Consumer Healthcare 2022 – Subsectors to Watch

For healthcare, consumer, and retail investors, crossing sector lines has long been appealing. As today’s more sophisticated consumers continue to demand better service, a more modern experience, and trusted brand names, leading providers will combine expertise in healthcare, retail, and technology to win share.

Here, senior bankers from the Harris Williams Consumer Group, Healthcare & Life Sciences Group, and Technology Group share insights and data on key subsectors within this promising space.

Table of Contents

DERMATOLOGY ..................................................................... 2 - 7

VISION .................................................................................... 8 - 11

FERTILITY .......................................................................... 12 - 15

OB/GYN .............................................................................. 16 - 19

DENTAL ........................................................................................ 20 - 23

VISION, DENTAL, AND VETERINARY CARE .................................. 24 - 27

PHYSICAL THERAPY ............................................................. 28 - 31

MEDICAL SPA .................................................................................. 32 - 35

GASTROENTEROLOGY ................................................................. 36 - 39

UROLOGY .................................................................................... 40 - 43

Dermatology

Dermatology is a ~$20 billion sector comprising core medical and surgical services and a rapidly growing aesthetic market opportunity.

Core Dermatology Sector Today

The core medical dermatology sector is expected to grow at a steady ~4% CAGR through 2023P, driven by strong long-term market fundamentals

Dermatopathology $0.8B

› Emerging aesthetic dermatology opportunity allows platforms to inflect same clinic and de novo organic growth by tapping into a broader addressable market

Core Medical and Surgical Dermatology $6.2B

› Dermatopathologists provide critical pathology support for dermatologists

› Core medical and surgical dermatology represents the entry point into the dermatology ecosystem and generates downstream referrals for other ancillary dermatology services

› In-house, centralized labs are a key differentiator and create the ability to provide integrated care and realize meaningful revenue synergies from acquired practices

Aesthetic Procedures

$0.7B

Nascent Aesthetic Dermatology Opportunity $12B+ ~18% CAGR THROUGH 2023P

Total Dermatology Industry Opportunity

~20B

› The broader ~$20 billion dermatology ecosystem is expected to grow at a ~13% CAGR through 2023P, driven by the rapidly growing aesthetic dermatology market opportunity

› Many providers perform aesthetic procedures in addition to general dermatology services

› Rapidly emerging opportunity for medical/ surgical-focused platforms to expand their service offerings

› Aesthetic procedures continue to comprise a larger share of sector revenue as more dermatologists begin to offer aesthetics

› Rapidly emerging opportunity for medical/ surgical-focused platforms to expand their service offerings and maximize the revenue opportunity from their captive patient populations

Dermatology

Organic Growth Levers

Immense organic growth opportunity, with many platforms just starting to develop the scale and capabilities needed to maximize their growth potential

De Novos

Service Expansion

Patient Engagement

› Drive volume growth and optimize provider utilization through digital marketing, online scheduling, and other initiatives

Provider Recruitment

› Accelerate recruitment of board-certified dermatologists

› Increase utilization of midlevel providers to create clinical leverage

Payor Contracting

› Implement payor contracting strategy and negotiate favorable rates by proving out the ability to improve quality of care and save costs

› Launch new clinic locations targeting underserved markets with limited access

› Increase Mohs and laboratory pathology

› Expand penetration of aesthetics and plastic surgery

Given the attractiveness of the underlying structural dynamics in the dermatology sector, investors can drive value creation through diverse organic and M&A growth levers.

M&A Growth Levers

Synergies

Increased Density

› Acquire addons withinexisting markets to build additional density and enhance network effects

› Extract cost synergies by leveraging shared services

› Realize revenue synergies from payor rates, pathology, and internal referrals

Geographic Expansion

› Expand into directly adjacent markets

› Enter new markets to “land and expand”

›

Transformational Acquisitions

Rapidly expand geographic footprint and build density

› Leverage existing shared services infrastructure to extract significant synergies

CONTINUUM OF VALUE CREATION

Dermatology

Dermatology is a highly attractive physician practice management (PPM) sector with a long runway for investors to be successful. It has strong fundamentals common to most PPM sectors, and it has evolved significantly to offer even more opportunity in the future. This approximately $20 billion sector is expected to grow by around 13% per year over the next several years, with core medical-surgical dermatology services growing about 4% annually and cosmetic dermatology services growing about 18% annually.1

Here, Harris Williams professionals Corey Benjamin, a managing director in the Consumer Group, as well as Geoff Smith, managing director, and Charles Busch, vice president, in the Healthcare & Life Sciences Group, share their thoughts on why dermatology is appealing to buyers and investors, as well as key attributes of high-quality dermatology platforms.

