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Practice Consolidation is Here; Time to Pick Your Strategy

Posted on 01/30/17

When something goes from a trend to the new “normal” that is when you know a real shift has been made, and there has been a real shift in radiology. Back in 2013, The Radiology Business Journal published their yearly 100 largest practices list and stated, “The consolidation trend gathered steam in the radiology private practice sector in 2013.”

Now in 2017, the consolidation trend has become the new normal for radiology practices. Consolidation was accelerated by regulation and competitive pressures, and today, a growing number of practices are optimizing how they acquire and assimilate practices. As a consequence, private practices are growing quite large, and very quickly. The number of practices with more than 65 radiologists grew from 20 in 2015 to 26 in 2016. These practices are generally more efficient than smaller practices. Our customers tend to be of particular interest. Clario has had 3 practices get acquired in the last 6 months.

You need a business strategy to deal with market consolidation, but if you don’t have that figured out yet, the good news is that it is not too late to pick your strategy.  You can still take steps to benefit from the consolidation trend, including the options listed below:

Take investment capital to grow your business. Private equity is available for those who wish to give up a percentage ownership in their practice in exchange for growth capital. Investment capital can be used for marketing, to hire new radiologists, optimize operations and billing, or invest in technology.

Merge with another group to create a much more valuable combined asset. For example, one group might be strong in technology, and another might have lucrative contracts. Merging can put you in the major leagues, but without major league infrastructure, you will just be a big losing team. Think of it this way… if practices are valued based on a multiple of earnings, what happens when two big practices with zero earnings merge? Zero plus zero is still zero. Synergistic merging or merging combined with growth capital is a much more effective strategy.

Sell your practice now while the consolidation trend is peaking and “bidding wars” can result in a higher price. Selling is being explored by almost every practice in the country. Most are shocked by the intense interest shown by potential acquirers, and also by how little they can get for their practice. This is where some radiology practice executives regret not investing in the proper infrastructure. If your operation is not highly optimized and profitable, you will probably be disappointed in what you will be offered.

Improve your technology infrastructure to increase the value of your business and sell your practice for a much higher price. This can be financed internally, with loans, or by working with vendors who limit up-front capital outlay. Technology optimization is where we come in. We have partnered with practices who have used technology to move from valuations close to zero to tens of millions of dollars in just a few years. Because valuation is largely driven by earnings (efficiency), the return on investment in technology could be 50X or higher.

So, the choice is yours.  Look at all the options in front of you.  When you decide to improve your technology infrastructure, call Clario. We know how to make your practice worth more, and have minimized the up-front capital required to do so. Take action now, and you will be much happier when the time comes to sell or merge.