For physician practices that do go into business with private equity groups or become acquired, there are a number of important items to consider as they prepare for transactions, law firm Foley & Lardner wrote in a Feb. 10 article published in JD Supra.
Here are four things to know for physician practices preparing PE transactions:
1. Broad group support is essential. Shoring up support from the group’s owners and physician stakeholders is “key to a successful transaction,” the authors write. Disagreements and dissension can push out physicians and devalue the group.
Additionally, physicians who stay despite dissatisfaction can make critical negotiations more difficult. Given this dynamic, t having buy-in from the entire group should be a key goal.
“Any sponsor will want the same,” the authors added.
2. Choose the right advisors. “The idea of an expensive investment banker or a large national firm may be somewhat daunting, but the benefits of sophisticated advisors can far outweigh the costs,” according to Foley & Lardner. Committed bankers will be able to evaluate and help select a private equity partner with valuable perspective. Additionally, top-tier bankers and advisors often have connections with the best sponsors, and have relationships based on credibility and experience.
Solid banking advisors also know how to “make a market,” the authors write and are able to drive higher values than the practice could alone.
3. Attorneys are equally important. While there may be a norm or tendency toward using legacy counsel, this may lead to less-than-ideal outcomes for practices if traditional counsel does not understand the structure of the transactions and current market conditions between buyers and sellers.
The authors point out that most private equity firms will benefit from “strong, national counsel,” and practices should match that with their choice in legal counsel.
4. Focus on compliance. “It is not unusual to find that practices have regulatory and compliance issues no matter how careful they have been,” the authors write. This is especially true given the complexity of both state and federal laws, like Stark Law and the Anti-Kickback Statute. Lapses in compliance are typically unintentional, but can lead to devaluation of the group if not discovered until the diligence process.
The authors cite an example in which a practice has a long-held billing method for procedures that, during the course of diligence, had been found to be incorrect or in violation of applicable law. Fixing these issues typically lowers the purchase price of a practice.
