One major ophthalmology trend in recent years has been the prevalence of mergers and acquisitions (M&A). Many of these have taken the form of smaller ophthalmology practices being merged into larger groups, or platform practices, which are often backed by private equity firms looking to acquire numerous practices in a particular region. Perhaps you have participated in this endeavor or know a colleague who has. Many retina specialists are presently considering this trend and wondering if they should be part of it, while others are being actively recruited by financial firms.

Here, we examine four success factors that retina specialists should implement if they are considering a sale or merger.

PREPARE YOUR PRACTICE FINANCIALLY

Ensuring that your practice is prepared for a change financially not only means having the books and records organized but also can be more broadly understood as maximizing the value of the practice to a potential acquirer. This objective can be achieved by creating processes and procedures for everything in the practice that is not clinical—from initial patient intake and checkout to post-appointment follow-up and marketing.

As an example, one consultant uses a 35-point checklist for cleaning the bathroom that a successful practice has put in place. Apply that focus to every internal process and patient interaction, and the “systematizing” becomes clear.

Implementing procedures throughout the practice adds value for an acquirer because the practice runs more efficiently on a day-to-day basis, is able to survive employee turnover, and will likely be more profitable even if a sale never occurs.

Preparing the practice financially also includes maximizing earnings before interest expense, income taxes, depreciation, and amortization expense (EBITDA). Nonrecurring expenses, owner-related expenses, and excess owner compensation are often added back into the equation. This calculation allows the potential buyer to determine what the practice’s profit would be if the buyer owned the practice and had to pay reasonable compensation to the physician employees.

DETERMINE THE RIGHT TYPE OF TRANSACTION

When it comes to M&A, one size does not fit all. One practice owner might be looking to sell 100% and consider the transaction a type of exit from their current practice. Another may be exploring the sale of a majority ownership or minority stake, while others may consider a combination of equity (ownership) and debt. The choice depends on whether the owners plan to relinquish control of the practice, want to add a financial partner to help them grow but stay in control, or hope to achieve some other objective.

Larger practices with great systems and EBITDA may consider becoming a platform practice—one that brings on an investment partner and acquires a host of smaller practices in a geographic region.

For smaller practices, the most realistic option is to be acquired by or merge into a larger practice. Many of these deals are extremely lucrative, so this scenario should not be seen as a negative.

FIND THE RIGHT ADVISORY TEAM

The right advisory team will provide the expertise to make sure the other factors are in place; it will help to properly prepare the practice, maximize EBITDA, and secure the right type of transaction.

Who is on the advisory team? Start with the personal financial advisor(s) for the partners who can advise the doctors on the ramifications of a transaction on their personal finances and life goals.

Always include a certified public accountant (CPA). Sometimes you will also need to involve a special transaction CPA with experience in these types of deals.

An M&A attorney is essential. They will be the person ultimately responsible for representing the practice to make sure that the agreements reflect the best possible deal for the practice and its owners.

Finally, the team ideally includes an investment banker who represents the practice. The investment banker can often add many multiples of their fee in value to the deal, especially those with experience in medical, and even ophthalmology, deals. An investment banker with experience in ophthalmology practice sales has knowledge of the industry (what deals have transpired at what values) and the competitive process (bringing in other potential buyers to create bidding activity), which typically puts the practice in a much better position than if the banker had never been involved. In fact, many bankers work primarily on a success fee, which ensures that they do well only if the practice does well.

MENTALLY PREPARE FOR THE “WHY” BEHIND THE DEAL

When a transaction occurs, things may change dramatically, including practice operations, physician compensation, and employee management. All participants should understand their personal goals and motivations for the deal from the outset.

For example, if you will remain in the practice post-sale, which is quite common, you should understand your motivation going into the transaction and think through what your practice and life will look like years after. This will force you to consider the following questions:

  • Why are you doing the deal? Is it because you want to give up administrative headaches and let someone else run the business side of the practice?
  • Will you be comfortable taking direction from others and not being in control?
  • If the motivation is more financial, will you be okay with lower ongoing income after the deal is complete?

CONCLUSION

As M&A deals continue in the specialty, many retina specialists will eventually consider becoming part of the trend. If a merger or sale becomes a real possibility for you and your practice, you should implement the success factors outlined in this article.

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