With more access to data than ever before, healthcare patients are embracing “precision healthcare,” which focuses on wellness, preventative care and chronic care management. The increased demand for concierge care and consumer-directed care are leading to high valuations for precision healthcare assets, making them attractive targets for PE investors.
To learn more, PE Hub spoke with Christopher Dorn, managing director of Fifth Third’s healthcare investment banking team.
What is precision healthcare, and what is driving its growth?
We define “precision healthcare” interchangeably with longevity, wellness and functional medicine. It is used to describe the fact that consumers are demanding more from their healthcare dollars: more lab tests to better understand their metrics, more access to practitioners – longer visits times, telehealth consultations and concierge-level care. Additionally, they want to know what other ways they can boost their health and feel better, whether that is additional treatment options or nutraceuticals and supplements they can purchase on their way out of the door.
Functional medicine is one area where doctors talk about understanding the root cause more often. It’s a little bit different from your standard consumer-directed or concierge medical care. They’re able to prescribe you a statin or pain medication, but they’re also wanting to understand what is causing this and how they can get you to take better care of yourself.
I think the biggest driver here is patients. Consumers and employees are all looking to better manage their health. There’s been a bigger drive to “hack your health.” People want to understand their health more, such as by wearing Apple watches, Whoops, Fitbits and Ouras.
That ties in well with the fact that most employers have moved toward a high-deductible healthcare plan. If you as a consumer have a health savings account or flexible spending account, and you have to spend money before hitting your deductible, you want to take more ownership. It leads to more consumer-directed healthcare.
What about the sector is attracting PE investors?
Since most of the businesses are cash pay and growing 20 percent to 30 percent per year, they command a premium to a similar business that is dependent on reimbursement. A precision healthcare physician practice management group is likely starting in the 12x to 14x EBITDA range, a direct-to-consumer (DTC) business will see 15x to 18x EBITDA while a tech-enabled practice solutions business with great “Rule of 40″ metrics will trade similar to good software businesses, on a multiple of annual recurring revenue.
Some of the diagnostic lab businesses are in the $15 million to $30 million EBITDA range and offering more esoteric, cash-pay tests. A lot of the businesses that are connecting doctors to the diagnostic tests are probably in the $10 million or less EBITDA range. It’s early for some of the scaled physician practice platforms to be anything greater than $10 million EBITDA. I think that’s where most of those businesses sit now, but that’s really interesting because we’re in the early stages of this market.
It’s really been in the past 10 years that a primary care doctor or any kind of doctor has thought, “I get 15 minutes with a patient in my practice. I’d really like to move to a clinic where I can spend more time with my patients.” Is there an opportunity for PE to start rolling up those practices? I think it’s pretty early stages now, but something that people are keeping an eye on.
Which precision healthcare subsectors does PE find most appealing?
I think one of the things we’re seeing a lot of within precision healthcare is doctors who will order lab tests more often. It’s a full-body panel. You’ll get it done every quarter. Men are more interested in knowing their testosterone levels in addition to all the lipid panels. They might order toxicity type panels, check for Lyme disease more often, mycotoxins. There’s a lot of different lab tests. That drives the value of this space in that we’re seeing doctors order more lab diagnostic tests, which are seeing a lot more referral volume. The doctors are seeing more patients, and it stems from there.
So, I think the two most investable parts for private equity right now are the diagnostic lab businesses and the actual clinics. PE, for a long time, has been rolling up specialty physician practice management groups, such as in orthopedics, OB/GYN and primary care. GI has been a big one, but I think now we’re starting to see more PE groups pay attention to and ask if there are functional medicine, precision healthcare and concierge medicine clinics they can roll up. And then there are the diagnostic labs that offer more esoteric tests. PE’s taking a much bigger look at that.
What are some recent PE investments in the sector?
Revelstoke Capital Partners purchased Griffin Concierge Medical, a concierge medicine practice, in September. Shore Capital formed a functional medicine practice, Agentis Longevity, last December, and Boyne Capital and Platt Park Capital have another, Novellum Longevity, formed in July. On the services into the practices and DTC, Leonard Green invested in Fullscript. Fullscript also bought Rupa, a software platform that connects physicians to all the different lab tests. Brightstar Capital purchased Analyte Health in August.
Now, this is not PE, more VC, but Function Health is a direct-to-consumer diagnostic business. That transaction has opened up a lot of people’s eyes to how big these businesses could be, and how much scale they can get. So, PE is, I think, is starting to take a closer look. What we’ve seen in the VC world is mostly direct-to-consumer.
I think it starts in the middle market. Eventually you get to the point where it can be a scaled platform selling into the largest PE platforms out there. If you look at OB/GYN, Axia Women’s Health is owned by Partners Group, one of the biggest PE firms out there. There have been many different iterations of that business over the years. Unified Women’s Health, which is backed by Atlas Partners, Ares and Oak HC/FT, is another one. There’s some scaled orthopedic platforms that have traded into hands of really large, multibillion-dollar asset managers. I think the same thing is possible in the precision health space.
Are there any headwinds that PE faces around investing in precision healthcare?
You have to do good diligence where you ask if this is an innovator looking at evidence-based medicine and what really works for the patient, or if it’s a cowboy trying to prescribe every diagnostic test out there just to make an extra buck. I think that’s the biggest concern I would have in the diligence phase of these businesses.
If these doctors have left a large practice and are practicing on their own, I don’t know how many of them want to be part of a larger organization. We are in the early innings of businesses that serve the doctors with lab ordering (like Evexia) or practice management software.
What’s your outlook for PE-backed precision healthcare deals in 2026?
I don’t know if we have one big platform right now that has sort of brand recognition in different pockets of the country, so I do think there’s a lot of organic growth opportunities for these platforms. But I think as more doctors leave a big practice, they start to realize how much of their practice in the back-office was simplified for them, and they’d like that again. But they still want to see patients more and practice at the top of their license, so I imagine they would prefer to join a larger platform on average.
Over the next few years, I think some of these businesses that we’ve talked about are probably going to come to market, look for a fresh round of capital, start to scale, because I still think we’re in the very early stages of the precision healthcare and concierge medicine space.
There’s just a lot of tailwinds behind this space, and I think people are going to continue to find other assets. I think people are going to start new businesses, and we’re going to see some more scale of platforms that are recognizable across the landscape that people are more familiar with than they are right now.
link