Your Practice: How to Increase Your Chance for a Successful Transaction Closing
- April 30, 2021
Over the past few years, there has been a clear trend of consolidation within the healthcare industry. Most physician leaders have noticed this trend, however many have remained on the sidelines as they see their peers’ practices enter strategic partnerships whether it be with their local health system, a PE-backed platform, or one of the other handful of opportunities available to them.
As evidenced by the substantial increase of M&A activity in the healthcare space over the past six months, a growing number of physician groups have determined that they can no longer sit on the sidelines. If you happen to be in this situation, the following should be the first items addressed by your group to lay the groundwork for an efficient process leading to a successful closing.
What is the Motivation for a Transaction?
First question that needs to be addressed is: “What are the motivations and priorities in pursuing a transaction?”. Some common reasons include:
• Looking for an influx of capital to accelerate the growth of the business
• A liquidity event with favorable tax treatment (cashing out)
• Better positioning the long-term sustainability of the company (increased resources, economies of scale)
• Reduction of management responsibilities so doctors can focus on what’s important – their patients.
On an individual basis this can be answered easily, however, for a practice with many providers, it can become much more complicated. For instance, senior providers of the group, who only anticipate practicing for a few more years, might be more focused on a liquidity event and view a potential transaction as their retirement plan. Then there are the younger providers in the group who tend to be more concerned with their annual earnings potential on a go-forward over the next 20+ years of their professional career. While these are contrasting motivations, there are transaction opportunities that will be able to satisfy the goals of both parties. However, it is imperative that the physician partners and key members of the group are upfront with one another about these motivations in order to implement a game plan to satisfy all parties. This game plan will be set in motion by the internal “Leadership Team”.
Assembling Your Leadership Team
Identifying the internal leadership team is the next vital step that needs to be taken. This leadership team will be the voice of the group during the transaction process to assure that any actions taken are in the best interest of the group as a whole. Without an internal leadership team, there tends to be “too many cooks in the kitchen” leading to an inefficient process. Prospective buyers spend too much time and resources on these transactions that if they see the transaction process being too burdensome, they will simply move on to other available opportunities. Individuals who should be included/considered for the leadership team include:
• Prominent Physician Shareholder(s)
• C-Suite Executives
• Other Key Group Members / Primary Decision Makers
Identifying an External Team
One of the first tasks to be undertaken by the internal leadership team is to identify the external team, such as healthcare investment bankers. In the past, physicians acquiring other practices simply looked at high-level data points of the target acquisition, such as their patient log and payor mix, to determine what they were willing to pay. However, transactions have become much larger and complex throughout the years in addition to both the healthcare and finance industries progressively becoming more heavily regulated. Consequently, the buyers have become much more sophisticated as well. Therefore, bringing in an external team becomes a critical part of the initial process. Practices that attempt to go through the transaction process without the expertise of an external team reach a successful closing less than 30% of the time, leading to a waste in time and resources for many key members and employees of the practice. Depending on the external team brought in to take point on the transaction, the success rate increases three-fold. Additional value-added by hiring an experienced healthcare investment banking team includes:
• The industry experience and bandwidth necessary to manage the M&A process and strategy, enabling management to focus on running the business.
• Maximization of business valuation and leveling the playing field between the small physician-owned sellers with the large private equity or publicly traded buyers.
• Educating and coaching the leadership team, i.e. framing the business to highlight the strengths and minimize the deficiencies.
• Negotiating the transaction and having the tough discussions with the buyers. After all, you will be partners with the buyers after closing.
We’re here to help. Give us a call today.
With a 98% success rate for closing transactions on behalf of our clients, The Bloom Organization should be the first call made by your leadership team. With over 30 years advising physicians, The Bloom team draws upon decades of industry experience to understand how various healthcare services and providers can add value to one another. Our team of experts is watching the recent events closely and prepared to assist medical practices and surgery centers with both operational and future considerations to ensure long term sustainability and success.
To learn more or inquire about transaction opportunities, contact us today.
Phillip Russo, Vice President firstname.lastname@example.org 305-974-0700
ABOUT THE BLOOM ORGANIZATION
The Bloom Organization specializes in healthcare transaction advisory. Our clients turn to us for negotiating the strategic partnerships, joint ventures, acquisitions, leveraged buyouts and other transactions that maximize return. With closed transactions representing more than $5 Billion in market capitalization, our leadership team of professionals has developed unmatched relationships with healthcare providers and industry professionals. We understand that healthcare, more than any other industry, requires a deep understanding of the strategic value of both buyer and seller. We seek to create value for both the short-term needs and long-term goals of our clients.
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