Whether your hospitalist group has five or 500 practitioners, you and your partners might be thinking about whether you want—or need—to enter into a merger or acquisition in the near future. For some hospitalist groups, mergers and acquisitions could be part of a growth strategy designed to increase geographic footprint, market penetration, or bargaining power. These types of transactions will allow larger groups to increase their competitiveness by being able to leverage investments in such items as information technology upgrades across a larger base of business.
For others, a desire to retire or an inability to either afford or justify certain capital investments needed to remain competitive might be leading some players to consider selling their hospitalist groups. Moreover, changes in the healthcare industry, coupled with the anticipation of tax increases, could factor into decisions to sell practices in the relatively near term.
While each transaction is unique, most tend to follow a similar process, incorporating a number of relatively standard phases that must be undertaken in order to complete a transaction. The transaction process typically takes between three and nine months, although preparations are often best begun in advance of the actual deal process.
Preliminary Matters
For hospitalist group owners and executives considering selling their practice, a number of preliminary matters should be addressed in preparation for a sale. First, potential sellers should carefully consider whether they really wish to enter into the sale process. The sale process is lengthy, time-consuming, and costly, and it is often stressful and demanding on the practice’s management. Thus, potential sellers should not undertake the process unless they are serious about selling and have a realistic expectation of what they will receive as the purchase price.
As part of the preparation, sellers should begin by assembling an experienced transaction team. Typically, the team includes key members of the practice’s management, as well as experienced healthcare mergers and acquisitions attorneys and accountants. These experienced professionals can be of great assistance in making sure that a transaction is executed on a timely basis and under terms appropriate for the specific transaction.
Another prudent step is undertaking a tax analysis to determine the implications of the sale on both the selling practice and its individual owners. This analysis should be performed as far in advance of a proposed transaction as possible, in order to allow time for adjustments to be made (if necessary) to limit the tax implications in advance of the sale. Sellers also will want to use this preparatory phase to make sure that the practice’s books and records are in good order in preparation for the buyer’s due diligence review, as well as to address any issues in order to make the practice more attractive to potential buyers. Some sellers might want to have an investment banker or other qualified professional provide a valuation appraisal of the practice to provide a realistic purchase price.
Finding a Buyer
As a seller begins the process to find a buyer, the seller must first consider the approach that it wants to take. Some larger groups are sold through auction-like processes in which a number of bidders are contacted and invited to participate. The advantage of this type of process is that it typically drives prices higher by introducing competition into the bidding process. On the other hand, this type of process has certain disadvantages, such as a longer time frame and increased risk of a breach of confidentiality.
For some sellers, a more targeted approach, with limited participants, might be more desirable. If a fair purchase price can be obtained without involving multiple potential buyers, the process can be completed faster and with less risk to the ongoing business operations.