Why are buyers and investors interested in the dermatology sector?

Smith: The dermatology sector has several attractive characteristics. Growing awareness around the importance of skin care is driving sustainable demand for medical-surgical dermatology, especially as the population continues to age over time. As a result, demand for medically necessary dermatology services is both recession and pandemic resistant. In addition, payor coverage for medical-surgical dermatology is expected to remain stable for the foreseeable future. There’s also a rapidly growing market for cosmetic dermatology, such as Botox, fillers, and laser treatments, providing a significant growth opportunity for medical- and surgical-focused platforms.

Benjamin: While the sector has traditionally been focused on medical-surgical procedures, like other consumer healthcare verticals, it’s evolving in response

to shifting patient and consumer preferences. For example, dermatology practices are responding to the notable uptick in consumer demand for cosmetic services over the last five years by expanding their service offerings, creating a larger addressable market opportunity.

Busch: Another key emerging trend is greater utilization of physician associates and nurse practitioners. The scarce supply of board-certified dermatologists has historically been a challenge to sector growth. However, an increasing number of practices are employing a higher ratio of physician associates and nurse practitioners to better leverage their physicians. Successful physician associate and nurse practitioner recruitment strategies not only create significant organic growth opportunities but also allow practices to address underserved patient demand.

Smith: The dermatology landscape is an ideal environment for platforms of scale to thrive. The sector is still in the early innings of its evolution relative to other PPM sectors such as dental or physical therapy. It remains highly fragmented, with the largest platforms still comprising less than 20% of the industry. Structural forces are naturally driving independent practices toward larger groups, as investments in supporting resources allow platforms of scale to alleviate key pain points for dermatologists and unlock growth opportunities that are less accessible to independent practices. Furthermore, many platforms are still only scratching the surface on a diverse array of value creation opportunities, which signals much upside growth potential.

Which attributes should buyers prioritize in the sector?

Smith: Two high-quality dermatology platforms that Harris Williams recently advised—Forefront Dermatology and Dermatologists of Central States (DOCS)—are representative of attributes that are important for success as the industry matures.

Benjamin: Clinically, Forefront is incredibly strong. Culturally, it is very provider-centric. The company provides all of the supporting resources to create the ideal ecosystem for providers to thrive and practice at the top of their licensure. One of Forefront’s biggest differentiators is that it has always invested in infrastructure ahead of its growth. This has allowed it to drive substantial growth over time while remaining tightly integrated.

Forefront also has developed and refined a highly efficient partnership strategy. The company has been very methodical about expanding its footprint in ways that allow it to leverage the benefits of geographic density. Forefront is actively driving organic growth by opening new de novo locations that fill in its existing footprint and recruiting new providers into existing clinics. Additionally, it is executing a thoughtful strategy to drive cosmetic service expansion and take full advantage of that opportunity. Centralized infrastructure and shared services are the backbone of Forefront’s strategy and enable it to successfully achieve scalable growth both organically and via new partnerships.

Smith: DOCS has more than 85 locations across the Midwest. As it has grown, it has maintained its reputation for clinical excellence. It also has a very provider-centric culture. Fostering a supportive and collaborative environment for providers has been a core mission for DOCS dating back to the founding practices, and those values remain fundamental to everything the company does today. As a result, DOCS has been highly successful at attracting best-inclass providers to the practice.

Busch: The company has also been very deliberate with its growth strategy. DOCS has entered new geographies by partnering with local market leaders that are very much aligned with its strong clinical quality and provider-centric philosophy, which has allowed it to propagate its culture and reputation across a broader footprint. It has also focused on contiguous markets to build core market density. The result is a strong, integrated foundation that makes DOCS well positioned for continued growth. In addition to continuing to drive growth through new partnerships and provider recruitment, DOCS views cosmetics as a significant area for expansion and has a strategy in place to tap into the opportunity.

What advice do you have for prospective buyers and investors interested in dermatology?

Smith: Favorable trends will continue to drive growth in dermatology, and the sector offers substantial opportunity to build platforms of scale. Buyers and investors should keep in mind that scarcity of board-certified dermatologists means being an employer of choice is critical to growth. A physiciancentric culture and excellent clinical quality are fundamental to recruiting and retention. A purpose-built infrastructure will support these objectives as well as provide significant operating leverage. Also, density matters in fully realizing the benefits of building a platform. Finally, most practices are dominantly focused on medical-surgical dermatology today, but those with a strategy to pursue cosmetic dermatology will likely find significant untapped growth opportunity.

