Australia

The Corporate ‘Sell Out’?

A number of our larger medical client groups have recently been approached by “large corporates” and/or Private Equity (PE) firms scoping interest in the potential sale of their practices. This is consistent with a broader trend we are seeing in the market with a strong focus on consolidations and mergers to ‘scale up’.

Interestingly, there seems to be new aggregators with little previous experience in running medical practices who are pursuing practice acquisitions aggressively. Perhaps this is being fuelled by an aging practice owner base looking to exit in the near term, particularly with the COVID-19 backdrop and associated practice adaptions required to keep current with the times. This leads to an increasingly familiar dilemma for exiting practice owners – to ‘sell out’ to a large corporate model or not?

Purpose

Unlike most other businesses, medical practices don’t aspire to generate profits as the main priority. Instead, medical practices have a unique, specific purpose to provide quality healthcare to patients and profits are merely a by-product of these outcomes. This purpose is why most doctors enter into the medical profession in the first place.

Healius

Healius is an interesting example. Healius, previously known as Primary Health Care, had been built on the back of a long (albeit somewhat controversial) history of GP ownership and management. But despite this and it’s GP-centric rhetoric, Healius sold its GP practices to the highest bidder – PE group BGH Capital.

It is clear Healius made a corporate decision to maximise value to their shareholders by off-loading their lowest performing ‘division’ which would have been justified in their eyes by the subsequent rise in share price.

It remains to be seen what BGH Capital will do with their newly acquired GP practices, but most PE firms are renowned to ‘buy low and sell high’.

The Trade Off

Does the corporate model work for medical practices? Fundamentally there appears to be a disconnect between squeezing practices for profit and creating value to shareholders versus going above and beyond to ensure patient care is the number one priority. Many doctors struggle with a corporate push down focus on profit, concerned for the effect it might have on their day-to-day operations and ultimately patient care.

Practice owners looking to sell are then faced with an ethical dilemma. Do they try to maximise their sale price by selling to a large corporate / PE firm potentially willing to pay higher multiples? Or do they sell to a smaller party with a track record of practice ownership and management knowing patient care will be top priority, but for which they might not receive the same sale price as a corporate offer.

Of course, these things are rarely so black and white so every opportunity should be explored on its own merits.

Below we have highlighted some of the qualitative factors you might consider when looking to sell your practice to a large corporate / PE firm.

Strategic Direction

Try to understand what the purchaser’s ultimate purpose for your practices is and see whether they align with the values of your practices. Are they simply looking to aggregate practices to make a quick sale?

Particularly where you have earn-out arrangement as part of the sale, a misalignment between corporate strategic direction and the motivation of your doctors may result in you not maximising your full sale price over the earn-out period.

Track Record

What experience does the purchaser have with owning and managing practices? Running a medical practice requires a unique skill set to maximise doctor engagement.

A purchaser who lacks experience in running medical practices may require you to continue to run the practice for a longer period of time as part of the deal.

Lifestyle

Often a sale to a large corporate / PE firm will require you to continue practicing under their ownership for a number of years. You need to be clear about what your expectation is and what your retirement plans are.

A 5-year commitment working six days a week might not be suitable for someone looking to wind-down towards retirement.

Price

Of course, for most, getting the best possible sale price is a high priority to be rewarded for the years of hard work and to provide for retirement.

You may be able to negotiate a higher multiple by selling to a large corporate / PE firm as they may be able to achieve higher returns themselves via a transaction such as an IPO or trade sale at a large scale (think Helius).

This can be a double-edged sword however as they will often have their own due diligence teams which will scrutinise your practice performance and identify any deficiencies to drive the price down.

To maximise your sale value it is imperative to be well prepared, know what your practice is worth to them and present this information clearly and professionally.

Conclusion

Selling to a large corporate or a PE firm can certainly have its pros and cons. For some, the strong corporate behaviour will be too big a factor to overcome, while others will see the opportunity to maximise sale price or grow in scale.

With any transaction opportunity, the more prepared and informed you are of the value of your practice, the better chance you have of extracting maximum value for your practice.

Remember – Doubt destroys value and time kills deals!

For advice on buying, selling or managing your practice, contact your local William Buck health specialist.

The Corporate ‘Sell Out’?

Trent Antonio

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