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Northeast Dermatology Associates explores a sale: sources

Northeast Dermatology Associates, one of the few independent dermatology groups of size that hasn’t already gained private equity backing, is exploring a sale, Buyouts has learned.

The northern New England network of skin-treatment clinics is working with middle-market investment bank Browns Gibbons Lang, according to two sources familiar with the matter. Management meetings are getting underway this week and next, one of the people said.

NEDA is being marketed off of just under $10 million in EBITDA, the sources say. It’s unclear whether that figure includes an add-back for physician-adjusted salaries, which if excluded would bring the target’s EBITDA closer to $8 million, one of the sources noted.

The company is likely to benefit from the scarcity of platform-like opportunities. NEDA could command a multiple of EBITDA as high as 15x, a third source speculated.

A fund that wants to enter the dermatology space and an existing PE-backed platform looking to expand in the Northeast are both logical suitors, the sources said. While a few of the largest assets in the sector traded hands last year, the dermatology sector is viewed as having tremendous runway for growth and remains highly fragmented.

Clinics at NEDA, which is based in Lawrence, Massachusetts, offer general and surgical dermatology treatments, as well as cosmetic services like Botox and laser hair removal. They also offer dermatopathology, or skin biopsies to detect diseases or tumors. Skin-cancer treatments include Mohs surgery, chemotherapy and radiation therapy. Through its clinical-trial division, the company investigates new and emerging treatments for skin diseases.

NEDA encompasses 10 clinics primarily in Massachusetts and New Hampshire, as well as one location in Maine.

One potential challenge is that non-competes in physician contracts are not enforceable in Massachusetts and New Hampshire, one source said. The absence of non-competes makes doing physician-practice deals in these states more challenging, as it is more difficult to guard investments, this person explained.

Deals in the sector

The country’s most sizable dermatology groups traded hands last year, kicking off with Varsity Healthcare Partners’ February 2016 sale of its majority stake in Forefront Dermatology to Omers Private Equity. The deal commanded a more than $450 million valuation, the Wall Street Journal reported at the time.

The 14x to 15x multiple of EBITDA Varsity commanded caused interest in the dermatology sector to accelerate, with a pair of secondary buyouts that followed in May 2016.

Harvest Partners in May 2016 completed its recap of Advanced Dermatology & Cosmetic Surgery, which is considered the largest derm practice group in the U.S. Audax Group maintained a minority investment in connection with the transaction.

Financial terms of the Advanced Dermatology deal weren’t disclosed, but sources had speculated that the Jefferies-run sales process would fetch 14x to 15x the company’s close to $50 million of EBITDA — or as high as about $750 million.

Just days after the Advanced Dermatology transaction, Abry Partners surfaced as the victorious suitor for Candescent Partners Oliver Street Dermatology Holdings, the holding company for Dermatology Associates.

While terms weren’t disclosed, Dermatology Associates posted close to $15 million in EBITDA in 2015, sources said at the time. Ares Management had been the frontrunner through much of the Houlihan Lokey-run process, they said.

Representatives of Northeast Dermatology Associates and Browns Gibbons Lang couldn’t be reached on Monday.

Action Item: For more detail on NEDA’s services:

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