Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / Why Private Equity Is Buying Up Hearing Aid Dispensaries
Transcript
- Lucas: So Luna, when you think about the classic roll-up targets for private equity, what comes to mind? Luna: Dental practices, vet clinics, maybe urgent care. The usual suspects. Lucas: Right. Well, there's a new one that's been quietly building for a few years now, and it's actually a pretty massive market: hearing aid dispensaries. Luna: Hearing aids? That's… actually, that makes a lot of sense when you think about it. Lucas: It does. And the numbers are striking. We're talking about an industry that does roughly eight billion dollars a year in the US alone. And it's incredibly fragmented — the largest players have maybe 10 or 15 percent market share. Luna: So classic PE territory: fragmented, steady demand, and a demographic tailwind. Lucas: Exactly. The aging population is the obvious driver. But there's also a regulatory shift that really opened the door. Back in 2022, the FDA finalized a rule allowing over-the-counter hearing aids for mild to moderate hearing loss. That changed everything. Luna: Before that, you basically had to go through an audiologist, get a prescription, and pay thousands. The OTC rule made it more like buying reading glasses at the drugstore. Lucas: Right. And that created a lot of uncertainty for the traditional dispensaries. Suddenly, big-box retailers like Walmart and Best Buy started carrying OTC devices. The independent shops needed scale to compete — and that's where private equity stepped in. Luna: So PE is buying up the smaller chains and rolling them into bigger platforms. Who are the big players? Lucas: One of the most active firms has been a company called Audibel. Actually, Audibel itself started as a network of independent dispensaries that eventually got acquired. In 2022, a pe backed platform called WS Audiology — that's the combination of Widex and Sivantos — bought Audibel's parent company. But on the PE side, firms like the one behind HearingLife have been very aggressive. HearingLife is owned by a private equity firm, and they've been on a buying spree. Luna: And if these conversations have moved your work forward in some small way, it's worth knowing that listener support is what keeps this show independent and ad-free. You can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, it's a small gesture that makes a real difference for us. No pressure, just if you find value here. Luna: Exactly. And we're back to the hearing aid roll-up. So Lucas, how does the economics work for a typical dispensary? Lucas: So a single hearing aid dispenser — maybe a small office with one audiologist — might do 500 to 700 fittings a year. At an average of about $2,300 per hearing aid, and most patients need two, you're looking at revenue around two to three million dollars per location. That's a very acquirable size for a pe backed platform. Luna: And what about margins? I imagine the hardware markup is significant. Lucas: Historically, margins have been fat — like 70 to 80 percent on the devices themselves. But the OTC competition is compressing that. Now a lot of the revenue is shifting to the service component: fittings, follow-ups, adjustments. That's a more stable, recurring revenue stream, which PE loves. Luna: So the roll-up thesis is: buy small independent shops, consolidate their purchasing power to negotiate better prices from manufacturers, standardize the service model, and then prepare for an exit — either to a larger strategic buyer or via an IPO. Lucas: That's exactly it. And there's a specific public company that a lot of PE firms are looking at as the exit blueprint: a company called HEAR PLC. They're a uk based hearing aid retailer that went public on the London Stock Exchange in 2019. They've grown through acquisition and now have over 2,000 locations globally. Luna: So that's the model. But there's a risk, right? The OTC market could keep taking share. If people can buy decent hearing aids for $500 at Costco, why pay $4,600 at the independent? Lucas: That's the big question. And the industry response has been to emphasize the service bundle. The argument is that a hearing aid isn't like a pair of glasses — it requires precise fitting, programming to the user's hearing loss, and ongoing adjustments. The OTC devices are more of a 'one-size-fits-most' solution, whereas a professional dispenser offers a customized experience. Luna: But that only works if customers believe the added value is worth the premium. And for mild hearing loss, a lot of people may not. So PE is betting on the aging population having more complex needs that require professional care. Lucas: Exactly. And there's another factor: insurance coverage. More and more private insurance plans are starting to cover hearing aids, at least partially. That's a tailwind for the professional channel because insurance reimbursement usually requires a formal fitting and diagnosis. Luna: