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When I work with physician owners who are considering selling their practices, the first question I ask is:
“Why?”
Most larger practices have a “normal distribution” of physicians at various points within their practice career. For physicians who have built their practices over decades and are eyeing retirement in the coming years, their top priority in selling their practices may be driven primarily by the potential for a large payoff. Whereas other physicians may be just starting their careers and are focused on growing a thriving practice for the long-term, and still others are somewhere in between these two different milestones.
As a licensed Investment Banking Representative and Managing Director of Root Partners’ Transaction Advisory Service Line, I start the process by identifying the long-term objectives of my clients. It’s important to sort out the differences and build a consensus among all practice owners before embarking on the sale process. The answer they provide to “why” helps me to develop an appropriate and effective strategy to position them for the next stage of their careers, whatever that may be.
Prospective Buyer Profiling
Once an understanding of goals is reached, we begin to identify appropriate buyers. In general terms, these buyers will fall within two primary categories: Strategic Buyers and Financial Buyers. Let’s briefly explore the differences between these two groups:
Strategic Buyers
A strategic buyer is an entity that may already have a presence in your specialty and is focused on acquiring your practice to add value to their existing organization. By purchasing your practice, this entity may be able to capitalize on additional revenue opportunities by enabling services that fill gaps in their offerings or by reducing competition in their market. They may also be able to minimize their operating costs by consolidating workforces, systems, and technologies.
Sometimes insurance companies are strategic buyers. Their goal is to create a care model where they make episodic payments for specific conditions and control the entire continuum of care. They need your practice to fit as a key piece in their puzzle.
Strategic buyers usually have an “indefinite” hold strategy and can quickly integrate the practice into existing operations. “Strategics” will typically be more appealing to those physicians who are seeking a longer-term relationship with a given partner.
Financial Buyers
Financial buyers are often private equity (“PE”) backed companies and are laser focused on maximizing their return on investment. Primary strategies often include creating “mega-practices” in designated markets which, in turn, enhance the practices’ ability to achieve negotiating leverage with payers and other providers. They are experts in optimizing efficiency, lowering costs, and capitalizing on market opportunities for growth. You can expect a financial buyer to actively challenge the status quo and work closely with the physician team to achieve dominance in a given market. However, typical PE firms have a strategy to buy, improve/grow, and sell, most typically within a three-to-six-year period. Accordingly, PE buyers may typically be more appealing to physicians who are looking to maximize purchase price, participate in future equity appreciation opportunities, and are not adverse to ongoing changes in ownership and management.
Identifying your goals and ideal buyer profiles are important initial steps to take when you plan to sell your practice. For more information on how to prepare for a sale, feel free to contact me here.