Mergers and acquisitions and economics trends for the physician practice management sector

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Following a turbulent election year and widespread economic uncertainty in the first quarter of 2025, many are wondering what 2025 holds for the macroeconomy, the health care sector, and the physician practice management (PPM) mergers and acquisitions (M&A) market. Here are some insights to help make sense of these these critical topics of interest to the health care market.

Q: With the first quarter ended, what should I know about the economy?

Alex Chausovsky: Physician practice owners should remain informed about broader economic trends to anticipate their potential impact on business operations. The U.S. macroeconomy finished last year on a strong note, with both the consumer and industrial sectors carrying positive momentum into early 2025. As of year-end 2024, economic growth continued to show resilience, with real gross domestic product increasing by 2.5% compared with the same period in 2023 (Q4 year over year). Despite earlier forecasts of a potential recession in 2024, the economy exceeded expectations, sticking the proverbial soft landing.

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© Bundy Group

Since beginning its rate-cutting cycle in the fall, the Federal Reserve has settled into wait-and-see mode as it aims to strike a balance between keeping a lid on inflation and preventing the economy and the job market from deteriorating. Hard economic data through February 2025, such as retail sales (B2C) and industrial production (B2B), suggest that cyclical rise remained on track in the first months of this year.

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© Bundy Group

Clint Bundy
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Alex Chausovsky
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Q: As a physician practice owner, what strategies should I focus on to build a highly valuable practice while adapting to current economic trends?

Alex Chausovsky: Attracting and retaining good talent (including both employee physicians and mid-levels) will remain difficult in the years to come, especially considering leading indicators largely suggest a cyclical rising trend will take hold in the economy this year. While tempering expectations for robust growth in 2025, physician practice owners and decision makers should contemplate the potential threat of rising inflation this year and how that could ultimately lead to rising wages and detrimentally impact practice profits. The focus should be on identifying and removing inefficiencies to increase productivity and throughput to offset the potential impact of wage inflation and other factors driving margin compression, and on reducing costs and renegotiating supplier contracts.

Q: What is happening with acquisition and consolidation activity in the PPM sector?

Clint Bundy: Over the past 10 years, acquisition and investment activity in PPM has accelerated, which has been largely driven by financial sponsors, also known as private equity, family offices and institutional investors. These financial sponsors focus on acquiring a sizable practice, or a platform investment, in the physician practice segment, and the sponsor then uses this corporate foundation to expand through add-on acquisitions. The demand from these sponsors remains robust, resulting in a wave of outreach to physician practice owners nationwide across a range of industries. From 2017 to 2024, Pitchbook reported there were 3,943 transactions in the PPM sector where financial sponsors were involved.

Active sectors for financial sponsor investment included dermatology; urology and nephrology; fertility; cardiology; and ear, nose and throat. Although the number of transactions has slowed since the peak in 2021, there remained a robust level of activity from 2022 to 2024, with 1,515 transactions reported by Pitchbook. Furthermore, add-in acquisitions have dominated the PPM M&A market, resulting in creating a buyer’s market for relatively small PPM groups. With a steady stream of financial sponsors already active in the PPM sector or looking to enter the segment, the foundation is set for this pace to continue.

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© Bundy Group

Q: What factors are driving the growing interest in the PPM sector among financial sponsors?

Clint Bundy: The reasons for the continued acceleration of investments in the physician practice market are numerous, but there are some key contributing factors to note:

Consolidation market: Because of the fragmented nature of most physician practice segments (examples: dermatology, urology), there is an opportunity to consolidate numerous practices and gain efficiencies. A financial sponsor-backed platform can establish a corporate office and onboard many of the administrative functions from the individual practices, which then allows the individual practices to focus on servicing patients and driving additional financial performance. This commonly used financial sponsor playbook can drive higher returns for the organization and, eventually, the financial sponsor when it sells the platform.

Alternative buyer options:Dana Jacoby, founder and CEO of Vector Medical Group and an operational, strategic and M&A specialist in the health care market, provided the following insights:

“We are seeing increased and renewed interest in financial sponsor-backed platforms across numerous specialties. Legacy platforms in dermatology, ophthalmology and primary care are in demand due to their gateway procedure mix and patient volumes. Orthopedics, gastroenterology, cardiology and oncology are also in high demand, driven by high revenue potential, strong patient demand, ancillary revenue opportunities and operational efficiencies. Most practitioners only know financial sponsors by reputation, but they can be a reliable source of capital and potentially operational support for well-managed practices with high growth potential. Family office investors are another interesting player in these practices, and the fact that their time horizon is generally longer can make them an extremely attractive capital partner for a decade or more.

In addition, strategic buyers such as medical companies, insurance companies and hospital companies are taking a renewed interest in direct investment in medical providers. Finally, with higher interest rates, we are seeing some hybrid financial structures similar to the mezzanine financing of a few years back. These are a way to bridge a practice between the first and second bites at the apple when the secondary transactions market is slow.

With increased dry powder/capital on the sidelines for provider investments, practice owners evolved to embrace private equity, family office and other alternative investors in the PPM space. This provided practice owners with more options to choose from beyond just the traditional strategic buyer group.”

Durable market. Financial sponsors are attracted to industries that demonstrate resilience during economic downturns and extraordinary events. Health care is a critical expenditure for many patients, who often prioritize their discretionary income for health-related needs. Additionally, a balanced mix of reimbursement types, such as insurance and Medicare, provides a robust foundation for physician practice groups to weather economic challenges. The PPM sector’s proven ability to recover and maintain strong demand continues to reinforce investor confidence in its capacity to thrive despite economic pressures.

Recurring revenue. Buyers highly value businesses with stable, repeatable customer bases and predictable revenue streams. Key factors such as patient retention rates, appointment backlogs, procedure history per patient and average visit frequency are closely scrutinized. Practices that excel in these metrics stand out as attractive opportunities for potential buyers, showcasing their ability to generate consistent and sustainable revenue. Many segments within the PPM market provide this repeatability and predictability.

Q: What are the key takeaways?

Clint Bundy: The physician practice market remains a large and fragmented space with strong demand for its valuable services, bolstered by positive U.S. economic trends and robust consumer spending. Resilience and growth are expected to persist, driving continued interest from financial sponsors. Investment and consolidation are expected to continue over the coming years, as practice owners seek exit options and financial sponsors continue to look for attractive segments to put money to work.

Bundy Group is a boutique investment bank that specializes in representing health care practices in business sales, capital raises and acquisitions. Over the past 36 years, Bundy Group has advised and closed on over 250 transactions, which includes numerous physician practice management-related transactions.

Clint Bundy is a managing director of Bundy Group, specializing in advising practice owners in business sales, capital raises and acquisitions.

Alex Chausovsky is director of analytics and consulting for Bundy Group. He presents to industry associations, at trade shows and to companies on economic and market trends, and he advises companies on business cycle analysis and talent strategy, including compensation.

Bundy Group Securities, LLC, is a registered broker-dealer and member of FINRA and SIPC. This content is for informational purposes only and is not intended as investment advice or a recommendation to buy or sell any security.