Vision

Vision represents a ~$48 billion sector composed of the services and sale of corrective eye glasses and lenses with steady expected growth of ~3-5%.1,2

Steady growth of vision care services driven by the following key market trends:

✓ Aging population

✓ Growing coverage for vision care

✓ Increase in digital screen usage and asthenopia (eye strain)

✓ Technological innovation resulting in new products

✓ Increasing prevalence of chronic disease

Ophthalmology growing more rapidly at 4-5% driven by the increasing incidence of conditions such as glaucoma, cataracts, and macular degeneration requiring medical/surgical procedures2

In addition to positive secular trends driving long-term growth, the vision market exhibits highly stable demand due to:

› Nondeferrable nature of the service and corrective device purchases

› The limited instance of excess utilization providing for stable reimbursement

Vision

› Eye care services include exams and treatment for dry eye, glaucoma, cataracts, diabetes, and macular degeneration

› A prescription issued within the past one to two calendar years, depending on the state, is required for the purchase of prescription eyewear and contact lenses; as a result, the relationship between patients and eye care professionals heavily influences buying decisions

Differentiated patient relationships, service quality, earlier technology adoption, and clinical and product knowledge enable strong independent market share positions:

› Independents perform 68% of all patient eye care service, with share remaining stable1

› Despite lower service share, chains capture 46% of all primary eye care revenue driven by higher sales of eyeglasses and contact lenses1

Growth in eye care professionals will be driven by a steady increase in optometrists (ODs), while growth in ophthalmologists is expected to remain stable

› ODs are licensed practitioners who have obtained a Doctor of Optometry degree from an accredited optometry school (four-year postgraduate program) and who have passed both a written and clinical state board examination

Independent eye care providers control a significant portion of the patient population.

Fertility

The U.S. fertility market is estimated to be $8B across in-vitro fertilization (“IVF”), genetic testing, reproductive tissue storage, and donor services.

› Growing awareness of IVF and related services is creating an ever-larger addressable market opportunity; U.S. IVF services alone are estimated at >$3B and projected to grow at a ~10%+ CAGR through 2025P

Strong, long-term demand drivers including:

› Cultural shift to having children later in life, as well as lifestyle and health issues increasing incidences of infertility

› One of few healthcare service sectors in which clinical outcomes data are measured and reported, providing potential benefit to best-in-class providers

› Significant private pay component provides highly attractive reimbursement profile and insulation from pricing pressures relative to other healthcare sectors

› Highly recession-resistant demand due to parents’ desire to build families and the ticking of the biological clock

Highly fragmented provider landscape primarily comprising local/regional clinics; platforms of scale are able to leverage best practices, invest in leading technology, attract new physician partners and scientists, and improve operations

1. HW internal estimates based on data from Allied Market Research, Cision PR Newswire, and Global Market Insights.

2. Represents Prenatal and New-Born Genetic Testing market.

3. CDC historical cycle data.

Investors are highly interested in the fertility services sector due to its large size, fragmentation, and growth opportunities.

Fertility

Favorable trends will continue to drive strong growth in the fertility market.

Growth Drivers

1 2 3

Increasing Awareness & Accessibility

› Increasing awareness of fertility treatments as well as advancements in technology and genetic testing are increasing success rates and lowering total average costs to make treatment more accessible

Cultural Shifts

Increase in Chronic Health Conditions

Reimbursement & Benefit Trends

› Shifting cultural dynamics to have children later in life are driving people to use more IVF services as well as elective fertility preservation services

› Growing population of same-sex couples desiring children driving additional demand

› Increasing prevalence of chronic conditions and health issues driving increasing rates of infertility and demand for IVF services

› Significant private pay component, despite moderately increasing insurance coverage and employee benefits for IVF and genetic testing services

1. HW internal estimates based on data from Allied Market Research, CDC, and Global Market Insights (all figures stated prior to the impact of COVID-19).

2. Represents Prenatal and Newborn Genetic Testing market.

Market Overview

› Estimated $34 billion+ market size, averaging $400/visit2

› ~$350 per new patient visit3

› ~$315 per well-woman exam3

› ~$480 per routine pregnancy visit3

› Highly fragmented market with ~45,000 licensed OB/GYNs2

OB/GYN Service Segmentation1

Chronic Problem Pre- or PostSurgery or Injury

New

Preventive

› Well-woman

› Prenatal

› Postpartum

OB/GYN is a highly fragmented, $34+ billion market that frequently serves as the patient entry and referral point to a wide variety of other women’s health sectors. The OB/GYN sector benefits from a number of demand and supply drivers as well as long-term trends that will drive strong, sustainable expansion.

