Varsity’s ESP sale affirms PE’s appetite for ophthalmology

The high premium commanded in the latest vision-care deal underscores private equity’s continued interest in a sector where assets of scale remain hard to come by.

Varsity Healthcare Partners this week unveiled the sale of a majority stake in EyeCare Services Partners, the ophthalmic-services provider it acquired just three years earlier. The buyer is New York PE firm Harvest Partners.

Having received significant inbound interest, Varsity was prepared to run a formal process for the Baltimore company after retaining Jefferies for financial advice. But an attractive offer from Harvest preempted such an auction, two sources said.

Terms weren’t disclosed, but ESP is said to have commanded a mid-teen multiple of its at least $22 million in projected run-rate EBITDA for 2017. A 15x multiple indicates a valuation around $330 million. ESP generated around $17 million in EBITDA in 2016, sources said. Current revenue lies at roughly $140 million, according to one source.

For Varsity, the ESP deal is akin to its February 2016 sale of a majority stake in Forefront Dermatology to OMERS Private Equity. The 14x to 15x multiple it garnered for the dermatology-services company kicked off a slew of activity in the skin-treatment space.

Similar to its play for Forefront, Varsity was among the first to make a bet in eye-disease treatment with its May 2014 deal for ESP. Besides FFL Partners’ April 2015 investment in EyeCare Partners, medical-focused vision until about six months ago remained little touched by PE. Now considered by many the next “dental” or “derm,”  the segment this year has already seen a number of financial buyers enter, while several sub-$10-million-EBITDA vision assets are out on the market.

Led by CEO Michael Fricke, ESP says it’s the nation’s largest vertically integrated ophthalmic-services company. The company provides general, surgical and retail optometry and ophthalmology services throughout 46 clinics and seven ambulatory centers across five states.

Besides presenting an attractive offer in terms of price, Harvest is viewed as a highly credible buyer of multisite clinical businesses.

Harvest in February 2015 prevailed in the Jefferies-run auction for Audax Group’s Advanced Dermatology. Terms weren’t disclosed, but the sales process was expected to produce a deal valued at around 14x to 15x the company’s close to $50 million of EBITDA. That suggested a deal valued around $700 million to $750 million.

The sponsor has also been building out its dental-services platform, Dental Care Alliance, which it bought in July 2015 in partnership with management. That followed its May 2014 recap of Athletico Physical Therapy, a physical-therapy business with facilities across the Midwest.

Action Item: Touch base with Harvest’s Jay Wilkins at +1 212-599-6300

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