Insights From Our Editors

Consider These Things Before Selling to PE

By Mark Wright, OD, FCOVD,
and Carole Burns, OD, FCOVD

July 27, 2022

Selling to a private equity-backed firm is not for every optometrist. Here are important considerations to think about before deciding to make this life-transforming decision.

A growing number of doctors (optometrists, physicians, dentists) are selling their practices to private equity (PE) companies. The primary motivator appears to be to lock in a sale of the practice rather than take a chance to wait for the sale of the practice to a colleague.  This can be considered as a “bird in the hand” mentality. The focus is on the money and not on the impact to the profession or any loyalty to the local community or the practice team.

Documents to Read
Both the American Optometric Association (AOA) and the American Medical Association (AMA) have published documents to help doctors thinking about selling to PE.  Everyone considering selling their practice to PE should read these two documents:

Selling your practice to a private equity firm? Things to think about, ethically and otherwise | AOA

Model checklist: Venture capital and private equity investments (ama-assn.org)

Another must read document when you are considering selling your practice to a PE company was published by the Alabama Medicine Magazine:

5 Things to Consider When Selling Your Practice to a Private Equity Firm Alabama Medicine Magazine : Fall 2020 (mydigitalpublication.com). This document covers practice valuation, purchase price payment, seller’s change in compensation, penalties for early departure and loss of control.

“I Just Want to Be an Employee and No Longer an Employer”
Another motivation for selling a practice to PE seems to be the desire to no longer want to run the practice. Human resources issues and the challenge of successfully managing the optical are headaches some doctors are looking to take off their table. PE offers to remove all the things that some owners no longer enjoy and allow the doctor to come to work and just be a doctor.

It is a reality that not every person has an entrepreneurial mindset. The “entrepreneurial seizure” was described by Michael Gerber in his book, “The E-MythWhy Most Businesses Don’t Work and What to Do About It.”  It’s something that happens to a lot of us when we are in a business and see it exhibiting problems. We think “I could do that better,” which is what Gerber calls the entrepreneurial seizure. The problem comes when we then jump in to try to do it better and quickly find out that we are in over our heads. We actually couldn’t do it better.

There are two primary ways to be a successful entrepreneur in an eyecare practice: study successful businesses to apply those principles to the practice and/or hire a successful consultant. In our experience, the overwhelming number of owners who are looking to sell their practice to PE have taken neither of these approaches or, at best, they have dabbled. They are struggling in practice management and just want to get rid of the pain of management, so they look at PE as an easy out.

Knowledge is Power
If you are considering selling to a PE group, then make sure to do your due diligence. As in any sale, be sure to understand all the components, as well as how they will impact your life. We talked to a nationally known OD who sold to PE a few years ago. We asked how it was going now that he’s a couple of years post-sale. His response to our questions was that he found himself ducking patients in the grocery store. As he watched his practice change post-sale, it took about three years, but he didn’t recognize his practice any more. Service and quality had changed. When patients confronted him by asking, “What happened to the practice?” his answer was that he was no longer the owner.  He no longer has the ability to make changes in the practice. He regretted the sale. His story is common after three years post-sale.

Will you hear stories of people who sold to PE and it was the best decision they ever made? Absolutely. If you are thinking of selling to PE, make sure you hear both sides, not just one side.

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