Strong, stable demand for OB/GYNs is being driven by various cultural trends and increased insurance coverage.

Later Age of Women at Childbirth

U.S. Birth Rates by Age of Women (Rate per Thousand Women Indexed at 100)

300 200 100

250% increase 185% increase 139% increase 56% increase 9% decrease 34% decrease 61% decrease

› Rising need for more frequent and complex services around higherrisk pregnancies due to increased age of women at childbirth1

› The average age of women at childbirth in 1985 was 23.7 years old vs. 26.9 years old in 20181

1985-1990

2010-2015

2005-20102000-2005 2015-2020

ovary syndrome, which often results in

issues, affects 1/10 women of childbearing age2

Annually, more than 84,000 women in the U.S. are diagnosed with some

of gynecologic

CDC.

Women’s Health.

Kaiser Family Foundation (2018).

Child Trends, 2017.

National Survey of Family Growth.

Guttmacher Institute.

The overall dental addressable market is a massive $136+ billion market, growing 6% annually, and comprises 200,000+ dentists across ~197,000 practices, of which dental support organizations (DSOs) represent a growing component with significant room for expansion.

Why

Fragmented market with significant consolidation opportunity remaining

Opportunity to add specialties and ancillary services in dense markets

Healthcare-lite reimbursement profile, relative to many other physician practice management models

Highly recession resistant demand with proven ability to recover from pandemic

Reasons Why

Focus on patient care; significantly reduced administrative burden

Ability to overcome significant debt burdens out of school while retaining equity opportunity

Access to greater talent pool

Opportunity for greater equity appreciation as part of scale platform

Vision, Dental, and Veterinary Care

Well before the COVID-19 crisis, many healthcare, consumer, and retail investors recognized the value-creation potential at the intersection of these three essential industries. Now that consumer healthcare has shown its resilience, investor interest has only intensified. Here, senior bankers from the Harris Williams Consumer and Healthcare & Life Sciences Groups discuss opportunities in three specific subsectors in which they have collaborated.

Five Key Criteria

The consumer healthcare sector includes several specialties, from dental and dermatology to physical therapy, urgent care, and vision. As we describe in Consumer Healthcare: Creating Value by Crossing Industries, Harris Williams has identified five major criteria that influence the degree to which sectors exhibit consumer healthcare characteristics:

1. Choice

In consumer healthcare, patients have some degree of choice (as opposed to being referred to a specific specialist).

2. Interaction Model

Businesses modeled on consumer healthcare can engage in recurring patient relationships or in situations where the need is more acute, but convenience and brand awareness must be decision drivers.

3. Location

Most consumer healthcare providers operate in freestanding, highly visible retail environments or via a “store-in-store” model.

4. Branding and Patient Experience

Consumer healthcare businesses emphasize branding, consumer awareness, and customer experience more than pure healthcare providers do.

5. Payor Dynamics

Consumer healthcare businesses tend to have a higher degree of patient/cash pay and commercial insurance, with less government pay than other healthcare businesses.

“Our more recent experience confirms that deal volume is growing, and likely will continue to accelerate through 2022,” notes Corey Benjamin, a managing director in the Harris Williams Consumer Group.

Here, we highlight the vision, dental, and veterinary subsectors and profile four recent acquisitions that exemplify the continued opportunity for investors in these areas.

A Keen Eye on the Vision Segment

The U.S. medical vision sector presents a significant growth opportunity, supported by strong, resilient demand and a fragmented market landscape ripe for consolidation. The total vision sector is estimated to be about a $48 billion market, with medical vision accounting for approximately $10 billion. Medical vision is expanding more rapidly than the broader industry, with 3% to 5% annual growth.1

Growth is primarily being driven by the aging population and increasing prevalence of chronic ocular conditions: Individuals aged 65 or older account for the vast majority of spending on medical vision services.2

By age 75, approximately half of all Americans have cataracts,3 and glaucoma incidence is projected to increase nearly 50% by 2032.4

The segment’s resilience is driven by a number of factors. Patients typically have work done on their eyes when they need it, regardless of the economic cycle. Furthermore, a general shortage of ophthalmologists drives high physician utilization and provides for a stable reimbursement environment, which is underpinned by a growing prevalence of insurance coverage for vision care. Low-acuity surgical ophthalmic procedures, such as cataract surgery, are also well suited for ambulatory surgery centers (ASCs), which larger and more sophisticated operators can establish and configure to be vision specific. Doing so helps optimize physician and patient workflows, improve outcomes, and generate cost efficiencies.

