Across ophthalmology, private equity is a hot topic. Some practices are pursuing equity partners, others are being pursued, and our major national meetings now feature content and conversations about the emerging trend.
As we enter 2019, private equity and acquisitions is certainly something that should be on your education list.
Before you make any decisions about private equity, there are five key questions you should consider and discuss with your family and business partners. These questions can help you decide if selling your practice to private equity is the right decision for you, and which equity partner you should choose:
1. How well do I understand how private equity works?
The field of private equity is a large one, and it’s only getting larger as more capital groups look to enter the market. Many of the investors know their interests and goals in an equity transaction—how well do you understand your goals and interests? Taking the time to learn about your options and discuss the acquisition experience with others who have gone through the process can be extremely helpful.
2. What do I want my life to be like after the private equity acquisition?
It’s easy to envision continuing your current lifestyle and professional schedule after a sale to private equity, but there are often conditions included in a private equity sale that will affect your daily life. How many days a month do you plan to work? Will you have volume requirements for number of surgeries, number of patients, or revenue? Will you keep your local leadership in place, or will your equity partner bring in national leadership? Be sure to consider and ask very specific questions about life after a transaction so there are no surprises.
3. What will the private equity partner do with my practice after I sell?
It should come as no surprise that private equity groups are in the business of making money. From the initial purchase through each year of the partnership, private equity groups will continue to monitor revenue and expenses very regularly to ensure continuous profitability and efficiency for the practice. In many cases, the equity group may make leadership and cultural changes or other process oriented changes to meet profit targets for their shareholders.
And it should also come as no surprise that the end goal for many equity groups is to package and sell businesses a second time within two to four years for a profit. Be sure you ask and understand the long-term goals of your potential equity partners before making any decisions. You only get to sell your practice one time, but several different private equity groups will own your practice as their buy and sell cycle continues every few years.
4. I’ve heard colleagues talk about a “second bite.” What does that mean?
In a private equity transaction, the “second bite” refers to a second payout the owners may receive when the business is sold for a second time a few years after the initial sale. This is due to the fact that in the initial sale, most owners sell part of their practice, retain a percentage of their practice, and acquire a small percentage interest in the purchasing organization.
It is possible that your “second bite” may hold a sizable payout for you and your partners. However, most “second bites” have risks related to the terms of your initial sale. When you sell your practice and acquire a share of the purchasing organization, you also acquire a share of their debt—including the loan likely used to purchase your practice. There will be interest due on this loan, and that interest amount is often taken from your share of the second sale. Be sure to discuss and clearly understand how the money from that second sale gets paid, who gets paid first and who gets to actually make the decision to sell. You know your practice better than any other owner, so be sure that you believe the scale required to achieve great results is feasible.
5. What are the most important things to find in a possible private equity partner?
Any qualified and credible equity partner will be equally concerned with the partnership fit between you and their organization as they are about your revenue and expenses. It’s absolutely vital that you research and find an equity partner who matches your personal and company values—a group you can trust with your future and your legacy. How do they structure local leadership of the practice after the sale? Who will be involved? If we have disagreements, how will we resolve them in a healthy way? What’s the three, five, and ten year plan for the organization?
In many ways, an equity partnership is a form of “professional marriage,” so treat it like one! Ask questions and ask yourself, “do I feel comfortable trusting these people with my team and patients?”
Century Vision Global is an alternative to private equity. We acquire practices, but we do it in an entirely different way than private equity. The key differences actually make all the difference:
- We work only in ophthalmology, and we understand your business.
- We’ve never sold a practice we’ve acquired. Our vision is long-term growth with you.
- We’ve built a premium support system for our practices to help them focus, grow, and thrive for decades to come.
To see a full comparison between Century Vision Global and Private Equity, click here.
In this new year of 2019, make a resolution to slow down, research, and learn about all the options available to you in the world of private equity. There’s no rush, and more learning will help you make the best decision for your practice. We believe in long-term growth across the entire ophthalmic industry, and this year, understanding private equity should be at the top of your learning list.