Sheppard Mullin partners, Cyrus Abbassi and Leonard Lipsky, served as panelists at the annual Orthopedics Today Conference in Kauai, Hawaii, held in January 2025. During a spirited discussion with various stakeholders in the orthopedics industry, they noted the following key takeaways: 1. Despite Skepticism of Private Equity, Interest Remains Unsurprisingly, some physicians expressed skepticism about... Continue Reading
Sheppard Mullin partners, Cyrus Abbassi and Leonard Lipsky, served as panelists at the annual Orthopedics Today Conference in Kauai, Hawaii, held in January 2025. During a spirited discussion with various stakeholders in the orthopedics industry, they noted the following key takeaways:
1. Despite Skepticism of Private Equity, Interest Remains
Unsurprisingly, some physicians expressed skepticism about private equity investment in orthopedic practices and ancillary services. Their concerns stemmed from groups that had less-than-ideal experiences with private equity investors, as well as media and regulatory reports denouncing the effects of private equity on healthcare. Yet even those who were doubtful acknowledged there can be a meaningful role for responsible private equity investment in the orthopedic ecosystem. Properly structured and managed, private equity can serve as a tool to empower orthopedic surgeons. Despite various headwinds, many physicians we spoke with were eager to better understand potential capital structures, investment terms, and the role of orthopedic surgeons in the private market. They were also encouraged by the 2025 outlook for deal activity.
2. Latest Deal Structures Showcase Greater Physician Alignment
We discussed several notable trends in today’s transactional environment: (i) a greater proportion of rollover or retained equity by physicians in the private equity management services organization/holding company for the platform, (ii) rollover equity sometimes subject to “hooks” and other vesting or forfeiture triggers, (iii) an increased reliance on post-closing production-based physician compensation, (iv) the more frequent use of contingent payments, and (v) the broader adoption of more robust restrictive covenants packages. We also touched on the significant uptick in joint ventures with strategic partners, particularly in orthopedic ancillary services like ambulatory surgery centers, physical therapy, and musculoskeletal (MSK) programs. Notably, these strategic partners often contribute operational expertise, resources, or other assets that can be more valuable than the capital they provide.
3. Physicians Are Exploring Alternative Investment Models
As a corollary to the discussion on deal trends, the panel focused on minority or growth equity investments, which offer an alternative to “control” sales—transactions where an investor acquires a majority stake and, in turn, major decision-making authority. The key features of minority investments typically include an investment for 20–30% of the equity, certain key but non-controlling rights, and minimal to no reliance on debt financing. Many health system-employed orthopedic surgeons viewed these models as a pathway to establish and expand their private practices. Meanwhile, physicians with existing, mature practices were equally interested in accessing capital for further growth or partial liquidity without relinquishing control of their businesses. By accepting a minority equity position, these investment structures provide essential cash infusions while enabling physicians to maintain control over both the clinical and operational aspects of their practices.
4. More Than Ever, It’s Important to Think Strategically
Physicians are navigating a multitude of challenges when considering transactions, including tax implications, regulatory compliance, and key deal terms. As discussed during the panel, overlooking critical elements can have severe consequences—for example, losing capital gains treatment due to a “dollar in, dollar out” equity structure. Conversely, thoughtful preparation enables physicians to adeptly manage complexities and successfully close transactions. Strategic planning allows physicians to address potential pitfalls proactively and leverage opportunities, ensuring that their transactions align with both their financial goals and long-term practice objectives.
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If you have questions about the insights shared or would like to discuss how these trends might impact your practice or transaction opportunities, please reach out to the authors or another member of the Sheppard Mullin Healthcare Team.