It’s also an attractive space for consolidators, says Andy Dixon, a managing director in the Harris Williams Healthcare & Life Sciences Group. “Historically, the ophthalmology specialty was extremely fragmented, with very little private equity investment,” he says. “In the last four to five years, consolidation has meaningfully accelerated, and we expect that trend to continue and even accelerate. While some platforms are building scale within general (anterior) ophthalmology, others are vertically integrating downstream into medical optometry as well as upstream into retina and other sub-specialties to capture referrals.” Dixon notes that while private equity firms have completed more than 30 platform investments in the vision industry since 2014, the sector continues to be fragmented, with a limited number of providers of scale.

Consolidation also provides the opportunity to drive greater provider utilization, says Dixon. As platforms come together, ophthalmologists are in environments where they can be more efficient, focusing more of their time on surgery and other “top-of-license” activities, allowing preand post-operative and other types of care to be provided by medical optometrists and other clinicians. Many small physician-owned practices want to become platform add-ons to broaden their networks, expand access to patients and referral networks, modernize their practices, and relinquish administrative duties.

Case in Point: NVISION

NVISION® Eye Centers, a leading provider of ophthalmology services, is an excellent example of the investment opportunity in the vision sector. “Its business has more than fully rebounded from the impacts of COVID-19, and it has the strategy and infrastructure in place to fuel continued rapid growth,” says Cheairs Porter, a managing director in the Harris Williams Healthcare & Life Sciences Group. Harris Williams recently advised NVISION on its sale to the Ontario Teachers’ Pension Plan.

NVISION is a leading vision practice in the western U.S. with 43 locations, including eight ASCs. It employs a hub-and-spoke model to build density in core markets, thereby improving brand equity, efficiencies, and utilization at its ASCs. The company prioritizes secondary metropolitan areas with favorable demographics and competitive dynamics. It has developed a highly successful acquisition model, having integrated 31 clinics and ASCs via acquisition from its launch in 2010 through 2019.

With its roots as a refractive practice, NVISION has expanded its services over time into performing cataract surgeries and other medical services and now offers a diverse, medically focused service mix that provides a highly stable revenue base.

Its heritage operating in a consumer-driven refractive services market enabled it to develop unique capabilities to engage customers and effectively broaden its base. For example, NVISION can use refractive procedures to fine-tune or “touch up” cataract surgery, which removes the cataract while restoring a person’s vision to 20/20, improving residual nearsightedness, farsightedness, and astigmatism. “NVISION has a much higher success rate than the industry average in completing the surgery effectively the first time, which benefits the patient as well as the business,” adds Dixon.

The Increasingly Healthy Dental Segment

Historically noncyclical before COVID-19, the dental sector was one of the consumer healthcare segments hit hardest by the pandemic. However, patient demand rebounded quickly for high quality businesses that proved they can operate safely and effectively in the COVID-19 environment.

The dental segment is an approximately $136+ billion market, with a projected annual growth of 6%+ through 2027.5 Investment by institutional capital over more than a decade has led to the creation of larger platforms in the vertical. However, consolidation opportunities remain: Independently owned clinics still account for 10.4% of the sector, creating substantial acquisition-based growth opportunities.6

Multisite dental service organizations (DSOs) bring benefits to patients and staff that independent dental offices are less able to provide. For example, sophisticated DSOs often can invest in more sophisticated patient marketing, as well as engagement and scheduling tools. They are increasingly seen as employers-of-choice for dentists, as they generally offer a better work-life balance, fewer administrative burdens, and greater financial security. Such platforms are also poised to scale, using existing infrastructure to spur growth.

Case in Point: Midwest Dental

Midwest Dental, one of the largest DSOs in the country, has more than 230 offices located primarily in the upper Midwest and New England regions, built over more than 40 years. “This is a great example of high-quality businesses drawing investor interest in the multisite dental space,” says James Clark, a managing director in the Harris Williams Healthcare & Life Sciences Group.

Harris Williams recently advised Midwest Dental on its sale to Smile Brands, a portfolio company of Gryphon Investors. The combined company is now one of the largest DSOs in the country, representing 650 offices and over 8,000 employees, including 2,200 dentists and hygienists operating in 30 states.

