Another economic factor – rising interest rates – has not yet affected the volume or velocity of healthcare deals, but higher financing costs may put downward pressure on deal multiples going forward as well.
4. Understand how a potential deal will be financed Given the current interest-rate environment, it’s particularly important to understand how a potential buyer plans to finance its acquisition. An organization that plans to pay with cash on-hand, or one that already has financing lined up, may be in a better position to close the deal, and to do so more quickly. Potential buyers that approach you to make a deal and plan to find the financing sources later may take longer to close the deal, or be unable to close at all.
Taking time away from seeing patients and/or running a practice to talk with investors can mean a decrease in income. It’s useful to understand how serious and prepared a potential buyer is so you can decide how much time and effort to put into negotiations.
5. Know what you want from a sale to negotiate payout structure and post-sale expectations Most buyers want to maintain a practice’s patient volume and quality of care after acquisition, and this can be one of their biggest challenges. To mitigate the risk of volume and quality dropping after purchase, they may set key performance indicators (KPIs) and other benchmarks for clinicians to meet. Buyers may also want a post-deal entity structure that allows clinicians to share in the practice’s profits, as a way of encouraging managerial support and operating expense controls.
If you understand why you’re selling and what outcome you want from the sale, you have a better chance of negotiating post-deal compensation and work expectations that you will be satisfied with. Consider whether you (and your partners, if that applies) are looking to sell so you can concentrate on patient care and not worry about the back-end, or if you’re ready to cut back your working hours or even fully retire. Often, different partners may be looking for different outcomes, so this is a discussion that’s crucial to hold before considering any potential partnership or sale of the practice.
Additionally, it is important for the seller to do their own due diligence on the buyer to assess fit. After all, physicians usually spend years building their practice and reputation. It can be helpful to speak with other practices acquired by the buyer to understand what a partnership may look like to confirm you can get what you want from a sale.