Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Urgent Care Centers
Transcript
- Lucas: There's a private equity firm based out of Charlotte that, over the past thirty-six months, has acquired forty-seven individual urgent care centers across the Southeast. They now operate nearly a hundred locations under a single platform brand. And this is not a unique story. Luna: So urgent care is the new dermatology? The new vet clinic? Lucas: Exactly. And what's interesting is why urgent care — specifically — became such a target. It's not just that healthcare is a large addressable market. Urgent care has a very specific set of financial characteristics that make it almost perfectly suited for a roll-up. Luna: Walk me through those characteristics. I assume predictable revenue is one? Lucas: That's the big one. Urgent care centers generate relatively stable, recurring revenue. Most visits are low-acuity — things like strep throat, sprained ankles, minor infections — so there's a consistent patient flow. And importantly, a large share of that revenue comes from insurance or Medicare, which means it's fairly predictable quarter over quarter. A private equity firm modeling out cash flows can project with reasonable accuracy. Luna: But wait — doesn't that also mean reimbursement rates are set by insurers? So there's limited pricing power. Lucas: That's true. You cannot just raise prices the way a consumer brand can. But the margin comes from volume and operational efficiency. An independent urgent care center might see thirty to forty patients a day. A well-run pe backed center, with centralized scheduling, standardized protocols, and a shared electronic health record system, can push that to sixty or seventy. The fixed cost per visit drops dramatically. Luna: And the PE firm brings in management expertise to make that happen. Lucas: Right. The typical deal looks like this: the PE firm buys a platform — maybe a chain of eight to ten clinics that already has a decent brand in one metro area. Then they use that platform as a base to roll up smaller independent centers, often one or two locations at a time. Each individual acquisition is relatively small — maybe two to five million dollars — but the cumulative effect is a network that can negotiate better contracts with insurers and suppliers. Luna: So the valuation multiples on those small add-ons — are they lower than what the platform eventually trades at? Lucas: Often yes. A single clinic might be valued at five to six times EBITDA, because it's illiquid, reliant on the founding doctor, and has limited growth prospects. Once that clinic is folded into a larger platform with a corporate overhead structure and a growth track record, the combined entity might trade at eight to nine times EBITDA when the PE firm eventually exits. That multiple expansion is part of the return. Luna: But the EBITDA of a small urgent care center — how clean is it? Because I've heard that in healthcare roll-ups, there's often a lot of add-backs. Lucas: Absolutely. The classic add-backs include the owner-physician's salary above market, any personal expenses run through the business, and sometimes one-time renovation costs. A careful PE firm will normalize those out so that the post-acquisition EBITDA looks higher. But there's also a legitimate operational leverage story. When you centralize billing, IT, and HR, you can often reduce total overhead by fifteen to twenty percent across the network. Luna: So the real question is whether the clinical quality holds up. Because if you're squeezing more patients through each clinic, there's a risk of burnout, misdiagnosis, or just a worse patient experience. Lucas: That is the tension. And it's the reason some physician groups are skeptical of pe backed urgent care. There have been studies — I recall one from a few years ago that found slightly higher rates of antibiotic prescribing in pe owned urgent care centers, which suggests pressure to treat quickly rather than watch and wait. But the firms argue that standardizing protocols actually improves quality, because every clinician follows the same evidence-based guidelines. Luna: And what about the management carve-out? I know in many of these deals, the founding doctor stays on as a regional medical director with an equity stake. Lucas: That's common. The PE firm needs clinical leadership to maintain credibility, and the doctor often gets a rollover equity position — say twenty percent of the new platform. So their incentive is aligned with growth. But it also means the doctor is now part-owner of a business that wants to see more volume. That can create an inherent conflict with the traditional Hippocratic focus on individual patient care. Luna: It's interesting you mention that because it reminds me of something we've touched on before — the idea that private equity isn't inherently bad for healthcare, but the incentives have to be structured carefully. If the deal is designed purely for a five-year exit, the pressure to cut corners can be real. Lucas: Exactly. And urgent care is particularly sensitive because it sits right at the intersection of convenience and trust. People go to urgent care because they don't want to wait for a primary care appointment, but they still expect competent care. If a pe backed chain gets a reputation for being a pill mill or for missing serious