Nick Hernandez, MBA, FACHE

There are numerous reasons you may want to merge your medical practice with another. Perhaps you want to expand your practice to new geographic markets or maybe it is a financial necessity, or you simply believe that the practically instantaneous growth produced by a merger or acquisition will help your medical practice achieve new heights and fulfill your goals. Whatever your motivation, you cannot simply pick any random practice out of a hat and try to make it work—you have to find the right match. Mergers or acquisitions are no easy task, and the larger your medical practice the more complex it will be.

The mergers and acquisitions (M&A) life cycle is broken down into three phases: Strategy, Execution, and Integration.For the purposes of this article, I am only going to address the strategy phase.

Strategic planning helps protect you from M&A failures. Just because you want to buy a medical practice doesn’t mean you should buy that practice. There are several questions you should ask yourself when researching target physician practices.

Why do you want to acquire, or merge with, another practice?

Do the target practice’s clinical services fit with your objectives?

What is the value of the target practice?

Does the culture of the other medical practice fit with yours?

These types of questions can help you narrow your choices as you screen the medical practice you are interested in, determine target practice valuations, structure deals, and analyze how your business decisions will give you an advantage in the current market.

Synergy is a combined action or operation. Many medical practices decide to merge with or acquire another practice based on potential synergies that can come from combining similar clinical services and technologies. The following are some benefits that synergy can bring when physician practices merge:

Combine workforces—Identify and eliminate redundancies and restructure workflows to increase efficiency and to accommodate increased business volume.

Combine technologies—Combining similar technologies can help a practice to achieve strategic advantages in your market.

Reduce costs—Consolidation can improve your purchasing power and decrease costs as you negotiate better terms with vendors based on the need for more materials because of increased output.

Market expansion—There is potential that combining medical practices will create an advantage in a particular market, or enter into a market that was not previously available to you.

Here are five key components required for a strong and effective merger.

As in most aspects of business, communication is a vital key to ensuring your merger or acquisition goes smoothly and is the right move for both medical practices. You need to have completely open and direct lines of communication with the key players from the practice with which you want to merge. This is one situation where you absolutely cannot afford to have lines get crossed or have a misunderstanding about each other’s expectations. Be clear and forthright about what you want and expect, and build your new relationship on a foundation of complete honesty.

The merger or acquisition needs to be a win-win for both medical practices. For your merger to be effective, both sides of the transaction need to be improving their situation in some way. One-sided M&As will leave at least one of the critical parties unhappy with the outcome, which does not bode well for your future together. Think of your merger as a relationship—both sides need to bring something to the table that makes the other party better.

Early in the process you need to establish with your counterparts in the “target” medical practice what your soon-to-be combined practice’s new identity will be. You might not be able to practically maintain the identities of both practices. Likewise, it may be practically difficult to completely integrate one group’s identity into the other. What will your vision be for your new medical practice? If you and your counterparts do not agree on a vision for the practice’s future, then the merger/acquisition may not be successful post-closing. Your vision and new identity should be very clearly defined and planned before moving forward.

Speaking of planning, this is another vital component of any merger or acquisition. You cannot just leap into the merger and expect things to work themselves out. Quite frankly, you need to clearly plan out many of the critical details of the transition. Whether you are the buyer, seller, or another major player in the transaction, an experienced transaction consultant can help you plan and execute every step of your transaction.

You may need to establish an integration team entirely dedicated to executing and implementing the merger. There will be many major changes for the employees from both practices, and you need a strong and well-executed integration plan to ensure the transition goes smoothly. There is a great deal to think about with regard to how you will integrate your new identity and culture and you need managers who can focus on this while others focus on continuing the normal focus of your business.Do not execute any closing documents until you have first prepared an integration plan.

When properly planned and executed, a strong merger and acquisition can take the involved companies to heights they never dreamed of. But the M&A process doesn’t happen overnight or even in a couple of weeks. It is a long, complex, and detailed process that requires patience, diplomacy, compassion, and compromise. The ideas and best practices outlined above can help you to remain focused, pay attention to detail, and get the deal done right.

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Thinking of merging? Don't overlook these components of an effective one.

5 Key components for effective physician practice mergers

Oftentimes private practice physicians make drastic mistakes when selling their medical practice and lose thousands of dollars in the process. All their hard work and long-term investment goes down the drain. These mistakes though are often easily avoidable. As small business owners, these physicians had once dreamed of owning their own medical practice and building it to success.As times goes on, they hope to reap the rewards in the form of a successful business sale. Sounds like a great plan! But making the sale is not as easy as it may appear.

