By Steve Sunder
Nov. 27, 2019
When it comes time to sell your practice, you have many options. One of those that could prove beneficial is selling to a private-equity-backed buyer.
One advantage of selling to a PE firm is they are adept at closing quickly as they have the funds available to purchase and close in as fast as 90 days. They do not need to obtain financing nor go through a third-party practice appraisal process. This eliminates traditional practice sale and potential buyer financing denial.
Here are the key steps to take to ensure you are ready should the opportunity arise.
Series of PE Seminars
Is My Practice a Good Candidate for Sale to a PE-Backed Buyer?
Private equity firms are looking to make market entry with a ‘bang” through the acquisition of large, multi-location local or regional practices where they can generate a return through critical mass. That said, it is still possible to attract the attention of a firm if you’re not a mega-practice.
Most PE firms are looking for practices that have historical proof of excellent cash flows, high profitability, quantified year-over-year patient growth and strong referral relationship with OMDs.
These are reasons to focus on areas that help drive up practice value such as increasing financial performance and enhancing the other factors that increase practice net profit. That would include improving your EBITDA (earnings before interest, taxes, depreciation and amortization) as this is taken into consideration when determining your practice valuation.
Get Your Financial House in Order
Your financial house must be in order so you can negotiate the highest possible price for your practice. Having sound financial management is key to ensuring your practice meets the financial position of a PE firm. This requires alliances with domain experts in practice financial valuations, accounting, legal and HR. There are other foundational factors in determining or adding practice value that must also be addressed prior to marketing your practice. Each of these factors can either increase or decrease the value of your practice.
Click HERE to download a PDF with a list of financial points that must be in order.
Get Key Documents Ready for Sharing with the Buyer
When selling your practice the standard financial statements and documents you should have prepared for presentation would be:
• Three years of income statements
• Three years of balance sheets
• Three years of tax returns
• Statement of cash flows
• List of accounts receivable for both insurance and patient
• Copy of facility lease, if applicable
• List of practice assets and inventory
• Copies of current long-term liabilities
• Copy of practice ownership structure with a letter of Assurance or Good Standing with a full disclosure from attorneys, accountants and malpractice insurers.
Other Pieces to Explore
These documents would be requested by the purchaser at the time of acquisition interest after the signature execution of a Letter of Intent, Confidentiality Agreement and Offer to Purchase.
The PE-backed firm may request the last three years of tax returns, as well as current quarterly filings. Additionally, depending on the practice legal structure, the following should be prepared to share:
• Schedule C for a sole proprietorship
• Forms 1065 and K-1 for a partnership or limited liability company
• Schedule 1120 for professional service corporation (1120S if organized as a sub-chapter S Corp)
What Can I Tell a PE-Backed Buyer to Encourage an Offer?
The seller should create practice marketing talking points that highlight the advantages of buying the practice. Below are examples of key practice advantages:
• Established practice
• Documented year-over-year patient growth
• Owner/optometrist has transitioned patient care to hired associate doctor(s)
• Documented year-over-year revenue growth
• Documented year-over-year net revenue increase
• Established referral to local OMDs
• Practice adoption of new technologies
• Active use of electronic health records
• High patient satisfaction
Steve Sunder is a health-care consultant with over 40 years experience in the eyecare industry, including over 20 years at a multi-location practice, and years of work as a consultant to other practices. To contact him: firstname.lastname@example.org