Gastroenterology: An Emerging Trend in Private Equity Healthcare Transactions

Written by Vincent M. Kickirillo, CFA, CVA, Savanna Dinkel, Landon Miner Over the past 10 to 15 years, private equity (“PE”) firms have displayed an increasing interest in the healthcare provider industry. Recently, PE firms have set their focus on certain specialty physician practices with the intent to consolidate and grow practices in traditionally fragmented markets. Historically, ophthalmology and dermatology practices, among others, have been the targets of PE consolidators; however, gastroenterology (“GI”) has emerged as a specialty of interest. In 2016, the first major PE transaction in the GI physician practice space occurred between Audax Group and Gastro Health. Since then, GI physician practices have been hot targets for PE buyers, a trend expected to continue in the coming years. There are a multitude of attributes that attract potential PE buyers to GI physician practices. In particular, the current GI market dynamics and opportunities for PE firms to create value are driving the investments in this space.


The population of US citizens over the age of 65 is expected to more than double from 46 million in 2016 to 98 million by the year 2060.1 According to the American Cancer Society, there are estimates of 101,420 new cases of colon cancer and 44,180 cases of rectal cancer expected in 2019. Further, this study showed that one in every 22 men as well as one in every 24 women will develop colorectal cancer.2 With the growing aging population and increasing incidence of colorectal cancer in the United States, the need for gastroenterologists will be as prevalent as ever. In addition, while the demand for GI physicians is high, studies have shown a consistent lack of GI specialists throughout the US. With over 14,000 active gastroenterologists currently in the US, it is predicted that by 2025, there will be a shortage of more than 1,500 gastroenterologists.3,4 The mismatch between the supply and demand for active gastroenterologists presents an attractive opportunity for PE firms who invest in GI practices. Further, the GI market is extremely fragmented. Currently, there are large portions of GI physician practices that operate independently. Due to increased operating expenses and progressively strenuous healthcare regulations, operating a private practice today has become increasingly difficult. As physicians look for ways to reduce these burdens, many independent physician practices who wish to consolidate lack the means to do so on their own. As a result, PE firms have begun to emerge as attractive partners for these private physician practices. Continue to the full article.