On the heels of FFL Partners’ $970 million acquisition of leading Canadian eye care provider New Look Vision last month, managing partner Chris Harris talks to Mergers & Acquisitions about the deal and the opportunity in this segment of the healthcare market. Lucrative roll up opportunities and organic growth prospects could bode well for the segment, just as General Catalyst-backed Warby Parker tests public market interest with an IPO expected this year.
The merger comes as investors increasingly examine the optical products and service market in North America. Direct-to-consumer eye wear maker Warby Parker is reportedly considering a public offering that could top its latest $3 billion private funding round. The company reportedly competes in an ever more crowded market, and is backed by Menlo Ventures, General Catalyst, Tiger Global Management, and Forerunner Ventures.
“The eye care market is recession resistant; consumers need glasses,” says FFL’s Harris in an interview. “The sector doesn’t cycle going back to 2000; it’s a needed medical device, and a highly fragmented market.”
Most eye care retailers are single-store operations with more focus on optometry than running a scalable business. Consolidating smaller retailers remains a very attractive play, given the upside from running existing operations more efficiently, alongside benefits from scale, Harris explains.
Additional growth should position New Look Vision for a number of exit options near the end of FFL’s investment horizon, including a re-listing or a sale. The private equity firm sold previous ophthalmology and optometry portfolio company EyeCare Partners in 2019 after notching a 65 percent compound annual growth rate since its 2015 investment. FFL is also invested in optical retailer Eyemart Express, the second largest eye care provider in the U.S.
While many private equity firms investing in healthcare have touted a post-Covid bounce as a tailwind for future growth, the benefit for eye care is at least partially baked in already.
“There still is some post Covid bounce, we’re seeing it in every sector,” Harris says. “But here it’s less pronounced because it started earlier. The post Covid bounce hit in Q3 of last year. Eye care started as non-essential but by June all of optical was reopened. Canada was slower to open, so there’s more of a tailwind.”
If valuation is indicative of interest, both Warby Parker’s public market debut and New Look Vision’s merger consideration point to froth. The New Look deal value represents a 37 percent premium to its 30 day average trading price in the run up to the transaction. FFL Partners acquired New Look Vision in a consortium alongside Caisse de depot et placement du Quebec and the Dr. H. Doug Barnes family.
As the market continue to validate FFL’s thesis around eye care growth, look for more private equity to seek platforms of their own.