Proper planning can mean thousands of dollars in your pocket. Here are four tips to help you avoid medical practice sale pitfalls, disappointment, and lost money.

4 Things to avoid when selling your practice

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Avoid these pitfalls when selling your medical practice.



Mistake 1: Not planning ahead or waiting too long to sell

Waiting too long, or not planning in advance, can cause many physician practice owners to miss their window of opportunity. It takes a considerable amount of time to prepare for and execute a medical practice sale, therefore, long-term planning is key to any successful medical practice sale. Physicians looking to retire quickly and sell their practice within 12 months are way behind the power curve and these scenarios are often a longshot endeavor. It pays to plan ahead; you just never know when that perfect buyer may approach you and make you an offer you just can’t refuse.

Succession planning is a major consideration especially for solo physician practices as I have written about in several other articles.Again, waiting until the last minute (less than 12 months) to plan for your exit puts you at a severe disadvantage. Additionally, the physician "succeeding" you needs to be set up for success. If they see you have been planning and considering this for quite some time and that it's not a quick "I've had enough" sale, your price will be much higher. Add to that the confidence the buyer will have in a medical practice purchase if they see there was a strategy for the sale and that it's not driven out of desperation.

Mistake 2: Not finding the right person to assist you

Finding the right transactional consultant to help you with succession planning and to assist you with the sale of your medical practice is crucial to your success. Often physician practice owners go with the first person they meet just to “list their practice” and get the process going. This can cost you time and money in the long run. Within a few months, you may see no results and have to go on the search all over again. Taking time to interview professionals and looking at a realistic outcome of what is expected will get you going in the right direction. Keep in mind too, that no one is more motivated, passionate and knowledgeable about your medical practice than you.

Setting a very high or unrealistic price tag on a medical practice can lead to a dead-end street. Expecting to get top dollar for a practice that generates little or no profit is simply using bad business sense. Consider your specialty, similar practices, the current economy and your marketplace when pricing your practice to sell.I have also written several articles on medical practice valuations which can help you through that thought process. Remember it is business so don’t take it personally. Look for the most valuable opportunities for your medical practice.

Another mistake is to price the medical practice too low. Sometimes physician owners will price their practices low because they are burned out, suffer from an illness or did not get good advice. Do your homework first. Listen to your professionals such as a transactional consultant. Do research about other medical practice sales before jumping in with both feet.

Taking the first offer may not be a wise choice as this may not necessarily be your best offer. Selling your practice for top dollar with little or no money down along with an extended contract may lead you to lose it all. Medical practice sales can go bad after the new owner takes over. The new owner may lack business experience, have a closed mind or be a poor leader . . . the list goes on and on. A successful medical practice owner makes it looks easy, but change that mix and disaster may strike. When this happens, the new owner may quickly end up in the red. This is why you want to get all or most of the money up front and leave little to escrow.

Evaluate your options and make the best selection for the long term. Ask yourself, is this the best physician to buy and run my practice? Or, can they quickly connect with my patients and referring physicians and learn how to market effectively? When the medical practice sale goes as planned, it creates a tremendous opportunity for both physician owners and the success continues.

Running a medical practice is a tough business—much tougher than people realize. The more planning you put into your sale, the better the price you will be able to obtain. Keep in mind that the prospective buyer will be very suspect of your reason for selling. Have your plan and strategy in place to eliminate any fears. Just like you started your medical practice with a strong plan, sell it with a strong plan as well.

Nick Hernandez, MBA, FACHE is Founder & CEO at ABISA, LLC

Avoid these pitfalls when selling your medical practice.

4 Mistakes to avoid when selling your practice

Every successful physician eventually desires to obtain top dollar for the value of his/her medical practice. They’ve spent the time working it and slaving over it. And many physicians have a good idea, or at least think they do, of the tangible and intangible assets which are housed in their practice. Because of this, many physician owners make assumptions about what their private practice is worth and what type of sale price they should obtain when it comes time to sell it.

Sometimes physicians under-predict the value and sometimes the value is grossly over-predicted (which is more often the case than the former). In addition, Type-A personality physician practice owners can often have a hard time being flexible on a number of aspects during the sales process. The key to being flexible is coming into the transaction with the right expectations. The following will give an idea of how this can be done effectively.

