Finances

Is Private Equity for Me? A Quiz to Take to Find Out.

By Steve Sunder

Oct. 10, 2018

Is a buyer backed by a private equity fund right for your practice? As the former president and senior executive of an optometric acquisition company, I might be able to help you figure that out.

Below are questions to ask yourself before deciding to sell to a PE company. In addition, I have included pointers to help you do your due diligence before completing a sale–if you do decide to say yes to a PE offer.

 

Yes         No

☐           ☐ Is your practice a family legacy that you desire to continue over the next generations?

 

Yes         No

☐           ☐ Is the sale of your practice for the money?

 

Yes         No

☐           ☐ Would you like to eliminate small business ownership headaches?

 

Yes         No

☐           ☐ Have you performed your own due diligence on the value of your practice from a certified valuator?

 

Yes         No

☐           ☐ Do you know the objective of the PE firm you’re talking with?

 

Yes         No

☐           ☐ Are you within five years of retirement?

 

Yes         No

☐           ☐ Do you have 10 or more years to practice?

 

Yes         No

☐           ☐ Are you willing to put your capital at risk?

 

Yes         No

☐           ☐ Are there other financial ways to receive the value out of your practice to meet your exit strategy/retirement?

 

Yes         No   N/A

☐           ☐      ☐  If you own a Vision Source practice, have you reviewed your Vision Source contract, as VS has the “first right of refusal” as the franchisor?

 

Yes         No   N/A

☐           ☐      ☐ If you are a VSP provider, have you read the agreement for the following items?

  • Your contract is not assignable to a third party
  • You will no longer own 51 percent of the optical
  • You will no longer have control of the practice
  • Your VSP agreement may be voidable selling to PE

 

Yes         No

☐           ☐ Will VSP or Essilor/Luxoticca buy the practices within the PE firm that made you an offer?

 

Yes         No

☐           ☐ Can you create a high financial return with a sound, financial exit strategy?

 

Yes         No

☐           ☐ Does the PE contract offered to you include a non-compete clause?

 

Yes         No   N/A

☐           ☐       ☐   If so, is the PE home office/regional office in your same city?

 

Yes         No     N/A

☐           ☐       ☐  Do you know the length of your non-compete and the number of years it’s for?

 

Yes         No

☐           ☐ Is the price offered high enough to meet your needs?”

 

Yes         No

☐           ☐ Do you understand how the valuation and offer price was calculated, and is it the correct valuation?

 

Yes         No

☐           ☐ Do you know the EBITDA multiple offered? Is this satisfactory?

 

Yes         No

☐           ☐ Does this purchase price meet or exceed your financial objectives for retirement for funding a new opportunity?

 

Yes         No

☐           ☐ Has your CPA apprised  you of your buyout tax liability?

 

Yes         No

☐           ☐ Are you willing to endure up to a nine-month due diligence process?

 

Yes         No

☐           ☐ Are you willing to take a lower salary?

 

Yes         No

☐           ☐ Will your salary as an employee allow you the same current standard of living?

 

Yes         No

☐           ☐ Could you make more from not selling and retaining full ownership of your clinic?

 

Yes         No

☐           ☐ Are you willing to no longer be the boss?

 

Yes         No

☐           ☐ Are you willing to give up control of what was your practice?

 

Yes         No

☐           ☐ Are you willing to work more hours?

 

Yes         No

☐           ☐ Are you willing to see more patients without more pay?

 

Yes         No

☐           ☐ Are you willing to learn a new EHR?

 

Yes         No

☐           ☐ Are you willing to accept that you may not know what the practice you sold to PE will be like in 3-7 years?

 

Yes         No

☐           ☐ Are you willing to incur expensive legal costs if the PE deal goes south?

 

 

Yes totals = ____________    No totals = ____________

 

If your Yes totals are equal or greater than 28, then I highly recommend the following as you enter into purchase discussions with your selected PE firm:

  • Hire an attorney whose specialty is acquisitions to review all agreements and contracts.
  • Hire a CPA
  • Hire a certified practice valuator for a second opinion
  • Don’t pursue this unless your goal is to grow
  • Consider how the deal is going to impact younger employee physicians in your practice and your ability to hire new doctors as there will be less capital for recruitment and salaries.
  • Ensure the deal passes the two-part “acid test.”
    • The upfront payout MUST take you past your personal retirement objective
    • Not emotionally attached to the practice and what happens to it
  • Interview many PE firms to find the right fit and personality so that you know the firm fully understands optometry and your business model and market. There is not a “One Fit All” PE firm.
  • Ask the firm what their motivation is in your acquisition that may be opposite your motivation as an optometrist.

>>Click HERE, or the image on the left, to download the full report “Private Equity Takes Root,” which includes a workbook portion “The Decision Tree” on determining whether or not it makes good business sense to partner with a private-equity-backed firm.>>

 

 

 

 

 

These articles may also interest you:

Why (So Far) I’ve Said NO to Private Equity

Why I WON’T Be Selling My Practice to a Private Equity Firm

Is Private Equity for Me? One OD’s Experience & Advice.

 

 

Steve Sunder is a health-care consultant with over 20 years experience in the eyecare industry at a multi-location practice, and as a consultant to other practices, as well as former senior executive of an optometric acquisition company. To contact him: steve@sundervisionsolutions.com

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