You’ve made the decision to sell your practice. Now, with multiple interested buyers, how do you determine which is the best one for you?
Ideally, at this stage, you have already documented important personal and professional priorities as they relate to your practice transaction. You know what success looks like. If not, immediately stop and do so. Make time to detach from your schedule to reflect and validate your perspective on the factors most important to you, your partners and your family.
With your priorities clear and your options in front of you, you are now ready to narrow the field of potential partners, finalize your selection, and move towards close. Below are five areas you will want to consider as you do so.
1. Ability to ExecuteIt is critical to have a high degree of confidence that expressions of interest, even when they’ve been documented in legal Letters of Intent, will materialize in form and on schedule. To help measure a buyer’s ability to execute, ask yourself:
• What is the acquiror’s track record relative to closing transactions on terms consistent with those offered in LOI’s?• How does the size and type of your transaction compare to typical acquisitions completed by the buyer?
• How well capitalized is the acquiror relative to their communicated acquisition strategy?
2. Buyer Objectives
Different buyers may have highly varying objectives for your practice on a post-close basis. Some may only want you and other providers; others may look to add on to the practice and grow. To help assess a buyer’s objectives, ask:
• What is the buyer’s strategy for your practice?
• What does the acquiror plan to do with and for your practice staff?
• Who will run and lead your practice after the transaction closes?
Every acquiring entity has a culture. Its leaders have personal and professional values. As you and your staff will be working for them, its important to know what they stand for. To determine a buyer’s culture, consider the following questions:
• How does the acquiror “operate” and how may this be different for you, your patients, and your staff?• How do leaders of other practices the buyer has acquired describe their experience in references?
• Has your experience to this point in the process implied that you share values with the acquiror?
4. Post Close Commitments and Lifestyle
Working for an acquiror may bring positive and/or negative changes in work schedules and opportunities for efficiency and productivity. It is important to know and understand what will be expected of you. When considering your post-close commitments and lifestyle, ask yourself:
• How long do you wish to continue working and on what schedule?• What will the buyer’s productivity expectations be, and what changes may affect your current routines?
• How may staffing and reporting changes affect your work environment?
5. Structure and Value Exchange
Most often the primary consideration, understanding the economics of a transaction and structuring to optimize tax considerations should be a priority. When assessing the key financial components of the sale, ask:
• How does the cash payment and overall valuation align with your expectations and needs?• How are bonus and earn-out targets defined?
• What are the details of your new employment contracts and compensation packages?
The decision of who to sell your practice to is, perhaps, even more important than the decision you made to transact. Make the best choice by seeking advice from those who know you, investing the necessary time to thoughtfully define your priorities, and then objectively evaluating your options. Consult personal and professional advisors who will ask you good questions and provide you with honest feedback.
At MMG, we help our clients ask the right questions and ensure that they are answered objectively and rationally. Without bias, we help practice owners refine their personal and professional priorities, align partner interests, evaluate possible options, and execute to successful outcomes. If you have interest in further discussion on this topic, please reach out to Jerry Kelsheimer at jkelsheimer@medicmgmt.com or Ronnen Isakov at risakov@medicmgmt.com.
Jerry L. Kelsheimer is President of Medic Management Group and MMG Healthcare Solutions. His background includes extensive work in areas including leadership development, strategic planning, process improvement, and capital markets / financial management. MMG is a national provider of advisory and consulting competencies, transaction support services, and back office administrative support to independent and system owned physician practice groups.