Being flexible on medical practice valuations

When it comes to the worth of your practice, no one—and I mean no one—can question your dedication. That may be one of the primary reasons you went into medicine for yourself in the first place. However, many physician owners may not rightly know the proper valuation of their practice and all of the tangible and intangible assets associated therewith. Whether a physician has a skewed view in a favorable or unfavorable way, it does not matter. What is important is that the physician owner be flexible when going into preparation for the medical practice valuation. Once a proper valuation has taken place, both seller and advisor should be in agreement and see eye-to-eye. Proper preparation in the planning and valuation stage is essential. Make sure you are at least somewhat flexible on price.

Hopefully, you have the luxury of finding that right buyer who is willing to pay more than the book value for your practice. If you find this to be the case, count yourself lucky. However, if fate does not smile upon you that handsomely, then you may have to wait. Downgrading below what your advisor has stated however, may not be wise either, especially if you have the time and are not in a rush to sell.

Some advisors may suggest downgrading the value of your medical practice in order to sell it quickly. As a physician selling your practice, you should beware of such a tactic. Make sure this advisor is not too hasty when it comes to the preparation, valuation and sale of your practice. While you need to be flexible, make sure the advisor you decide on is thorough and fair when it comes time to value and put your practice up for sale. Don’t allow an advisor to leave any money on the table because they simply want to go through with the deal. This type of behavior is simply uncalled for and unethical. Additionally, ensure your advisor has experience with medical practices; while a medical practice is a small business there are very unique attributes of a medical practice that are quite different from other small businesses in different industries.

Certainly you would like an “all cash” deal; that is ideal. Everyone who sells their practice will want to get a premium for the business and have it paid in cash. Unfortunately, that is not the reality for every sale. In some instances, there can be a combination of arrangements which will need to take place when the transaction itself takes place. If the parties are too rigid here, they can miss out on a good deal which could be helpful, but which may not be cash.

When it comes to selling your medical practice, it is like letting your daughter get married to the right suitor. It can be a very emotional experience. Handing over the keys to the Bentley to the next owner can cause some private practice physicians a great deal of frustration and even some rigidity. For instance, some physician owners want to find the right buyer who has the very best fit for the practice itself, its patients, and its referring physicians. While I do not advise taking all emotion out of the process, I do advise to set out to be less picky when it comes to a buyer. For the most part, however, emotion should be moderated and the decision should be based on the numbers as well as who the buyer is.Admittedly, I have found this generally not to be a problem because many physician owners are, in the end, fine with just getting top dollar for their medical practice.There are, however, some instances where selling physicians tend to become quite picky on the buyer.

Valuations take time. Finding and courting buyers takes time. Finalizing the deal takes time. If you are able to be flexible and patient throughout the entire sales process, all will work out just fine. If the deal is right for you and your practice it will take at minimum of six months from start to finish. So, don’t get nervous about selling. If you truly own a medical practice that has real economic value, there is a buyer out there who will certainly want to snatch it up. Having the right network of people in place to find a buyer is extremely important.

While you may not be ready to sell your practice today or even this year, it is best to start courting a transactional consultant early in preparation for your timely exit from the practice. Begin now, prepare early and discuss options with an advisor today.

Oftentimes busy and driven physician owners are afraid of what the next step will hold. Some hold out simply because they want to keep working in the practice because that is where they experience the most fulfilment and purpose. Fear of the unknown next step can be a huge driver for physicians who’ve worked in and on the practice for decades.

Don't make rigid assumptions when looking to sell your practice.

Be flexible when selling your practice

The reasons physician owners decide to sell a practice are as varied as the reasons for starting a practice in the first place. Some practices are sold because no one in the younger generations wants to continue in the business as an owner. In some instances, practice owners may not be actively considering selling when they are approached by an interested party (e.g. hospital, physician practice, or private equity-backed MSO). Because of their fiducial duty to act in the best interest of the practice, shareholders must carefully consider even unsolicited offers.

A buyer’s reason for targeting a practice for acquisition can be equally varied. The target may have developed a market into which the buyer wishes to expand, whether a geographic expansion, patient base, or referral base. The target may have a medical specialty that the buyer believes would be valuable to its business operations. Often larger companies (such as hospital systems or private equity-backed MSOs) can maximize the efficiency of a smaller practice or create other synergies by bringing in-house various administrative functions that otherwise eat away at profits of smaller practices. A buyer may also attempt to literally buy market share by purchasing a competing practice.

