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A column chart shows the annual inventory of U.S. health care provider PE companies from 2017 to 2024 (as of March 31), broken down by the number of existing companies and new companies each year. The data indicates a steady increase in the total number of companies over the years, despite fluctuations in the number of new companies.

U.S. health care provider PE company inventory

Reproduced from PitchBook; Chart: Axios Visuals

The backlog of private-equity backed health care providers continues to sit stagnant.

Why it matters: Exit options for physician investments getting long in the tooth are limited, given PE's retrenchment from the sector.

By the numbers: The year-over-year growth rate in the PE company inventory has tapered from 24.9% in 2018 to less than 1% in Q1 2024.

The number of private equity-backed physician companies grew from 350 in 2017 to 648 as of the end of Q1 2024, according to a PitchBook report.

The big picture: Several large private equity firms told Axios on background that they're no longer interested in physician services amid increased headline risk and regulatory scrutiny.

What they're saying: "The exit landscape for large PPMs is extremely difficult," says PitchBook analyst Rebecca Springer, who tells Axios she's been in discussions with several industry players on the subject.

"These platforms don't have a lot of natural strategic buyers in those categories, and there are probably more of them that are mature and need an exit than there are likely private equity buyers," she adds.

"There are a very large number of very mature businesses that theoretically would have traded hands already," says Brown Gibbons Lang managing director Jonathan Bluth.

Zoom in: Successful PPM dealmaking involves finding "out-of-the-box" buyers, Bluth says.

These could include large, single-specialty groups that are increasingly diversifying, or health care providers with similar revenue cycles and patient flow patterns and demographics, he adds.

State of play: Mature scaled platforms in specialties like dental, dermatology, ophthalmology and orthopedics will likely have the toughest time finding buyers.

PE-backed platforms hitting four-year-plus holds include Webster Equity's vision care provider Retina Consultants of America, Audax and Linden's orthopedic platform HOPCo, and Waud Capital's dermatology company AP Derm.

What's next: The best assets have a shot at moving into a continuation vehicle, Springer says.

But most will "have to sit around for a while" and will likely have to accept less competitive processes and lower multiples than hoped for, she says.

The bottom line: "For some of these larger physician practices that are long in the tooth, they shouldn't just dip their toe in the water casually, reach out to the four or five historical buyers and hope that someone blows them away," Bluth says.

Who will buy private equity's physician businesses?

Exit options for physician investments getting long in the tooth are limited, given PE's retrenchment from the sector.

Health tech deals

an illustration of a stethoscope surrounded by shapes and cutouts of money

The backlog of private-equity backed health care providers continues to sit stagnant.Why it matters: Exit options for physician investments getting long in the tooth are limited, given PE&#x27;s retrenchment from the sector.

Who will buy private equity's physician businesses?

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