New investment provides ‘second bite’ transaction to physician practices
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In this video, Gary W. Herschman, JD, discusses “second bite” transactions in the private equity realm in the health care marketplace.
According to Herschman, a “second bite” transaction occurs when the physician group established by a private equity firm is sold to a larger private equity firm. When a physician practice initially partners with a private equity firm, the physician group receives payment upfront for 70% to 80% of the value of the practice with 20% to 30% roll over equity, Herschman said.
“The investors want the physicians to be aligned and have skin in the game, and that is why there is that 20% to 30% rollover equity,” Herschman, an attorney in the health care and life sciences practice of Epstein Becker Green, told Healio. “So, the physicians’ first transaction where they got the cash is the first bite, and when the investor leaves after 3 to 7 years, the physicians get the second bite. They get additional liquidity, meaning cash, when the new investor comes in.”
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