You may be considering the option to either sell or merge into larger practices. David Mandell, JD, MBA offers four success factors to consider before making such a move.
There continues to be significant consolidation in the industry, and many ophthalmology practices are considering selling or merging into larger practices. If so, they would be wise to consider the following four success factors. Let’s examine each briefly here.
1. Prepare your practice financially.
Preparing the practice financially not only means having the books and records organized and in order, but more broadly means maximizing the value of the practice to an acquirer. This means creating processes and procedures for everything in the practice that is not clinical – from an initial patient referral to when they get checked out at the end of an appointment.
Maximizing value for an acquirer also means maximizing EBITDA, which is earnings before interest expense, income taxes, depreciation and amortization expense. Nonrecurring expenses, owner-related expenses and excess owner compensation are added back in the equation. This calculation allows the potential buyer to determine what the profit would be if somebody else owned the practice and had to pay reasonable compensation to the physician employees to run it.
2. Determine the right type of transaction.
When it comes to mergers and acquisitions, one size does not fit all. One practice might be looking to sell 100% and considers the transaction to be a type of “exit” from their current practice. Another may be looking at selling majority ownership or a minority stake and others a combination of equity (ownership) and debt. It depends on whether or not the owners want to give up control of the practice, or want a financial partner to help them grow, but stay in control or some other objective.
3. Find the right advisory team.
This may be the most important of all the factors because if one has the right adviser team, they are going to have the expertise to make sure these other factors are in place. They will make sure that the practice is properly prepared, gets the most EBITDA and secures the right type of transaction.
Who is on the advisor team? The team can include the personal financial advisor(s) for the partners who can advise the doctors on the ramifications of a transaction on their personal finances and life goals. It will always include a certified public accountant (CPA, often from the practice but sometimes a special transaction CPA), a mergers and acquisitions attorney and often an investment banker, who represents the practice in getting the best deal and, ideally, finding multiple buyers.
4. Prepare mentally for the “why” behind the deal.
When a transaction occurs, things may change dramatically, including practice operations, physician compensation, and employee management. So that everyone feels positive on the other side of the transaction, each participant should understand his or her personal goals and motivations for the deal from the outset.
About the Author:
David Mandell, JD, MBA is an author and renowned authority in the fields of asset protection and wealth management. He is a co-author of more than a dozen financial resources, including “Wealth Planning for the Modern Physician, Wealth Management Made Simple,” and “Risk Management for the Practicing Physician,” a Category 1 CME-certified monograph. David’s articles have appeared in over 40 national publications, and he has presented lectures, webcasts, and podcasts on asset protection, tax planning and wealth management for numerous regional and national organizations. He graduated with honors from Harvard University and earned his law degree and MBA from the UCLA School of Law and Anderson School of Management.