BLOG: Private equity perils
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About 2 years ago, my practice took a deep dive into private equity.
We marketed ourselves through investment bankers and considered a long list of suitors offering varying amounts to buy controlling interest in our group of then 13 (and now 16 and growing) doctors. Ultimately, we decided against selling, although some practices might have appropriately chosen otherwise. We certainly learned several worthwhile lessons about the private equity sale process.
1. It’s a payout. Millions of dollars in sale proceeds would certainly strengthen the retirement portfolio of any aging physician. To a younger shareholder, that nest egg could fund all of his or her eventual retirement. Clearly this is the most attractive element of a PE deal.
2. It’s disruptive. The process of openly sharing every private detail about your practice’s finances and operations will consume hundreds of hours and can be humbling, even for the most efficient practice. All that you’re proud of and all that you’re not will be an open page for potential buyers. The many “getting to know you” dinners will be enjoyable at first but soon begin to blur. Every suitor sounds appealing over wine and a steak.
3. You will lose good people. At the first word of a potential practice sale, staff members begin polishing their resumes. Communicate openly, frequently and honestly with staff and associates about how a sale might affect them, especially your most tenured people. They deserve it. Even if you don’t sell, you’ll change their perceptions, and some will move on.
4. You may gain good people — or not. If you sell, new management — and there will be at least some new management — may be versed in your specialty and have true talent for bringing prosperity and growth. And some may miss on both measures, as you could learn slowly and painfully. Insist on some concrete level of management oversight and accountability to physicians when negotiating with a buyer.
5. Selling may perfectly prepare you for health care’s future. At least in larger cities, consolidation of practices is coming. A larger, deeper-pocketed parent organization may shield you personally and gird your organization from the threat of predatory managed care organizations.
For my own practice, Harvard Eye Associates, we’ve decided our current, rapid pace of independent, organic growth is our best future — one that keeps us in control, retains our best people, and maintains our culture of servant leadership in a collegial medical community that all our doctors, young and old, want to call home.
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