You’ve been negotiating with a hospital, PE firm, or other buyer, and you’re close to signing the LOI. Before you do, make sure you get answers to the following questions so that you, the physician, can maximize your outcome.
Who controls my practice after I sell?
Almost everyone says you will retain autonomy after selling, but is that true? If you’re a smaller practice, the buyer will make most of the decisions—especially if you’re selling to a hospital system. Whether it be about maximizing revenue by seeing more patients faster, focusing on higher margin services or better-paying insurance, or about switching suppliers and changing staffing levels or staff, what does the contract actually say about the kind of voice you and other practicing physicians will have? What are the committees or channels to ensure shared decision-making?
The PE firm is quoting a 10X EBITDA multiple, which is great, right?
“Your practice has $1M of EBITDA, and we will get a 10X multiple on EBITDA at exit.” This means your practice will get $10M, right? Not necessarily. What are the terms of your stock ownership? How is the share price determined? How much does it depend on the performance of your practice vs. others’? Who gets paid in what order, how much, and when? What about the rollover (reinvested amount)? What happens if the sale is at less than a 10X multiple? The answers could mean millions of dollars in returns.
What happens when my buyer sells, and how much say will I have in the process?
After you sell your practice, it’s likely that your acquirer will experience changes in ownership and control. Hospital systems regularly acquire, get acquired, and otherwise change governance—almost always away from local control. Private equity and other investor-owned practices plan for a future sale event from the start. What does the contract say about the voice you’ll have with future transactions and their impact on you and your practice? This includes how much you will benefit from the growth of your practice and how long you’ll need to wait for that tantalizing “second bite of the apple.”
Do the LOI and contracts actually match my verbal agreement?
As a physician, you know it’s a mistake when people self-diagnose, self-treat, or see the wrong specialist. So, make sure to hire an attorney who specializes in healthcare transactions and is experienced with the kind of transaction you’re contemplating. This is the best way to make sure the terms match what you agreed to and take into account how others are doing it and what things may have been neglected.
You have a broker and they’re saying the buyer will pay the fees. How does that work? What's its effect on the rest of the transaction?
Be careful with this common myth. If the buyer is going to pay your fees, it will come from your proceeds somehow—and who, in this case, is the broker really working for? Make sure you clarify what the broker will actually do for you, what the fees will be, and how they’ll be handled. Also, remember that in a typical PE deal, you will sell 100% of your practice, get 70% of your sale price up front and reinvest 30% in the PE MSO. They will work with you to grow your EBITDA, but you’ll only get 30% of that increase.
Wouldn’t it be better to find a partner with which you could grow your EBITDA before you sell to a hospital or PE-backed group?
LifeFlow Partners is a physician-owned private equity firm in the outpatient endovascular surgery space, and we’re committed to maximizing the value of your practice before your first bite of the apple.
We don't have a share price. We have a tracking stock.
We help you grow your EBITDA before a sale.
Our physician-run board of directors means physicians have majority control and make all decisions regarding an exit.
Don’t let promises of high exit multiples from hospitals or MSOs keep you from understanding the deal you’re taking.
We're ready to help you unlock the innate potential in your practice. Contact us at email@example.com.