe of buyers inherently focused and specialized.
A high buyer concentration may influence pricing and other deal terms all else equal.
To assess fair market value of a specific entity, the valuator must have a thorough understanding of the buyer mentality and the universe of available buyers.

For more information about buyer concentration in health care segments, contact us. We are here to help.

Authored by Sam Betsill

Search

Weaver Connect