Regardless of the motivations from the buyer or seller’s side, the ultimate driver for an acquisition is price. A seller wants to realize a return on investment (as that term is used in the broadest sense), and a buyer wants to realize value in the long term through the target’s business or assets. It is for all these reasons outlined above, that physician owners would be wise to engage experienced professionals to help them first navigate the strategic aspects and then to wade through the transaction details.

Waiting to sell is sometimes motivated by successors or lack of potential successors. Physician owners without succession plans, may need more in-depth planning prior to the sale of the practice.From the acquirer’s perspective, buying a medical practice with an existing succession plan complete with experienced management on board can be a huge incentive for private equity groups operating via an MSO.

For those contemplating succession planning, remember it’s never too soon to start. Succession planning helps you balance both personal and business interests and helps ensure that your family-run medical practice gets through the transition successfully. Without formal succession planning, these practices run the risk of not being sustainable. Some physician owners regard succession planning as simply a question of informally handing over the practice from one generation to the next. They do not want to plan or think about their withdrawal from the business. This reluctance typically arises from a strong sense of attachment to the practice, an aversion to letting go of control and power, fear of retirement, and also the inability to make succession choices between their children. Financial factors often also play a part. Just remember, if you want your practice to survive and your patients to continue to be cared for, you will eventually have to hand off the reigns.

Perhaps you’ve not yet reached the point of business “burn-out.” Those who’ve been there know precisely what it is when they reach it. It’s that place when the practice no longer is the autonomy-providing blessing it once was. Sometimes physician owners continue to work the medical practice until they grow tired of the grind (i.e. declining reimbursements, burdensome government regulations, etc.) and finally reach that point when they say, “it’s time.”

The journey for a physician owner who has decided to sell their business can be a very challenging; both physically and emotionally. It is human nature to put our ‘blood-sweat-&-tears’ into our most valuable assets, and for a physician, this is your medical practice. When you decide that now is the right time to sell, regardless of the reason, it is generally a painstaking process so avoid navigating these waters alone. The following four areas are some of the most common reasons medical practices are sold.

Often today this is the most common reason a medical practice is sold. General fatigue, boredom, and burnout can have very negative impacts on productivity and therefore your medical practice value. When your practice is young and fresh excitement brings you into the office. When that dies, you should consider getting out.

Running a practice requires a significant investment by a physician owner, and this is generally more by way of their time than actual capital. Running the practice becomes a daily routine and it can be very hard to break old habits. Physician owners are generally passionate, driven individuals who love what they are trying to achieve. If they do not reach the “I’m over it” stage, mentioned above, a physician owner will generally stick with it until they can no longer physically keep up. This happens when it is finally time for them to retire.

Life doesn’t always follow the path you intend. Should the physician owner or a close family member be distressed with a major sickness, they will look to sell. Linking to the point above, having your practice ready to sell will help alleviate some extra stress. Divorce is also a common reason for selling a medical practice, sometimes not by choice.

Medical practices that have been running for 10+ years must innovate and respond to the rapidly evolving market; or be passed by. The alternative is selling when the practice is competitive and before these positive trends have passed. This decision can lead to an increased sale price when looking to sell to private equity. What normally gets in the way here is pride and stubbornness.

Selling your medical practice can be financially rewarding as well as give you the personal satisfaction that what you created will continue after you. Your patients will be happy, and the jobs your practice provides will continue. Also, you will give another physician a chance to be a small business owner. While each medical practice owner chases success in his or her own unique way, there are some things nearly all physician practice owners have in common: hard work, determination, a vision of what could be, and the will to make it happen. But there is also another common factor that binds together all physician practice owners: the need to someday transition your practice to its next owner.

A look at the reasons physicians sell their practices.

When is it time to sell your practice?

Proper planning is essential to the execution of strategic initiatives in private practice. Planning is an inherent and fundamental part of leadership, and physicians (and administrators) are the single most important factor in effective planning. Private practice demands a flexible approach that adapts planning methods to each situation, taking into account the activity being planned.It requires an approach that can apply the various aspects of strategic planning that I have addressed in previous articles. This planning approach must encourage rather than stifle creativity since private practice depends on insight and creativity of leaders.

