Four Things to Consider When Selling a Medical Practice to Private Equity

Written By 
Jun 29, 2023
3:00 pm

Over the past year, private equity capital has almost doubled in medical practices and is expected to continue growing at a steady rate in the coming years. The stability and security of private equity ownership in healthcare is incredibly impactful, so as someone who works in the field, it’s not a shock that you would consider opening up your practice to accredited investors. While there are plenty of reasons to sell, such as diversifying your investment portfolio, adding expertise to your business ventures or even increasing the number of patients at your practice, there are also some things you, as a physician, should consider when selling to private equity.

1. Know your company’s financial capacity

Financial stability can be a big reason you decide to sell your practice to a private equity firm, but you might also find that there are a lot of expenses that come before the actual selling process. These expenses can include fees for valuation consultants, accountants and attorneys to ensure the sale includes all the appropriate pieces, or upgrades and investments in new technology or hardware to deliver necessary data. Certain private equity firms can also charge a management or board fee, which can run reasonably high firm to firm. Considering the financial ventures you’ll need to take in getting the sale finalized is an important consideration before starting the process.

2. Strive for cultural compatibility

Just like any relationship, you want the one between you and a private equity firm to be respectful, positive, and beneficial. When it comes to something like a medical practice, there are a lot of people’s care riding on a successful transaction. It's important to ensure the buyer(s) align well with the values of your practice. If there ever comes a time that there is excessive amounts of tension or uncomfortability within the process of the purchase, consider asking for client references from the private equity firm or even looking for another potential buyer.

3. Look for experienced firms

Speaking of client references, you should always look into the experience of the firm you are selling to. Most private equity firms will add value to your business, especially when they are able to provide advice based on their years of work and experience. As with anything, experience can be invaluable, especially in your efforts to grow your company. For example, if your new private equity partner has owned and operated a medical practice in previous years, they are more likely to have constructive advice when it comes to issues like hitting quarterly numbers or increasing the number of patients. However, keep in mind that valuable experience can often come at a higher price, so make sure to weigh your options when going through the process of finding the right fit.

4. Discuss changes in your role and compensation

Often when selling a private practice, your level of control and compensation will fluctuate once you are no longer the head financial partner of the practice. An initial downside to this is that you may not be able to generate the same pay as you had once earned before. The upside, though, is there is now a severely lower risk of fluctuating revenue and security in your business. The control aspect is very similar as you will no longer be managing every aspect of your practice. The biggest difference is you will no longer be reporting to yourself, and will therefore have to generate reports to the private equity firm. Essentially, you are now responsible for managing the investments for other investors. The upside to this is that you are expectantly moving into a space where you are providing more beneficial and cost-effective care to your patients with funding and guidance from your new partnership.

Selling to a private equity firm can be a great experience for a physician and lead to exponential growth for a business in the medical industry. While the sale may seem straightforward from the outside, staying focused and being inquisitive are incredibly important in making sure the partnership you’re entering into is right for you. After all, surprises are best when kept out of a business deal.


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