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Private Equity Investment

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  • #16

    I would vote no for buying shares with an anticipated 8% return.

    Thats really pathetic for the risk you’re taking with an entity you have no control over.

    Keep in mind that with all this private equity involvement in Ophthalmology, that someone is going to get left holding the bag with a practice that’s worth a fraction of what they thought it was worth and eventually the buying and selling of practices will stop. Don’t be that guy left holding the bag.

    When you look behind the curtain of these deals the amounts of leverage are insane and most of these private equity firms are planning on not 8% returns, but 800% returns.


    Let’s say you have a well run Opthalmology practice and are busy with multiple docs and a profitable optical shop and your yearly EBITA is 6 million.

    Your going to sell your practice to a private equity firm at 5x multiple or 30 million

    The private equity company then uses 3 million of their own money to pay you for your well run practice, and they go to the bank to get a loan for 27 million.

    They plan to come in and “manage your practice” because they have lots of “ business expertise” that you could never have because you’re a doctor and you’re too busy seeing patients and “doctoring”

    (They really have no intention of doing anything with your practice to help manage or run the day to day business)

    Now a few years have passed by and they’ve hired some fresh out of college administrators to take the place of your administrator staff with 20+years experience because they can pay them half of what your experienced person was making and after some other tweaks and cracks of the whip they’ve gotten the EBITA up to 7 million

    Now it’s time to flip the practice, so the private equity company finds another larger entity willing to pay a 7 times multiple of the now 7 million EBITA (49 million)

    Sweet. So now after paying back the 27 million dollar loan that was taken out from the bank, the private equity company has turned a 3 million dollar investment into 22 million dollars in 3 years. Yikes!
    Click to expand...

    This sounds great, but if this is how PE wants to flip its pseudo-ponzi. I mean you are passing the bag. Real change is 6 -> 7 million jump, but PE asks for higher multiple of x7 ?? crazy.