Receiving Offers from Corporate Buyers?
Here are some considerations to help decide if selling to a corporate consolidator is the right path for you and, if so, what decisions to make and when.
If you are a multi-doctor practice owner, or your practice is in the right market, there is a good chance that you have been contacted by multiple corporate groups. It’s important to note that while there may be genuine interest, some communications might be part of mass contact efforts that amount to nothing. And if they are truly interested, then other consolidators likely will be as well, and that particular buyer may not necessarily be the best one for your needs and objectives. If the consolidator decides your practice is not for them, there are still others who may be interested but haven’t yet contacted you.
For the practice owner pondering a corporate sale, this means you have options.
If you play your cards right, you can maximize all your goals with minimal hurdles. Below are 5 key factors to consider before moving forward with any buyer but especially a consolidator who has their own industry relationships, business model, policies, and so forth.
1. Before Sale Terms
Consider the cultural alignment with the groups who are courting you. Are they the best buyer for you, your staff, and your clients? Most groups have a similar pitch when it comes to winning you over. It is mostly true that the majority do want to preserve the culture to the extent possible while being the least disruptive to an already proven and functioning team.
However, they all change something, and you need to be sure that the change will not cause unwanted disruption to the culture you have established:
- Do they have a long-term vision that supports the company’s sustainable success, workforce stability, and legacy preservation?
- What is the employee turnover rate? Ensure there will not be a rough road ahead for the staff during the transition and beyond.
- It also might be worth knowing whether this company is future-oriented or if they will soon be rolling into another corporation.
This matters for more reasons than you may realize.
2. Price & Terms
The first offer you receive might be enticing, but there could be much more available to you. Each group has its own criteria it is seeking in a hospital and internal growth strategies that impact its interest in hospitals. Of those they are pursuing, there are varying interest levels at how badly they want your practice and their willingness to compete.
There are also many creative price structures available, and they vary by buyer. The joint venture, partnership, rollover equity, holdback, earnout, and funds in escrow are all examples. Do your research on what these all mean and why some may be more beneficial to you than others.
Are the price and terms initially agreed to final or will the buyer attempt to renegotiate after due diligence?
It could be a change in your practice environment, a shift in the economy, or just a change of heart from the buyer. Putting the suitor on the spot early in the process may enhance certainty of getting what was initially agreed upon, rather than receiving last-minute offer adjustments during due diligence. Be sure you know how the corporation determined your earnings and that they calculated it accurately.
3. Rent or Sell Real Estate
Most corporate buyers do not purchase real estate and may attempt to negotiate a lease payment significantly less than a fair market figure in exchange for the higher practice price. This is not necessarily in your best interest and establishing fair rent for you (there are several ways to calculate it) is a key factor to ensuring you are truly maximizing sale price and terms.
4. Employment Terms
Do you really want the highest compensation you can possibly negotiate? Maybe not, as it depends on several variables. What is a reasonable non-compete for a seller in your area? What are the best terms for you this buyer will allow? Each group has certain policies on compensation structures and non-compete terms but knowing the right questions to ask plus having someone advocate for you might bend the rules in your favor.
Be certain to understand what is expected of you upfront regarding hours, duties, compensation, vacation, and benefits. Ask what resources they can bring to the table to lighten your load. You should also learn what management structures are available to you after closing, and that they will provide sufficient capital investments in equipment and technologies to allow for the standard of care you expect.
Have you considered your staff and associate doctors? How will they be compensated, and what benefits will be available to them and when? If the buyer’s offerings vary from your associates’ current structure, will they sign on with the new owner? Will your sale fall apart if they do not sign? When is the best time to tell staff?
5. Contracts/Leases:
Are you committed to any long-term contracts such as equipment leases or minimum purchase agreements? How about vendors, utility companies, or other service providers? It is generally expected that businesses are sold free and clear of all debt, and all contracts are canceled at closing. If these are not handled correctly at the outset of the transaction, you may be faced with significant financial penalties.
With so many factors to consider, navigating the intricacies of your practice’s corporate sale requires close attention and knowledge that an experienced team can bring to the table. In most cases, this is the first and only transaction of this type that you will be engaged in during your career, and you are selling an asset that likely took decades to build. The best outcome, when structured correctly, will result from a strategic approach with a partner on your side.
Simmons Is Your Veterinary Practice Sales & Appraisals Partner
While there are many factors to consider in a practice sale of any size, a corporate transaction is often more complicated and more intricate than a sale to another veterinarian. Producing sellers have to remain for a transitional period, associate doctors have to sign on, the practice manager and other critical roles must continue—and, in cases where the practice owner is also the landlord, there will either be a lease to negotiate or a third-party purchaser who must then negotiate a lease with the practice buyer. The best outcome, when structured correctly, will result from a strategic approach with a partner on your side.
In most cases, this is the first and only transaction of this type that you will be engaged in during your career, and you are likely selling your largest asset that probably took decades to build. Would you sell your home without a broker? Rely on the experts at Simmons & Associates for a smooth transition into the next, and possibly the best, phase of your life. Contact us today.
