Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / Why Private Equity Is Buying Up Hearing Aid Clinics
Transcript
- Lucas: So there's a quiet roll-up happening in something most of us don't think about until we need it — hearing aid clinics. Private equity has been buying up audiology practices at a steady clip, and this week we're looking at why. Luna: I've noticed more 'Hearing Care' signs popping up in strip malls. It's not the same independent audiologist anymore — it's a branded network. Lucas: Yeah, that's exactly it. The industry used to be dominated by small owner-operated practices — an audiologist with their own clinic. But over the last five to seven years, PE firms have been consolidating them into regional and national platforms. And the economics make a lot of sense once you dig in. Luna: I imagine the demographics are a big part of it. Baby boomers are aging into needing hearing aids. Lucas: That's the macro driver. About one in three people over 65 and half over 75 have some hearing loss. As the population ages, the addressable market grows — and these are patients who typically stick with a clinic for years. They come in for fittings, adjustments, cleanings, and consumables like batteries. It's a recurring revenue model. Luna: And the margins on the devices themselves are pretty juicy, right? Lucas: They are. A pair of premium hearing aids can retail anywhere from $4,000 to $7,000. The cost of goods sold — the hardware itself, the electronics — is probably under $1,000. So the gross margin is huge. But the real money is in the services and consumables. Fittings, follow-ups, batteries — those are high-margin and they keep the patient coming back. Luna: A quick honest thing before we go deeper — this show is listener-supported, no ads. A handful of listeners chip in monthly via buy me a coffee dot com slash fexingo, and that's literally what keeps us making this many episodes. If these conversations have been useful to you, that's where you can help keep them going. Lucas: Yeah, it's a small group of people making a big difference. And we're grateful. So back to the hearing aid roll-up — the other key factor is that the market is incredibly fragmented. There are something like 10,000 independent clinics in the US alone. That's a lot of small acquisition targets. Luna: And private equity loves fragmentation. It's the classic 'buy and build' play — consolidate, centralize back-office, negotiate better rates with suppliers. Lucas: Exactly. A solo practitioner might pay full wholesale for hearing devices, but a network with 200 clinics has leverage. They can also standardize marketing, billing, and even hiring. And because hearing aids are typically not covered by Medicare, the pricing is largely unregulated — patients pay out of pocket. Luna: That's a big one. No insurance company squeezing margins. You set your price and the patient either pays or walks. Lucas: Right. And the stickiness factor is high — once a patient has a device programmed to their hearing loss, switching clinics is a hassle. Loyalty is built into the product. So a roll-up that can keep those patients happy has a very predictable revenue stream. Luna: Now, there's a regulatory piece that changed the landscape. The OTC Hearing Aid Act from 2017 allowed over-the-counter devices to be sold without a prescription. That was supposed to open up the market and lower prices. Lucas: It did — but it also pushed traditional audiologists toward a more service-heavy model. They can't compete just on device price anymore, so they differentiate on expertise, fitting, and follow-up care. And pe backed networks are better positioned to market that service angle. Luna: So the independent audiologist gets squeezed from two sides — on price from OTC devices, and on service from the big networks. Lucas: Exactly. And many independents are nearing retirement age. So selling to a PE platform becomes an attractive exit. They get a payout, sometimes stay on as a salaried audiologist, and the practice gets a new lease on life. Luna: What does a typical deal look like? I've seen acquisition prices around three to five times EBITDA for single practices. Lucas: That's in the ballpark. A single clinic doing maybe $600,000 in revenue with 30% EBITDA margins might sell for $500,000 to $800,000. But when you aggregate them into a platform, the multiples can expand — you might see eight to ten times EBITDA for a network with strong recurring revenue. Luna: And who are the major buyers? A few names come to mind. Lucas: The largest publicly traded players are Sonova, the Swiss company behind Phonak and Unitron, and Demant, a Danish firm that owns Oticon and Bernafon. They've been acquiring clinics to secure distribution. Then there are pure pe backed platforms like HearUSA, which was bought by Sonova, and Audiology America, backed by private equity. Luna: Sonova's acquisition of HearUSA in 2022 was a big one — around $300 million. That gave them a retail footprint in the US. Lucas: Right. And those vertical integration plays are controversial. When a manufacturer also owns clinics, they can steer patients toward their own brands. Competitors complain, but it's legal as long as they don't force it. And it's efficient. Luna: Let's talk about the patient perspective. Does consolidation help or hurt? Prices — I've seen studies that show network clinics charge slightly more than independents. Lucas: On average, yes. A 2020 study in JAMA found that clinics owned by manufacturers charged about $1,000 more per device. But they also bundle more services — follow-ups, adjustments. So the value proposition is about convenience and comprehensive care, not the cheapest price. Luna: There's also the question of access. Consolidation might reduce choices in rural areas if a network buys the only clinic and then closes it or shifts focus. Lucas: That's a risk. But so far, most acquisitions keep the clinic open and retain staff. The bigger issue is that the independent model is fading. The question is whether that leads to better outcomes or just higher prices. Luna: There's a parallel to dental and veterinary roll-ups. Those have faced criticism for pushing unnecessary treatments to meet revenue targets. Lucas: It's a legitimate concern. Hearing aid sales have commission structures, and network managers can set targets. But the industry is regulated by state boards, and most audiologists are ethical. The PE firms know that reputation damage kills the business, so they tend to maintain clinical autonomy. Luna: So what's the investment thesis for a PE firm looking at this space today? Lucas: Demographics are the easiest part — the 65-plus population is projected to grow from about 56 million in 2020 to 80 million by 2040. Then add the low penetration — only about 20% of people with hearing loss actually use hearing aids. That's a massive untapped market. And the OTC channel could actually drive more people into clinics for professional fitting, expanding the pie. Luna: Plus the recurring revenue from consumables and service contracts. It's a very predictable cash flow business. Lucas: And it's still fragmented. The top five players control maybe 30% of the market. There's room for consolidation to continue for years. So the roll-up play is far from played out. Luna: I'm curious about the exit. How does a PE firm eventually cash out from a hearing aid platform? Lucas: A sale to a strategic — like Sonova or Demant — is the most likely. Or an IPO if the platform gets big enough. Another route is a secondary buyout — another PE firm comes in. The key is building a platform that's large enough to be attractive to a big player, and that means hitting a critical mass of clinics, maybe 200 to 300. Luna: Are there any notable deals that have happened recently? Lucas: In 2025, Demant bought a network of 80 clinics in the Midwest from a private equity-backed firm. Terms weren't disclosed, but it was likely in the hundreds of millions. And Sonova continues to acquire smaller chains. It's a steady drumbeat. Luna: So what's the takeaway for someone listening? If you're an audiologist considering selling, or an investor looking at the space? Lucas: For an audiologist, timing matters. Multiples are strong now, but they might compress if interest rates stay high. For an investor, it's a solid demographic play, but the regulatory risk is always there — Medicare coverage could change, OTC devices could improve to the point where professional fitting becomes optional for more people. Luna: But the basic business model — sticky customers, high margins, aging population — that's not going away. Lucas: No, it's not. And that's why private equity will keep buying up hearing clinics for the foreseeable future. The question is whether the consolidation makes hearing care better or just more expensive. That's a debate worth watching.