Illustration: Gabriella Turrisi/Axios
Partners Group is acquiring OMERS Private Equity's majority stake in Forefront Dermatology, one of the country’s largest players in the business of skin treatment. The seller, alongside physicians and executives, sits poised to put more skin in the game via a new minority investment, the firms tell Axios.
Why it matters: After a year in which zero dermatology platform deals got done, the sector is seeing activity pick up, with Forefront marking the second such transaction this month alone in a specialty that remains highly fragmented.
- Leonard Green & Partners last week unveiled an investment in Epiphany Dermatology, providing an exit for CI Capital Partners.
- Meanwhile, sources tell Axios that at least one Big Tech player is mulling an entrance into the vertical.
Details: The transaction values Manitowoc, Wisconsin-headquartered Forefront at $1.5 billion, according to sources familiar with the deal terms.
- That implies a 15x-plus multiple, based upon the company’s more than $90 million of adjusted 2021 EBITDA — which is up from the mid-$30 million range when OMERS invested in February 2016, sources said last summer.
- Forefront, after more than doubling in size under OMERS to become the largest dermatology group practice in the U.S., now encompasses over 200 dermatology clinics across 22 states.
- Deutsche Bank advised Partners, while Harris Williams advised Forefront and the private equity arm of the Canadian pension plan.
State of play: As a recent Pitchbook report reveals, dermatology witnessed declining deal activity in recent years in contrast to specialties including dentistry, vision and behavioral health.
- Dermatology practices are highly profitable, the report notes, with a single physician able to generate upwards of $1 million in revenue. That means physicians have historically been less incentivized to join larger group practices.
Yes, so: Piotr Biezychudek, who led the investment for Partners, tells Axios the Forefront playbook is centered around being the "employer of choice" for independent dermatologists.
- Forefront is the best candidate for that role, Biezychudek believes, after tracking the space for four years.
- Why? The investor points to Forefront's strong physician leadership, large physician ownership model, and its technology backbone, which on the back end allows clinicians to focus on their patients, versus admin, and on the front end lends to a successful telehealth offering.
- "The strong [physician] DNA they have," Biezychudek says, "is one of the best we've seen."
- Investment in clinical research development will also attract dermatologists who don't won't to lose out on the academic side, he adds.
What's next: From an M&A perspective, Forefront will prioritize small practice acquisitions versus transformative deals, the investor says.
- That said, over time, "if there is larger M&A [to do] we will be best positioned," he adds.
Between the lines: About 85% of Forefront is on the medical side today and that will remain the focus, however with patients increasingly requesting more cosmetics-focused care, aesthetics presents an additional growth driver.
- As witnessed at other portfolio companies like EyeCare Partners, “if you can provide the whole spectrum of needs, you can provide better care and a better experience,” Biezychudek says.
- A hybrid model diversifies the revenue mix, as medical dermatology is broadly covered by insurers, whereas the cosmetic side is paid out-of-pocket.
What we're watching: With a track record now spanning dermatology, vision, physical therapy, vet care and women's health, Biezychudek hints that value-based primary care and specialties like cardiology or allergy remain on its radar.
Sarah Pringle co-authors the Axios Pro Health Tech deals newsletter. Subscribe at AxiosPro.com.