Ask these essential questions before selling to a private equity group or investor
According to Bloomberg Law, there were 181 private equity deals for all types of physician practices last year (Modern Healthcare, July 24, 2019). However, as more physician practices look to take advantage of the current private equity climate, it is important for the practice to understand their numbers from the perspective of an outside investor.
What does that mean? Physician owners may not be clear on the practice’s value/valuation, the practice’s financials, the fair market value (FMV) of physician owners’ compensation, or the practice’s compliance risk and exposures – from a potential capital partner’s point of view. They may be considering a private equity transaction before having a well-defined understanding of what they are selling, why they are selling, or doing their own due diligence.
Market trends indicate that physician practice consolidation is growing as senior physicians are moving to retirement and looking to monetize their initial investment, and other physicians are looking to increase their focus more on the practice of medicine and less on the administrative and back-office challenges of operating a stand-alone practice. In addition, there is significant activity with single specialty roll ups by private equity groups – particularly with dermatology, ophthalmology, gastroenterology, dentistry, orthopedics, urology and anesthesiology.
While healthcare valuations remain high, buyers are performing more due diligence pre and post letter of intent (LOI). As a result, it’s advantageous for physician practice groups to perform sell-side financial due diligence before selling to private equity groups or other potential investors. If the physician owners and practice management are informed and prepared, the process will go more smoothly for both the practice and the private equity group, leading to a better outcome.
If you are considering selling to a private equity group or other investors, understand your numbers from an investors’ perspective before you come to the table. Asking these questions to help you prepare for a potential sale will enhance your process and the likelihood of a successful transaction.