Over the past ten years, there has been a significant rise in the number of private equity (PE) companies purchasing medical practices. This may seem like too good of an opportunity to pass up. Think about how much easier it would be to outsource some of the administrative responsibilities of running your practice to another company. Even yet, there are various factors to consider while negotiating with a private equity group. Ultimately, it is important to ensure that the deal is in your best interests and that you are comfortable with the terms of the sale. Here are a few broad issues you should resolve before proceeding with such an arrangement.
Establish your company’s worth and gain a grasp of EBITDA.
EBITDA (earnings before interest, taxes, depreciation, and amortization) is a commonly used financial metric that helps to measure the profitability of a business. Although it is not a perfect measure of profitability, it should be considered with other financial metrics when evaluating the performance of a business.
Your practice has worth. It is more than just the equipment and office space. You are trading in your know-how, abilities, reputation, open contracts, and perhaps even some intellectual property. We should consider all these elements when valuing your profession and should be the primary focus of discussions.
Become familiar with the suggested business model of the private equity firm.
PE firms may use one of two approaches to the buyout.
1. Merging the practice into a larger, pre-existing business. This can provide the practice with access to additional resources and support. It may also result in a loss of autonomy and control for the practice owners.
2. Getting an ownership stake in the practice. In this model, the private equity firm may seek to get an ownership stake in the medical practice.
Before proceeding with a private equity buyout, consider the pros and cons of each model. Make sure you are comfortable with the terms of the deal.
Non-compete clauses can be a common feature of private equity buyouts of medical practices.
Carefully review and understand the terms of any non-compete clause included in the buyout agreement. The clause, including the specific field or niche practice area covered by the restriction, can have a significant impact on the practice professionals’ ability to operate outside the arrangement.
The enforceability of non-compete clauses varies by state law. Understand the laws in the state where you practice. It is important to weigh the potential impact of the clause on your ability to practice in the future. It may be advisable to seek the advice of an attorney before agreeing to any non-compete clause.
Consider the relevant laws.
Finance, human resources, and marketing are some of the business matters handled by the management company. The medical practice handles clinical matters, such as patient care and treatment. The Management Services Agreement (MSA) should clearly outline the responsibilities of each party to ensure that there is no confusion about who handles what.
It is important for practices to work with an experienced attorney to ensure that the MSA complies with state law and does not run afoul of corporate practice of medicine rules. This can help to avoid potential legal issues and ensure that the relationship between the practice and the management company is structured properly.
Think about how the sale will affect the employees and patients.
While negotiating with a private equity firm, consider how it will affect employees and patients. Here are a few questions to consider:
1.) What are your specific goals or objectives that the practice hopes to achieve through the partnership? Including any concerns or priorities that the practice has related to patient care.
2.) How will this affect the staff, management, and other professionals in the practice?
Practice owners can help to make sure that they considered the requirements and interests of the practice and its employees by being open and honest about these issues and advocating for required assurances.
Work with knowledgeable counsel
To complete the sale to a PE firm, various legal paperwork will be needed. Working with a skilled healthcare lawyer who is aware of the relevant legal standards is essential.
The sale of one’s practice may be the most important business deal a healthcare professional ever makes. PE firms deal with such deals daily.
As a result, arrive at the table ready and with a group of people benefiting you. There has been a significant increase in the amount of Private Equity (PE) firms purchasing medical practices. Set up a consultation so we can discuss.