So PE is essentially betting that the professional channel will retain the high-margin, complex cases while the OTC market takes the low end. Lucas: Right. And the consolidation itself might actually improve the value proposition. A larger chain can invest in better technology — like remote programming, so you don't have to visit the office as often — and in marketing. The independent shop might struggle to compete on those fronts. Luna: But there's another angle I want to get at: the manufacturing side. A lot of the big hearing aid manufacturers — like Sonova, Demant, GN Hearing — they're also acquiring dispensaries. So it's not just PE; it's vertical integration by the incumbents. Lucas: That's a great point. Sonova, for example, owns the Phonak brand, but also owns a chain of dispensaries called AudiologyNow. So they're both supplying the independent shops and competing with them for the end customer. That's a tricky dynamic. Luna: It also means that when pe backed platforms go to negotiate with manufacturers, they're dealing with suppliers who might also be their competitors. That can get messy. Lucas: It can. But it also creates an incentive for the manufacturers to keep the independent channel healthy, because they need those sales. It's a delicate balance. Luna: Let's talk about the demographics a bit more. The baby boomer generation is entering the age where hearing loss becomes common. How big is that wave? Lucas: According to the National Institute on Deafness, about one in three people over 65 have hearing loss, and that number goes up to half for those over 75. The US has about 56 million people over 65 today, and that's projected to grow to 80 million by 2040. So the addressable market is enormous and growing. Luna: And yet only about 20 percent of people who could benefit from hearing aids actually use them. So there's a huge penetration gap. Lucas: Exactly. That's both an opportunity and a challenge. The industry has to overcome the stigma and the cost barrier. PE's bet is that consolidation will allow for better marketing and lower prices through economies of scale, which could boost adoption. Luna: But there's also a risk of overconsolidation. If too many dispensaries end up under one roof, you could have antitrust issues. The FTC has been looking at healthcare roll-ups more closely. Lucas: That's a real concern. In fact, in 2023, the FTC sued to block a merger of two hearing aid manufacturers — but that was manufacturing, not dispensing. Still, it signals a more aggressive stance. For now, the dispensary market is still so fragmented that most deals fly under the radar. Luna: So if I'm an independent audiologist with a small practice, what does this mean for me? Do I have to sell? Lucas: Not necessarily. But you're facing increasing pressure. Your cost of goods might be higher because you can't bulk-buy like the big chains. You're competing with OTC devices that are heavily marketed. And if you ever want to retire, finding a buyer might be harder if the big platforms have already saturated your area. So selling now might be the smart move for many. Luna: And what are the multiples? What are PE firms paying for a typical hearing aid practice? Lucas: It varies, but we've seen deals in the range of 5 to 8 times EBITDA. For a practice doing $1 million in EBITDA, that could be a $5 to $8 million payout. That's life-changing for a lot of audiologists who might otherwise be earning a comfortable but not wealthy income. Luna: So it's a seller's market, at least for now. But the risk is that the whole thesis rests on the assumption that the professional channel retains its pricing power. If OTC devices improve enough that people with moderate hearing loss don't need a professional fitting, the economics could shift. Lucas: That's the big bet. And it's one that PE firms are making with conviction. We're seeing more and more platforms raise dedicated funds for this space. It's a quiet gold rush. Luna: And we'll be watching to see how it shakes out — especially as hearing aid technology continues to improve. Imagine a future where your Apple AirPods double as a hearing aid. That could disrupt the whole model. Lucas: Absolutely. Apple actually filed for FDA clearance for a hearing aid feature on AirPods Pro back in 2024. If that becomes widespread, it's a whole new competitive front. But for now, the traditional dispensary still has a strong moat. Luna: Alright, so to sum up: private equity is buying up hearing aid dispensaries because the market is fragmented, growing, and undergoing a regulatory shift that favors scale. The exit path is a proven public company model, but the risks include OTC competition and potential antitrust scrutiny. Lucas: And it's a fascinating case study in how demographic trends and regulatory changes can combine to create a PE opportunity. I think we'll be hearing more about this space in the next few years. Luna: Great conversation. Let's do it again soon. Lucas: Yeah, let's.