Realistic Exit Options for a Highly Regulated Industry

ExpansionOwnership of a healthcare business can always bring about unrealistic expectations of value when it comes time to sell or merge the business with another entity.  Planning realistic options for an exit is always the best way to go. so as to not be surprised when dealing with a potential buyer in a transaction.

Thomas Cuccia, managing director of the valuation and transaction advisory division for Altegra Health says that when to start thinking about an exit strategy really depends on the type of business.

Cuccia explains that a physician who opens up a practice take a longer term view.

“They are viewing the professional practice as a career and may look at a 20 or even 30 year exit strategy, because it is their plan to be in their practice for a long time.  A non-professional healthcare business like an urgent care center, tend to have unlimited lives because different doctors will cycle through a surgery center as other doctors want to retire and move on,” Cuccia says.

Cuccia advises that owners run their business with the end game in mind.

“If the end goal is to exit after ten years, then I think you should start thinking about it from almost the first day that you open,” Cuccia says.

As far as when to assemble a team of advisors to help with the planning process,  Cuccia says that two or three years out is when you are going to want to start thinking about getting together a team of advisors.

Alexander Davie, Co-Founder and Member of Riggs Davie PLC says that regarding advisors, legal both legal and financial counsel that specialize in the industry and the exit of a business are key.

For most physician practices in exit planning, the lawyers are there to ensure that the company’s legal matters and record keeping are being handled correctly, Davie says.

“That can be in any number of areas that come into play.  It can be simple things like keeping corporate minutes and ensuring that the company’s formation documents are in proper form.  This is especially important where you have a corporation (rather than an LLC) as there are a lot of formalities needs to be kept up.  In addition, there are other basic things, like having written contracts in place and making sure you get all the required signatures,” Davie says.

“Then there are higher level issues like regulatory compliance.  The biggest items that physician practices have to deal with are usually healthcare regulatory issues.”

Davie says if a physician is looking to sell and has any kind of regulatory issues, buyers are most likely going to figure that out either before the sale or immediately after.

“If they figure it out before the sale it could keep the transaction from going through.  If they figure it out afterward, there can be a lawsuit against the seller,” Davie says.

Always having a third party opinion on the value of the business before going in is a good idea, Davie says.

Matthew Friendly, associate with McDermott, Will & Emery says that there are a number of legal questions involved with the sale of a business that depend on contextual factors, including the structure of the transaction, size of the transaction, and the types of licenses, accreditations, and contracts held by the business.

“At the outset, the parties need to make sure that the transaction is structured in a way that is compliant with both state and federal law.  Then, in the stages leading up to closing, depending on the type of transaction and the type of licenses, accreditations, and contracts held by the business, there may be a number of different legal barriers that need to be crossed,” Friendly says.

Friendly refers to the transfer of certain licenses, particular notices and consents that may need to be given both to regulatory bodies state and federal, or to counter parties to certain contracts.

“Many contracts have provisions requiring notice and/or consent in the event of a change of ownership or assignment of the contract, which can come into play depending on how the transaction is structured.  Depending on transaction size and type, the parties may also need to obtain antitrust or other regulatory approval,” Friendly says.

“For some sellers, it is their first and only sale of a business; this may be the only time in their life where they will be in this situation.  Managing expectations or even knowing what to expect regarding the typical sale process and what are market deal terms is very difficult in that situation.

“It is important to have a team to help run the process and in turn manage the expectations of the exit process, whether that is a team of investment bankers that are helping to shop the business or facilitate an auction process, or legal advisors to draft definitive agreements and help navigate through legal issues involved with the sale of a business.  There can always be unrealistic expectations prior to having gone through a sale process, so it is important to engage an experienced team that can help to manage those expectations.”

Cuccia further emphasizes the need for outside counsel because it is well known that healthcare is a very highly regulated business.  Cuccia says any change in regulation could lead an owner to decide that it might be better to sell now rather than wait until the regulation might have a negative impact on them, and that is why competent counsel is needed.

Friendly goes on to explain that there are several types of exit options available for physician owners of outpatient centers that are looking to step away from their business.

“Specific exit options depend on contextual factors such as the type of business, size of business, current EBITDA, etc.  Common exit options that we see are aligning with a private equity buyer, strategic acquirer, health systems, or hospitals depending on the type of business.  While market driven and industry driven, there are a number of different types of buyers and different types of exit options that are available to potential sellers in the current market,” Friendly says.

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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