Read the original article in LevinPro HC – Editor Kate Humphrey, Levin Associates

Physician Growth Partners (PGP) recently announced that it acted as the exclusive financial advisor to Contour Dermatology & Cosmetic Surgery Center (Contour Dermatology) as it was acquired by DermCare Management (DermCare).

We spoke with Michael Kroin, CEO and Managing Partner of PGP, who provided his insights into the acquisition. PGP is a sell-side healthcare investment banking firm dedicated to representing independent physician practices in transactions with private equity.

Established by Dr. Timothy Jochen in the early 2000s, Contour Dermatology is a leading provider of dermatology services throughout the Coachella Valley. With four clinics in Rancho Mirage, La Quinta, Palm Springs, and Loma Linda, California, it offers a comprehensive suite of medical, surgical, and cosmetic dermatology services, as well as plastic surgery.

DermCare is a management services organization backed by Hildred Capital Partners. According to the press release announcing the deal, DermCare serves 81 locations across Florida, Texas, California and Virginia.

PGP engaged with Dr. Jochen and Executive Director Lee Erwin to represent Contour Dermatology in late 2023, following preliminary discussions throughout that summer. Dr. Jochen and Lee were very focused on finding a partner that would carry on the legacy they had built, help enable clinical autonomy across their footprint, and empower them to continue growing across Southern California.

While several other buyers were interested in Contour Dermatology, several factors made DermCare stand out.

“Dr. Jochen believed that DermCare met all of the criteria needed to consummate a partnership,” said Kroin. “A proven track record of success (both in California and Nationally), strong physician satisfaction post-transaction from those who had partnered with them previously, an established management team led by a CEO they could trust, and an organization across the board who was dedicated to encouraging physicians to maintain their clinical autonomy while simultaneously offering the support needed to continue on a successful growth trajectory.”

However, the transaction had its challenges.

“Starting from a macro perspective, there were significant headwinds within California as it pertains to private equity activity in healthcare,” said Kroin. “These headwinds were supplemented by legislation surrounding the workforce, with the minimum wage set to rise significantly in the coming years.”

Kroin went on to say that the combination of these two factors made the decision-making process much more difficult, especially when it came to the timing of the deal as Contour had to evaluate if the transaction was a path they should go down.

“At the outset of the process, there was little clarity on the specific regulation being proposed and even less clarity how this regulation would play out in real life which made time a scarce asset for Contour in terms of a window that was potentially closing January 1, 2025. This made running a streamlined, thorough transaction process that much more important,” noted Kroin.

In addition, Kroin said that throughout the process, the practice continued to grow. Kroin said, “While this is a good challenge to navigate, it was paramount to ensure a fair deal was struck that appropriately rewarded Dr. Jochen and Lee for what they had built, while allowing them to participate in some of the future growth that had yet to come to fruition.”

According to Kroin, overall, this acquisition reflects the broader landscape of the dermatology market nationwide. With regulatory challenges in California and other states, too, buyers need to be more thoughtful about the practices they acquire, where they operate and how they ensure long-term sustainability.

Further, with more and more platforms maturing, as DermCare has, acquisition activity has become much more selective; gone are the days of rapid M&A when many new platforms emerged at once.

“This is further exaggerated by the fact that existing platforms nearing a second sale to private equity are very focused on specific acquisition targets that can get them to that next inflection point while also balancing initiatives like platform wide integration,” said Kroin.

According to data captured in the LevinPro HC database, there have been 430 Physician Medical Group transactions announced since the start of 2024, 19 of them in the dermatology specialty. Between January 1, 2023, and October 31, 2023, there were 48 dermatology transactions reported. This transaction also marks DermCare’s fourth acquisition of 2024. Previously, it acquired five practices, strengthening its presence in Florida and Texas.

Even though there has been a decrease in dermatology M&A activity in 2024, Kroin is not too concerned with the future of the market, remaining almost optimistic.

“As we round out Q4 of this year, we are witnessing considerable M&A activity in the dermatology and aesthetics sector. The recent influx of new capital and mergers of major platforms is a major catalyst for this trend,” he said, commenting on the market on the whole. 

Are you a journalist covering trends in Healthcare Services M&A? Reach out to our team at PGP for additional insights on the market: [email protected]