Knowing When to Bow Out: Planning the Exit

ExpansionPlanning an exit strategy is an important area of business that should not be glazed over.  In a healthcare business like an Urgent Care or ASC, a properly planned exit strategy can help retain the value of the business even after the exiting physician is gone.  The Ambulatory M&A Advisor discusses some of the main reasons that physicians exit, when the best time to exit is, and how to keep the healthcare business functioning and successful.

Neil Ayervais, Shareholder, Attorney with Alperstein and Covell PC says that the decision to make an exit from a healthcare business is a very personal decision for any individual physician.

“It’s true for any professional; at what point is your personal time more important than your professional time.  To what extent does your professional time keep you involved, younger, etc.

I think that personal issues like that are as significant as financial issues.   Obviously, physicians really rely on their retirement plans more than any exit strategy in terms of their stock being bought back and their ownership interest being re-purchased,” Ayervais says.

“I suppose that there is obviously a financial aspect to it, but what I find with physicians is that it really is just a personal choice.  I have had clients leave as early as 50, and others as late as the mid 70s.”

John Anderson, partner with the law firm of Giarmarco, Mullins & Horton PC explains that the decision to leave the business depends on the motivation behind the sale.

“If the motivation behind the sale is financial difficulty; then that can happen at any time. If your business is financially under stress, an exit could occur very early in the life of the business.  However, if you have made a success of the business, and it is a thriving business, the decision of when to sell would be driven by the lifestyle choice of the owner or owners.  If it’s not a decision that is being driven by financial pressure, the decision as to when becomes a lifestyle choice over anything else,” Anderson says.

“Have you reached the point as an owner where you have sufficient wealth accumulated to move to the next chapter in your life?  If so, that would be the time to begin thinking.  If it’s a lifestyle choice, my thought is 3-5 years before you want to make that exit would be the appropriate time to start taking concrete steps toward selling that business.  It takes that kind of time to either find an outside buyer, or to groom an inside successor.”

Anderson says that typically, if it is a successful business, the owner of the business has worked hard for years to make this business a success.  There is a certain psychological element that comes into play in terms of when they are ready to step away.  It has been there life and defined them for a said number of years.  There is a psychological barrier that needs to be crossed.

“In addition, there is also the financial piece of it.  You want to be sure that you are financially prepared to take this step.  Of course, if you’re lucky you can turn this illiquid asset into a liquid asset, meaning money in the bank,” he says.

Bradford Adatto, founder of Byrd Adatto adds that the main reason he sees physicians exit is that the physician is ready to just wind down their practice.

“Either from retirement or just going in a different direction; sometimes that includes building a separate model because they believe they can do it better than it currently is.  Then other times, they are at a certain age where they just don’t feel like being an owner and operating.  They want to get out at that time so that they can stop performing services at that entity,” Adatto says.

Anderson explains that when figuring out when to plan the exit strategy, the earlier the better. He says that in these situations there is no one size fits all, but planning ahead is crucial because there are a lot of moving parts involved in selling the business.

“The quicker you get started on trying to figure out what the exit strategy is, the more organized you are going to be and presumably, the smoother the transition will go,” Anderson says.

Adatto says that while exiting too early before the company has had the chance to flourish is an obvious mistake,  there can also be poor timing where the owner exits too late in the game.

“There definitely is a point of exiting too late when all of your partners have left, and you are sitting there holding the bag.  We have found in our experience that it is best to have all of those things mapped out in the front end.  When you don’t do that, you end up putting yourself in the position of not knowing what the true buyout is or the process you go through to get there,” Adatto says.

He says in the cases where the physician says they will worry about the buyout later; when an event like a death, disability, or divorce occurs and causes the trigger, suddenly a successful company could be pulled under.

On the point of setting the company up for the exit, Ayervais says planning this portion of the exit is one of the most important questions for any practice because of what Ayervais calls the “junior, senior” issue.

Ayervais says this issue particularly occurs with the older physicians who were the founders of the practice.

“They feel that when they leave, they should be rewarded in some fashion; either deferred compensation and/or some significant repurchase of their stock for the fact that they founded the practice, which now has a number of younger physicians in it and is a profitable practice,” he says.

“The younger physicians on the other hand, feel that their value to the practice is only as good as what they are bringing in when they are there.  When you are gone, it’s not like the patients will leave.  The patients will stay with the practice even after the senior physician is gone.  So the younger physicians don’t want to be in the position of continuing to work to pay off the senior physician who is not there anymore.”

Ayervais says the discussions on exiting have to take place years before the senior physicians contemplate retirement.  If the physicians don’t discuss the exit with the owner, then the whole situation becomes very adversarial.

“One of the things that happens is, oftentimes the documents which detail and dictate the buyout arrangement is drafted years before at a time when there is maybe one or two senior physicians, and very few junior physicians.  These documents usually don’t bear relevance to the current circumstance of the practice, which is now very different,” Ayervais says.

“If you don’t address those when you start bringing in more junior people, then you are going to have documents which generally reflect the views of the senior people when they first started the practice, and don’t necessarily reflect the realities of the practice at the time they leave.  The earlier you address those kinds of things, the better.”

Adatto adds that when a physician has not gone through planning and they want to retire; especially in situations where a physician has built the practice solo and appointed a younger physician, there can be operational issues.

“If they have not done a good enough job of introducing the younger physician to all of their patients, there is a huge chance of loss of good will and the practice value is a lot less than if the physician continues to stay on afterwards where they physician stays for another six months to a year so that they can transition that physician’s patient mix to the new physician.  Understanding  that transition is very important, because if the patients are relying on one particular physician, and that physician retires within 30 days, that practice worth is basically collapsed,” Adatto says.

Ayervais says in his opinion the involvement of legal counsel during the time leading up to the initial exit is important because as a whole, the situation is not really so much the senior physician, it’s the practice itself.  Ayervais says what often has to happen is the senior physician ends up hiring their own counsel because the lawyer who represents the practice, represents the entire practice which is all of the shareholders.

“The difficulty that you run into as a lawyer is that oftentimes, you have been working with the practice for a long time.  Your general point of contact has been the senior physician; and unless you more insinuate yourself into the practice and talk to the other doctors, they  don’t feel a relationship with you and feel that you are somehow more reflective of the views of the senior physician, than representing the entire practice,” he says.

“It’s very important that you bring these issues to the practice as early as possible, and make it very clear that it is in your interest to mediate and moderate the views of all of the physicians, and come up with a solution that works in some way for everybody.”

If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or



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