“Midwest Dental stands out for its significant scale, density in attractive markets, and long track record of growth,” notes Dixon. “Its recurring, hygiene-driven model and focus on building long-term patient relationships has driven a high patient retention rate and loyalty.”

Dixon says add-on acquisitions are a core focus and competency, with a proven partnership model for dentists. At its founding and during early stages of growth, the company operated in smaller communities, affiliating with practices to provide support and ultimately an exit strategy for founding dentists. Over time, Midwest Dental expanded to larger markets, where it continues to focus its strategy today.

Midwest Dental has a collaborative approach and true partnership with dentists, making it the dentist-preferred partner among DSOs, says Clark. “The company has made strategic investments in infrastructure and practice management culture to lay the groundwork for future growth. Its sophisticated marketing is highly successful at attracting new patients, helping Midwest Dental to grow at an above-market rate.”

The Booming Veterinary Segment

As of 2021, veterinary services was a $52 billion market, growing at a projected CAGR of 4% through 2023.7 It is a highly resilient segment due to pet owners’ propensity to spend despite financial challenges. Demand for veterinary services actually accelerated in 2020, spurred by a significant increase in new pet ownership as people found themselves with more time at home.8 In addition to their inherent resilience, veterinary services are largely private pay, an attractive characteristic for investors. They are also less subject to the malpractice concerns facing human healthcare providers.

With these tailwinds at their backs, investors are building sophisticated platforms with significant scale. Some are taking an integrated veterinary services approach, combining general practitioners, specialty veterinary services, emergency services, and retail. However, even with these trends, the market remains highly fragmented, with substantial opportunity remaining to consolidate the subsector.

Case in Point: Pathway Vet Alliance

Founded in 2003, Pathway Vet Alliance has grown from a single veterinary practice to include over 270 general, specialty, and emergency practice locations, as well as more than 85 THRIVE Affordable Vet Care locations. It also includes the management services organization Veterinary Growth Partners, which supports over 5,500 affiliated and unaffiliated member hospitals with education, training, and coaching services. Harris Williams recently advised Pathway, a portfolio company of Morgan Stanley Capital Partners (MSCP), on its transaction with TSG Consumer Partners (TSG).

Pathway has differentiated itself by focusing on the unique needs of each practice, partnering with local teams to implement their vision and work with their values. It has also built an integrated pet care ecosystem that meets the needs of pets, pet families, and pet care providers nationwide. “Through its integrated platform, Pathway is well positioned to capture greater share of customer wallet and serve pet owners’ comprehensive needs over their pet’s lifetime,” says Geoff Smith, a managing director in Harris Williams’ Healthcare & Life Sciences Group. “Given the company’s strong and growing national footprint, integrated service offering, and consumer focus, we believe Pathway is poised for tremendous continued success.”

Case in Point: MedVet Associates

MedVet is a growing nationwide network of more than 30 specialty and emergency services veterinary hospitals. Its specialty focus allows MedVet to provide the best possible clinical care. It also gives specialists the opportunity to work among other specialists, and, as new specialties are brought into each location, there’s continued opportunity for organic growth. Harris Williams recently advised MedVet on its investment from entities affiliated with the Goldman Sachs Merchant Banking Division and SkyKnight Capital. The company had previously received minority investments, which supported its expansion from five hospitals to its portfolio of over 30 hospitals today.

“The transaction is indicative of the strong interest and activity that we’re seeing from investors in the veterinary services sector,” says Smith. “We are excited for MedVet’s management, veterinarians, and employees, and look forward to following the company’s bright future.”

The Outlook

The vision, dental, and veterinary specialty subsectors within the multisite healthcare sector have nuances that make them unique. However, they share strong fundamentals that make them attractive investment opportunities. They have weathered the pandemic, with many businesses returning to higher year-over-year volumes. While at different stages of consolidation, these subsectors are still highly fragmented, providing the opportunity to build sizeable platforms and drive substantial growth.

1.

2. University of Chicago - Cost of Vision Problems Study.

3. National Eye Institute.

4. Prevent Blindness - Future of Vision Report.

Stax.

Ibid.

World;

Street Research.

The Washington Post.

Physical Therapy

Rehabilitation services represent a ~$56 billion market in the U.S., encompassing a wide range of patient needs in a variety of clinical care settings.

