Roll up in health care sector grows as private equity, strategic players see opportunity

Consolidation is creating larger corporate health care entities
Roll up in health care sector grows as private equity, strategic players see opportunity

Canada has always been thought of as the land of universal, publicly funded health care, a health care market that is not conducive to merger and acquisition activity – not like the United States, where M&A rollups in the privately run health sector have been happening for years.

The reality, however, is that investors are taking an interest in health care M&A in Canada, whether it’s non-human services like veterinary care, practices such as dentistry and orthodontics that are not part of universal health care, or new ventures such as virtual care. There even is some dipping of toes into areas of health services that provide a blend of government-funded services with those paid for through private means.

“The fundamental thing people should be thinking is that a significant amount of our health care system is not part of government-insured services,” says Susan Newell, a corporate commercial lawyer who works in the health practice at Osler, Hoskin & Harcourt LLP. “A large number of health services are paid for privately and are outside of the publicly funded insured service regime. And there are some great opportunities for M&A.”

Clinic ownership in Canada is still fragmented and has not yet encountered the mature consolidation observed in the US and other jurisdictions. Part of that is the perception that many foreign stakeholders have historically viewed the Canadian health industry as a complex sector for several reasons. These include:

  • The sector is predominantly provincially regulated so that the provision of health services is “geographically siloed”
  • It involves a complex government health insurance regime for renumerated health professionals
  • There are rules that say, in particular health professions, provincially regulated health professionals must be the sole or majority shareholder, director, or officer. They must fulfill specific management roles in any corporate entity carrying on the practice of a regulated health profession.

However, public corporations, private companies, and private equity are increasingly participating in health care service acquisitions, “with generalist companies looking at multiple service providers and specialized companies focusing on more targeted investment opportunities.”

Newell and other lawyers in this practice area say they expect the trend to continue, given the shift toward more reliance on private health care providers and virtual methods of service delivery. In a world in which aging demographics and increasing costs have stretched the health care system, M&A in this area is also seen as a way of creating efficiencies, especially through the “back office” functions.

This M&A activity is often driven by the “‘dry powder’ of private equity funds,” says Andrea Johnson of Dentons Canada LLP. They are sitting on billions, she says, and looking to roll up sectors that are fragmented and ripe for consolidation.

“There’s a long history, particularly in the US, of private equity that specializes in health care becoming a major player in the sector,” she says. “Given the differences between our health care system and that of the US, private equity rollups didn’t appear to have as much relevance here, but now we’re seeing the increase [tendency] of these funds to import their learning to benefit Canadian innovators, especially as health care is becoming more technology-enabled.”

Curtis Cusinato, co-head of mergers & acquisitions at Bennett Jones LLP in Toronto, agrees. “We’re starting to see tremendous consolidation in this sector,” he says. He points to the successful IPO last year of Dentalcorp Holdings Ltd., raising $950 million, as an example of the type of consolidation and growth that has been going on. 

Dentalcorp was founded in 2011 and has approximately 7,000 employees across the more than 400 dental practices it owns, making it the largest dental chain in Canada. The company has grown steadily over the past decade, sometimes acquiring up to 60 dental practices a year. Its largest shareholders include American-French private equity giant L Catterton, Toronto-based Imperial Capital, the pension fund OPTrust and company founder and chief executive officer Graham Rosenberg.

“It’s not just about private equity having a lot of money,” says Cusinato. “Private equity has been involved in a lot of this consolidation because they’ve got the expertise to take what I call ‘older’ facets of health care and modernize them. They also know how to deal with a very complex regulatory environment.” 

Still, convincing independent health care professionals to essentially become “employees” by selling their business in a rollup isn’t necessarily easy, says Dentons’ Johnson. However, a rollup can be attractive to a professional such as a dentist or veterinarian if the “deal is structured properly, and the right incentives are provided.”

Nick Pasquino with Borden Ladner Gervais LLP in Toronto says selling to a consolidator can be more attractive when a health care professional starts to think of a succession plan for retiring. 

“There are a lot of practitioners in the Boomer generation who are looking to exit,” Pasquino says, noting that a large consolidator might make a better offer in cash than a younger practitioner who might have to pay in installments over time. “They may still want to be involved in the business, but not to the extent they had before, and this gives them a gradual way out.”

Elliot Greenstone, a partner at Davies Ward Phillips and Vineberg, also points out that “it’s a different generation we’re dealing with today,” with many health care professionals coming out of a professional school, often with large amounts of debt. “Many are saying they don’t want to build their own practice and are happy working within a structure that allows them to do what they do best without the headaches of running a business.”

Consolidators such as private equity also often have expertise in centralizing back-office functions in a rollup. This centralization can create economies of scale that can make the merged entity more profitable while providing the same, or an even better, level of service.

“Private equity is particularly good at this,” says Cheryl Reicin at Torys LLP, who leads the firm’s life sciences practice. “The whole trick is to get the volume and to minimize the costs while continuing to provide high-quality, customizable services at lower costs.” 

Another complicating factor is dealing with the various regulatory issues that vary from province to province. For example, in Ontario, a dentist needs to own the actual practice and cannot share professional patient fees with anyone who is not a dentist or a member of the dental college.

However, this type of challenge can be overcome, says Newell. “In the dental world, what we’re seeing is the development of dental service organizations that provide a turnkey solution for dentists to operate within, and the dentists would have ownership of the professional practice with the professional goodwill.”

Such an agreement between the management corporation and the professional practice gives the former financial control over the practice by paying a management fee based on revenue or a flat fee. 

Public policy and regulatory issues often arise related to the protection and enforcement of goodwill associated with the clinics because the practice is responsible for providing the health services. Therefore, services or other agreements between the parties will usually provide restrictive covenants and termination provisions.

In other circumstances, a licence may be considered personal to the holder, and a new licence application will be required if the entity holding the licence is subject to change. Depending on the type of licence and the relationships between the parties, parties can sometimes rely upon a transition service agreement to allow them to continue operations under an existing licence while a new licence application is pending.

Cusinato at Bennett Jones says that different circumstances may call for other solutions, and the regulatory colleges “often have really good solutions” when approached by consolidators about how to invest in these businesses while protecting public policy interests.

Lawyers in this practice area helping with health care consolidation say that given the regulatory complexity and the differences in how provinces oversee these professions, having a legal team on either end of the deal that understands the nuances of M&A in this sector is vital.

“There’s a lot of lawyers who are familiar with mergers and acquisitions,” says Hillel Rosen, Greenstone’s colleague at Davies. “There’s a much smaller group who have expertise in this type of consolidation.”

Despite some recent setbacks in valuations due to geopolitical events like inflation and fears of an economic downturn, lawyers in this subset of M&A are bullish about its future.

Says Rosen, “My sense is that we’re right in the middle of this phenomenon and that ultimately it’s full steam ahead.” 


VetStrategy has 350 clinics representing 1,000 veterinarians. Boston-based Berkshire Partners purchased a 70 percent stake in the company in July 2020 for a reported $1.4 billion. In September 2021, Europe’s IVC Evidensia merged with VetStrategy for an undisclosed price to create one of the world’s largest animal hospital networks.

Mission Veterinary Partners, founded in 2017, is majority-owned by Shore Capital Partners. It has more than 300 clinics in Canada and the United States. It looks to buy clinics with revenue of at least US $1.5 million and no fewer than three full-time equivalent veterinarians