Sponsored by TUSK Practice Sales
Unsolicited offers are a regular occurrence in private equity (PE)-backed marketplaces. PE purchases a platform or group of practices and then must feed and grow that platform to increase underlying profit so it can be sold approximately five years down the line. The most efficient path is to purchase existing profitable practices, which are then incorporated into the broader business. Gaining access to these additional businesses can be difficult in a less mature marketplace, especially when a fully mature business development team has not been built out yet.
Many newer groups rely heavily on “unsolicited offers.” These offers can take on many forms such as mailers, phone calls, emails, door-to-door visits, referrals, etc. But in almost all cases, they rely on limited data, usually a profit and loss (P&L) statement for the last 12 months, to present an unsolicited offer for the purchase or partnership of your medical aesthetic practice.
To truly understand the risks associated with an unsolicited offer, you have to understand the PE investment strategy. Their goal is to purchase as many individual practices at the lowest possible price, combine them and sell them off as a package for the highest possible price. The price discrepancy between buy and sell is called “arbitrage,” and it is how PE groups make their money and secure additional funding for future investments.
With that in mind, there are numerous parts of the deal process that can degrade the value of your practice, lowering the overall investment the PE groups must pay at the front end. This is a normal part of the process. They are looking for discounted deals, especially ones in which they can control the flow of data, participants and narrative with the seller. If you are in a situation where you are “negotiating” with a PE-backed management service organization (MSO), just understand that they may be absolutely amazing people, but ultimately, they were formed to make money for their investment partners. In many cases, it will benefit you in the long term; however, in the short term, it can have a significant impact on the value of the practice.
The Fix
From the beginning of the sales process through closing, you should have an advocate (broker) who understands the underlying financials of the business, can argue the mechanisms that drive profitability, and will properly communicate the long-term market value of your business. The right advocate can also ensure you have a chance to see the entire market, understand the full value of your business across multiple platforms, and negotiate with multiple buyers at the closing table. There is no downside. Market research clearly indicates that sales transactions that have a broker involved have between 20% to 40% higher overall transaction value net of fees. It is a win-win situation for every practice owner.
About the Author
Josh Swearingen
Josh is the director at TUSK Practice Sales and has over 15 years of leadership experience in the healthcare industry. He most recently served as the CEO for Vesper Alliance, a management service organization located in Cincinnati and Columbus, Ohio. Josh is also the co-founder of Reverse Aesthetics, a medspa and anti-aging practice in Columbus, Ohio. The Aesthetic Guide readers can receive a free market analysis of their practice. Contact josh@ tuskpracticesales.com for more information.