Leaders must always be sensitive to the importance of operational tempo and ensure that planning facilitates rather than inhibits tempo. In fact, effective planning should accelerate tempo by anticipating decisions and actions. This emphasis on tempo, while a guiding principle, is not an unbending rule. You should weigh the advantages of acting more quickly against the advantages of preparing more thoroughly.

Private practice requires plans with the proper level of detail, neither so detailed that they squash initiative nor so general that they provide insufficient direction. The proper level of detail depends on each situation and is no easy task to determine. As a rule, plans should contain only as much detail as required to provide staff members the necessary guidance while allowing as much freedom of action as possible.

Effective private practice planning is based on the recognition that the healthcare environment is intrinsically uncertain and unpredictable. Effective planning seeks not to eliminate uncertainty and risk, but to provide a framework that facilitates effective and focused action in the face of uncertainty and risk. Proper planning also recognizes the limits of foresight in a complex and changing environment like the healthcare industry.Planning should not attempt to impose precise order and control but rather provide enough structure to facilitate necessary cooperation and direction. However, the planning must not create so much structure that your practice sacrifices flexibility, tempo, or initiative (the hallmarks of what separate private practice from hospitals). Recognizing the proper balance in any given situation requires judgement.

The private practice approach to planning sees planning not only as a way of directing and coordinating actions but also of generating shared situational awareness and expectations, supporting the exercise of initiative, and structuring the thinking of leadership. Private practice emphasizes planning as a continuous learning and adapting process rather than as a scripting process. Private practice requires the ability to depart from the original plan to exploit fleeting opportunities.

The private practice approach to planning emphasizes the importance of establishing clear objectives even as it recognizes the difficulty of doing so in a complex, uncertain, and shifting environment like the healthcare industry. Effective planning should generally proceed from the establishing of goals and objectives to conceiving of broad courses of action to the detailing of the practical implementation of those courses of action. At the same time, the conceptual aspects of planning, to include establishing goals, should be responsive to the detailed requirements of execution.

The private practice approach to planning is based on the belief that in typically complex and shifting operational situations, the best approach is usually to plan in rough outline and delegate as many decisions as possible to staff members empowered to act on their own authority. In order to act appropriately, these staff members require a thorough understanding of the overall purpose or goal, which can only be provided by the practice’s leaders.

Planning is a way of adapting the practice to its surrounding in two ways: by designing actions in advance of the need to act and by supporting the exercise of initiative during execution. Because of the unpredictability within the healthcare arena, a good plan should be flexible, allowing us to adapt quickly to a broad variety of circumstances. This obviates the need to develop explicit courses of action for an unlimited number of possible contingencies.The level of flexibility in a plan should be in direct proportion to the level of uncertainty and fluidity in the situation.

Initiative is central to private practice and you should plan with this thought firmly in mind. A good plan does not eliminate the need for initiative, but facilitates initiative. Do not think of a plan as an unalterable solution to a problem, but as an open architecture that allows your practice to pursue many possibilities. A good plan should maximize freedom of action for the future.It is a mistake to think that goal is to develop plans and then implement them rigidly. Your practice will rarely, if ever, carry out plans exactly the way they were originally developed.

How do you design adaptive, flexible plans?

First, establish objectives that are broadly, but not vaguely, defined; objectives which provide latitude in the manner of accomplishment. Second, develop loose, modular plans. These allow staff members to adapt without infringing on other parts of the plan. Third, develop plans with feedback mechanisms designed to provide information about how the action is developing and to identify the need to make adjustments to the plan. You may explicitly design decision points; points in a plan of action requiring a decision about how to proceed in execution. Fourth, design plans of action that permit multiple options in execution. You may design specific branches and sequels, planned alternatives or follow-on phases for likely contingencies, but you should also maintain the flexibility to pursue other options that are not planned. Do not try to develop plans for every possible eventuality and do not develop so many contingencies that the practice cannot prepare adequately for any of them. Fifth, develop plans which provide shared situational awareness and mutual expectations.A common understanding improves the ability to recognize the need to adapt and to cooperate with others while doing so. Finally, develop guidelines and plans that provide a compelling logic for action that makes it easier for staff members to exercise initiative while conforming to the higher purpose. The compelling logic for action finds expression in the leader’s intent for each staff member.

Proper planning can create a framework to keep a practice running when the unexpected occurs.