› Patients seek treatment from physical therapy providers for a variety of reasons, including general pain management, rehabilitation from injury, recovery from surgery, and ongoing wellness and injury prevention

› Since treatment needs are wide-ranging, individual therapists may choose to specialize and focus on the demands of a specific patient demographic

› Rehabilitation takes place in a variety of clinical care settings, including traditional outpatient and inpatient provider sites, third-party sites that rely on contract physical therapy providers, as well as in the patient’s home

Orthopedic

Treatment of musculoskeletal disorders and injuries

Sports

Treatment tailored to recreational and professional athletes

Pediatric

Rehabilitation services focused on conditions impacting infants and children

Outpatient Clinics ~$34B Market1

Physical therapy services provided in an ambulatory setting not requiring an overnight stay

✓ Effective treatment of both chronic and acute medical home health conditions; typically less medically complex than inpatient cases

✓ Reduces need for high-cost surgical procedures and diagnostic tests, and/or speeds recovery

✓ Customizable treatment, limiting time away from work and family

x Limited patient oversight outside of treatment sessions

TREATMENT TYPES & CARE SETTINGS FOR THE

REHABILITATION SERVICES MARKET

Cardiovascular

Treatment of circulatory system issues following events like coronary bypass surgery or heart attacks

Neurological

Treatment of neurological disorders along with brain or spine-related injuries

Geriatrics

Rehabilitation services focused on conditions that affect older patients, including arthritis, hip and joint replacement, and balance disorders

Inpatient Facilities

~$18B Market2

Physical therapy services provided to patients in either a long-term acute care (LTAC) hospital or inpatient rehabilitation facility (IRF)

✓ Effective treatment following a serious injury or surgery where more intensive care from an interdisciplinary team is required

✓ Limits outside distractions and allows patient to focus on recovery

x Highly disruptive to family and work life

Contract Therapy

~$4B Market2

Delivery of physical therapy services at nursing homes, assisted living facilities, and retirement communities

Home Health

Delivery of physical therapy services at a patient’s residence, relying on in-home equipment to provide care3

1. WebPT, Industry Trends in M&A and Total Addressable Market Study.

2. HW internal estimates based on sector experience and third-party sources including WebPT and IBIS industry reports.

3. In addition to providing basic physical therapy services, home health providers may also offer skilled nursing care, occupational therapy, speech therapy, or daily living assistance, which are not classified as rehabilitative care for purposes of these materials.

Outpatient Physical Therapy Demand Drivers

Increasing Desire to Live Active Lifestyles

Compelling Care Benefits and Cost Advantages

Decreasing Barriers to Direct Patient Access

Aging U.S. Population

Increasing Demand for Non-Opioid Alternatives

› Outpatient therapy represents ~60% of the rehabilitation services sector with a market size of ~$34 billion2

› The outpatient therapy market is expected to grow ~3% annually through 2024P3

› 127 million Americans (1 in 2 adults) are affected by a musculoskeletal condition that can be improved by physical therapy4

› Highly fragmented market with ~38,000 outpatient physical therapy clinics in the U.S.5

American Academy of Orthopedic

1. Stax Industry Survey, 2019.

WebPT, Industry Trends in M&A and Total Addressable Market Study.

IBISWorld, Physical Therapy Rehabilitation Centers in the US, 2021.

two Americans have

condition, 2016.

Web PT and HW internal estimates.

STRONG TAILWINDS DRIVING LONG-TERM GROWTH

Increasing Awareness and Adoption of Services

71%

of consumers worldwide are willing to see an aesthetic dermatology professional

65%

of consumers agree that aesthetic services have become more socially acceptable

69%

Heighted Importance of Body Positivity/Self-Care

of consumers say looking their best is important to their daily activities

64%

of consumers say looking fit and healthy, and being on trend with fashion and beauty, contributes to their confidence

Consumers Increasingly Willing to Spend More on Aesthetics

50%

of 2020 consumers planned to spend more on aesthetic treatments in the following year

Expanding Addressable Market — Young Adults & Men

63%

of women aged 18-24 say they are willing to visit an aesthetic dermatology professional

73%

of 2021 consumers planned to spend more on aesthetic treatments in the following year

3x

Growth in aesthetic dermatology procedures among males since 2000

Technology Driving Advancements in Medspa Treatments

› Technological advancements within aesthetic dermatology have helped physicians to continue to efficiently and safely address current treatments and better address unmet needs

› New technologies continue to expand the prospective menu of safe, noninvasive aesthetic services

Highly Fragmented Market with Opportunity for Consolidation

Retail Spend in $U.S. Billions

› The medical spa industry has over 2,900 clinics in North America, comprised of mainly small-scale “mom and pop” operators

› Industry will continue to consolidate as scaled operators increasingly benefit from operational efficiencies, including:

