Thinking of selling? Ask the right questions
When it comes to practice ownership, we are living in a gilded age for many. Owners have a bullish market of buyers from the independent market, smaller group consolidators and the corporates seeking their favour. This is not news anymore! So many sellers/owners have “cashed out” well beyond their expectations financially. What they do not know or may not care to know is what more they could have had if they only had asked the right questions or used an intermediary to ask those questions and expand their market of buyers.
Price, of course, is the primary question to ask your buyer. But there is so much more to consider.
Once deep into the due diligence following the Heads of Terms agreement you may find yourself wishing you had asked more questions at the onset rather than going deeper into the deal with a prospect that you are increasingly finding to be a poor fit. At this late stage of the game, you may find yourself subject to compromising more on the terms as you get closer to the final deal. Basically, it will seem harder to go back and start the process over than to just stay the course and accept the ultimate outcome, for better or for worse.
Before you even get to price, you need to ask other questions to help select the right buyer. After all, you could have many of them lined up, so why not focus on culture fit, your employee contract, and transition expectations at the onset of discussions also!
What are some questions beyond the basics of price should you be asking?
Most groups have a similar pitch when it comes to winning you over. I am not saying it isn’t true, as most do want to preserve the culture to the extent possible and be the least disruptive to an already proven and functioning team. To understand more fully their likely fit with the culture of your practice, and perhaps to get an idea of how well the staff will adapt to the new management structure, ask the following questions of them:
- What is your vision for the future?
- Are you planning on merging or selling to a larger corporation?
- What is your staff turnover rate?
- Will my employees’ jobs be secure?
Ask questions to help you assess whether this company truly is about the long haul or if you are being courted to become another part in their cart of practices to roll over at the next, big opportunity. You want to determine if they have a long-term vision that suggests success and longevity of the company, stability for the workforce and preservation of your legacy. It would also be comforting to know the employee turnover rate. If it is high, there could be a rough road ahead for the team during the transition and beyond. And you may have long-term and loyal employees you want to see retained. Make sure you speak up while you are being courted, as otherwise it may be too late.
Assuming you will be staying on to work for a while, negotiating the terms of your contract should not wait until late in the transaction. Be certain to understand what is expected of you up front. That would be hours, duties, pay percentages, holidays, and benefits. Ask what resources they can bring to the table to lighten your load. You also need to know that the management structure after closing will be there to support you and your activities, and that they will provide sufficient capital investments in equipment and technologies to support the standard of care you expect. Understandably, most consolidators will need you to stick around for a while. But life circumstances can change dramatically. What happens if you find you cannot continue working? Illnesses, severe burn-out, or irreconcilable conflicts in the workplace could override your ability to stay on. Do your homework up front. Ask to see their basic associate contract before you agree the deal.
Is the initial offering the final price?
Seems like this should be a no brainer but putting the suitor on the spot early in the game just may flush out how certain you can be of getting what they agree to pay, or if they may use due diligence as a process to adjust their offer as you get deeper into the process. If a joint venture or equity rollover structured purchase is the deal, you will want to ask how the earnings will be calculated to determine your part of the profit. Is there a management fee subtracted from the earnings calculation? Will there be a tagalong right to be bought out at the same multiple the company gets if a sell to a new private equity firm takes place?
With so much to keep track of, navigating the intricacies of a corporate purchase of your practice requires the 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 careers, and you are selling an asset they may have spent decades building. A strategic approach with a partner in your corner knowing what and when to ask will result in the best outcome.
Having brokered 100s of transactions over the last decade, MediEstates is in front of the industry when it comes to facilitating practice purchases. We offer a wealth of knowledge to help you ask the right questions, at the right time, of the right buyer.