You’ve spent years building a successful medical practice, and while selling your practice may not be on your radar, that doesn’t mean you won’t get offers to buy it.
Successful practices attract investors, and if you do receive an unsolicited offer, will you be taken off guard or will you be prepared to evaluate the offer and (potentially) navigate the process to a successful close? As a licensed investment banker and a nationally recognized expert in healthcare valuation, I share these tips to help you manage unsolicited offers:
Reflect
While getting an offer will be flattering, it’s important to consider the motivations of the buyer, the reality of the “offer price,” and your own reasons for entertaining a possible sale. Take time to reflect on how a sale might impact you and your partners, your staff, and your patients. Having open and honest conversations with key stakeholders is critical to maintaining alignment throughout a deal process, and it is better to have these discussions before the diligence process begins.
Assess
An unsolicited offer will not typically include a specific purchase price, but it may provide guidance concerning valuation multiples or other generic deal terms. But be warned: this is subject to change. If you want to truly understand your value proposition, it is important to consult with a professional.
An M&A professional will analyze your financials as well as the intangible qualities and market factors that impact value. They will be able to craft a story that portrays your practice in the best possible light, placing you in a favorable position to negotiate a fair deal. Despite your intimate knowledge of your practice, handling a transaction of this magnitude on your own will likely result in leaving money on the table.
It is also important to understand that a successful transaction involves more than just purchase price consideration. Cultural fit, salary and productivity expectations, non-clinical duties, and managerial oversight will have a significant impact on the transaction. Understanding these elements before discussing financial terms is a prudent way to avoid the seductive lure of a liquidity event when the buyer is not a good fit for your organization.
Disclose
If you do entertain conversations with a buyer, be cautious when discussing details too early. Even if the initial offer seems attractive, jumping into discussion too quickly can be detrimental to your negotiation. As I mentioned in a previous article, the best approach when first interacting with a prospective buyer is to remain silent.
Practice owners are tempted to casually disclose material details about their businesses to keep a buyer interested, but doing so can damage their negotiating position. To illustrate the point, imagine if someone knocks on your door at home and says they’d like to buy your house. Would it be wise to let them look around before you had a chance to clean things up and address minor repairs? That first impression will shape the buyer’s expectations regarding what you have (or don’t have), and you want to set the bar high.
The same is true when selling your practice. Sharing financial or operational information with a prospective buyer too soon in the process can put you at a disadvantage. You may think you are having a casual conversation, but in reality, you are entering into a negotiation. If you receive an unsolicited offer, simply take a step back, and let the interested party know you will consider it and get back to them.
As you go through the various stages of information sharing (preliminary disclosures, preliminary due diligence, confirmatory due diligence), your M&A advisor will package and present the information in a way to position your practice favorably. Often, key pieces of your financial documents need to be explained and normalized to paint an accurate picture of your practice’s health and growth potential. The M&A advisor will also ensure that access to financial and other information is carefully controlled to prevent untimely or unauthorized access to competitively sensitive information.
Partner
Your job is running your practice, providing care for patients, and managing your team. You are not in the business of negotiating the sale of medical practices, and a sale of your practice is often a once-in-a-lifetime event. Most buyers, however, are seasoned experts in all aspects of M&A. To level the playing field, you need to work with an M&A advisor who understands the sale process and has your best interests in mind. Partner with a professional who has the experience and track record to help you navigate every step of the transaction process.
At Root Partners, our principals have a combined 50 years of experience in healthcare transaction advisory, valuation, and mergers and acquisitions, meaning you can move forward with confidence and peace of mind. Reach out to us here for more information.