› Veteran management teams with greater operational depth and expertise

› More resources available to invest in infrastructure, such as marketing, technology, operational processes, compliance, training, and research

› Higher employee retention for clinicians and corporate-level team members as a result of in-house professional development opportunities and higher compensation

› Superior standardized process across clinics and patient care driving referrals and patient retention

Gastroenterology

Stable Reimbursement Environment

Professional and facility fees remain relatively similar to prior years, with some reimbursement rates increasing given further hospital price transparency as ambulatory surgery center (ASC) reimbursement rates come more in line with hospital-based outpatient department (HOPD) rates

Expansion of ancillary service offerings, including ASCs, in-office endoscopy suites, anesthesia, and pathology, drive top-line growth while scale and workflow optimization enhancements drive bottom-line margin expansion

Advanced endoscopic technological innovations and other ancillary services improve efficiency metrics, patient satisfaction and outcomes, and quality measures

Despite recent emergence of several platforms, significant consolidation opportunity remains, with over 1,300+ unconsolidated practices across the country1

Gastroenterology

Overview and Key Takeaways

› Healthy growth driven by an aging population, increasing prevalence of chronic conditions, broad insurance coverage, and technological advancements

› Early stage of consolidation, but is accelerating with private equity buyers leading the charge

› American Cancer Society advocating screening at 45 years of age (not 50), as colorectal cancer is the third most common internal cancer

› Non-discretionary nature has produced stabilization postpandemic, despite significant dip in March/April 2020

Gastroenterologist Dynamics

Circle fill represents attractiveness to investor/consolidator

Compensation

Compensation in the gastroenterology field is at the higher end of the spectrum and will likely increase given the growing shortage of practicing gastroenterologists relative to the increasing demand for services

Recruitment

The U.S. GI physician shortage is expected to exceed 1,600 physicians in 2025, resulting from increased demand for screening and preventive medicine by an aging population2

Retention

Given barriers, including startup costs and required technological infrastructure, gastroenterologists are becoming more likely to join larger organizations to recognize benefits of scale

2022.

NIDDK.

2022 Report.

Urology

Platforms that take advantage of current sector dynamics to scale in the early innings of consolidation will stand to benefit most from continued demand tailwinds and best position their provider workforce to combat future supply shortages.

BROAD PHYSICIAN PRACTICE MANAGEMENT THEMES

Aging Population

Favorable Demand Tailwinds With Projected Headwinds on Supply Side

Fragmented Landscape

Platform Value

The urology services market is one of the more nascent physician services sectors undergoing earlystage consolidation; given long-term tailwinds and increased incidence of urological conditions, the sector is ripe for continued expansion as platforms grow in scale and sophistication.

KEY UROLOGY SERVICES SECTOR DYNAMICS 1,2,3,4

› 50%+ of urology visits were patients over the age of 65

› The U.S. population 65 years of age or older is expected to grow 2.9% annually through 2030

› Patient demand is expected to outpace the supply as 50%+ of practicing urologists are 55 years of age or older, with only 300 graduating from residency annually

› Despite challenged long-term supply/demand dynamics, the urologist-to-patient ratio has increased in the last five years

› Highly fragmented landscape with limited national platforms

› Structural dynamics support continued consolidation of independent practices

› Scale and platform infrastructure unlock significant value creation opportunities over and above what smaller practices can realize independently

› Ancillary service revenue model allows for rapid diversification of revenue base

3. American Urological Association:

1.

State of

Urological Association:

Ambulatory

Urology Workforce

Residents

U.S.

Overview and Key Takeaways

› Urology is in a very early stage of consolidation, with the opportunity to gain market share rapidly through M&A and platform scaling

› Despite high projected demand for urologists coupled with a tight physician supply, the urologist-to population ratio has shown steady improvements

› Complex reimbursement environment and high barriers to entry provide significant opportunity for scaled platforms and drive urologists to join larger organizations

U.S. Urology Physician

Urologist Dynamics

Circle fill represents attractiveness to investor/consolidator

Recruitment

Projected physician shortage most likely to impact smaller multi-practice groups, where there are limited HR capabilities2

Retention

Strong physician retention aided by alignment of incentives through usage of equity models at platforms

Compensation

Urologist compensation is at the higher end of specialty physician services and will likely increase given the degree of specialization

Urology Visits Are Routine Visits for Chronic Problems3

Payor

in Risk of Bladder Cancer Between the Ages 40 – 805

Practicing Urologists4

Physician

Survey.

Advisors.

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