diagnoses, the brand erodes quickly — and so does the revenue. Luna: So the firms that are doing this well — what do they look like? Lucas: They tend to be firms with existing healthcare experience, often a dedicated healthcare fund. They invest heavily in data systems to track clinical outcomes and patient satisfaction. They also pay attention to hiring — they know that a bad physician in one location can hurt all the others. And they typically have a longer hold period, seven to ten years, rather than the three-to-five-year flip. Luna: If these conversations have moved your work forward in some small way — maybe you're a healthcare entrepreneur thinking about a sale, or an investor looking at this space — we want to mention something. This show is ad-free by design. We deliberately don't run ads on these episodes. If you want to support that choice, the link is buy me a coffee dot com slash fexingo. Lucas: It's a small thing, but it means we can keep the conversation focused on what actually matters — the mechanics, the numbers, the real trade-offs. We're not selling anything. We're just trying to understand how these industries work. Luna: Right. And we're grateful for everyone who chips in. Now — back to urgent care. Lucas, you mentioned that some firms are holding for seven to ten years. Does that change the acquisition strategy? Lucas: It does. A longer hold means the firm is more likely to invest in building a real corporate infrastructure rather than just bolting on clinics. They might develop their own technology platform, invest in marketing to build a consumer brand, and even open de novo locations — new clinics built from scratch — rather than relying solely on acquisitions. Luna: De novo clinics change the math, don't they? Because you're starting from zero patient volume. Lucas: They do. A de novo urgent care center typically takes twelve to eighteen months to reach breakeven, and maybe three years to hit full profitability. But the advantage is you can choose the location strategically — near a growing residential area, for example — and you don't have to integrate an existing culture or clean up legacy billing issues. Some PE firms use a mix: acquire a platform for density, then fill in gaps with de novos. Luna: Let's talk about the competitive landscape. Are the big national chains like MedExpress or American Family Care also being bought up? Lucas: Some have been. But the really active area is the mid-sized regional player. A firm like the one in Charlotte I mentioned — they're not trying to become a national brand. They just want to dominate the Carolinas and maybe Georgia. That's a defensible strategy because you can negotiate with regional insurers and build a reputation that local patients recognize. Luna: It's very similar to what we saw with veterinary clinics a few years ago. The large consolidators like VCA and Banfield went national, but the real PE action was in regional roll-ups. Lucas: Exactly. And the exit for those regional players is usually a sale to a larger platform or a national operator. The PE firm gets its return, and the clinics get absorbed into an even bigger network. The process repeats. Luna: So what's the risk? If you're an independent urgent care owner, should you be worried about being acquired? Lucas: It depends. If you're a single location with decent margins and you enjoy the autonomy, you can keep running it. But you'll face increasing competition from well-capitalized chains that can outspend you on marketing, offer longer hours, and accept a wider range of insurance plans. Over time, the independent's patient volume may erode. That's why many owners eventually sell — they see the writing on the wall. Luna: And the purchase price for a single clinic — what does that look like? Lucas: Ballpark, one to two times annual revenue, or five to seven times EBITDA. For a clinic doing two million in revenue with twenty percent EBITDA margins, that's maybe two to three million dollars. The seller usually gets a mix of cash and equity in the platform — say sixty percent cash upfront, forty percent rollover equity. Luna: And that equity can be worth more if the platform eventually sells. But it's also illiquid for years. Lucas: Right. That's the bet the seller is making. They're trading immediate liquidity for a shot at a larger payday down the road. Some doctors are comfortable with that; others just want the cash. Luna: So looking forward, do you see urgent care consolidation accelerating or slowing down? Lucas: I think it accelerates. There's still a lot of fragmentation — maybe sixty to seventy percent of urgent care centers are still independently owned. And with interest rates stabilizing, debt financing for these deals is available again. Plus, the demographic tailwind is strong: an aging population that needs more minor acute care, and a younger population that prefers the convenience of walk-in clinics over scheduling a primary care visit. Luna: So the same forces that drove consolidation in dental, vet, and dermatology are now fully in motion for urgent care. Lucas: Exactly. And if the pattern holds, we'll see a wave of mid-sized platforms get acquired by larger ones, and eventually by publicly traded companies. The question is whether the quality of care survives that process. Luna: That's the open question. And it's one we'll keep watching.