Sector Update: Exploring the Evolving Competitive Landscape and Emerging Opportunities for Investment in Orthopedics

Livingstone is pleased to share a comprehensive report on the U.S. orthopedics sector, which ranks among the most active sub-sectors in healthcare services in terms of the number of M&A transactions and represents a priority sector for investment among private equity investors.

Key Themes and Observations:

• Large, high-growth sector with $250+ billion of direct spend on musculoskeletal (“MSK”) care each year.
• Demand for care is resilient and non-cyclical, with visits and spending increasing each year historically, even during past economic downturns.
• The confluence of demographic trends and macro tailwinds is fueling an increase in the demand for care and contributing to a forecasted supply-demand imbalance that is driving a true need for more efficient platform models.
• Multiple levers to drive platform growth both organically (e.g., investing in ancillary services, de novo ASCs, provider recruitment, hospital partnerships, etc.) and through add-on acquisitions.
• While there are nearly 20 private equity-backed platforms today, the orthopedics sector remains highly fragmented, with platforms accounting for less than 5% of the ~30,000 board-certified orthopedic surgeons, which suggests there is a significant runway for additional platform investments and add-on acquisitions.
• Overall, M&A activity in U.S. healthcare services has remained robust and less impacted by the broader macroeconomic and debt capital market conditions, especially in the lower middle market.
  • Rolling LTM M&A transaction activity within orthopedics and across physician practice management (“PPM”) more broadly has increased each quarter. It has set new high-water marks in each of the past two years.
• The early vintage platform investments in orthopedics have all experienced strong growth. They are expected to pursue exit transactions within the next 12 months, which is a good barometer of successful partnerships between physicians and investors.
• Private equity, as an asset class, has a near-record amount of “dry powder” and continues to seek both new platform investments and add-on acquisitions for existing portfolio companies.
  • High-quality assets that are performing financially are garnering strong interest from both financial sponsors and strategic acquirers in today’s market.
• Livingstone is one of the most active and experienced advisors in the MSK sector and physician-owned companies. It remains an opportune time for independent physician practices to explore potential M&A transaction alternatives.

If you are interested in learning more or starting a strategic dialogue with Livingstone about opportunities in orthopedics, please contact Eric Weldzius or another senior member of the healthcare coverage team.