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Selling Your Plastic Surgery Practice In A Private Equity Environment

It comes as no surprise that as the complexity of the prospective buyers for your practice increases, so do the deal terms and conditions leading to a successful transition. This complexity leads a lot of sellers down a path that seems incredibly easy at the outset, only to unravel due to unforeseen complications, valuation changes, or even worse, a final deal structure that largely favors the buyer. It’s a new world when dealing with private equity and venture-backed purchasers and navigating that water successfully can lead to generational wealth creation, a successful partnership, and a post-close environment free of regret. Here are a few things to keep in mind when considering a sale of your life’s work.

Understand the Buyers: The first step is understanding what you don’t know. Most of the buyers are either PE or they are MSO groups backed by PE. They are well-trained in the financials surrounding a business and all the deal terms relevant to a financial transaction. They understand all the levers that play into their favor both during the closing process and well past the close of the transaction. When they control the process, the deal will reflect what their goals are, and likely not yours. Unlocking the full value of a transaction has as much to do with properly protecting the back-end value from a structure standpoint, as it does the front-end cash at close that many focus on.

Financial Due Diligence: Understanding your underlying financials is an important part of the process, but ensuring that those financials are respected, and the final deal terms accurately reflect those financials throughout the process is more important. All transactions are based off a net cashflow measurement known as EBITDA. Earnings Before Interest, Taxes, Depreciation and Amortization. Properly determining what your true EBITDA is requires a full rebuild of your financials from the general ledger up, complete with addbacks, non-business expenses embedded in the business, one-time costs, and a full understanding of provider compensation that would be utilized post-close. When controlled by the seller’s advisor, there is an assurance of accuracy in the numbers. When controlled by the buyer, they are incentivized to whittle this number down as low as possible to lower the value of the deal as a whole.

plastic surgery valuation

Proper Deal Term Negotiation: In the sales process, you’re going to hear terms like EBITDA, multiple, holdback, earnout, cash at close, rollover equity, indemnities, claw back, and numerous others – and that’s likely on just the first page of the contract. While EBITDA and multiple are often the focus, as buyers fully understand, it’s the remaining deal terms that actually dictate the true value and likelihood of attaining that value throughout the life of the partnership. As a buyer at one time in my career, I would happily provide you with a 20x EBITDA offer for your business (WELL over market value) if you’ll allow me to dictate all of the other terms and conditions of the deal. The devil is in the details and understanding/controlling those details and the narrative are far more important than your EBITDA or multiple.

Having an advocate: This is not a process for the faint of heart. At their core, buyers are heavily incentivized to buy low and sell high. In fact, the primary method of “growth” for these companies are to buy numerous individual locations at the lowest price possible, bundle them all together and sell them all as a group for the highest price possible. This is called arbitrage. With that as the basic core value of these investors, you need to understand that the process is heavily tilted in their favor. Having a deal team complete with an M&A transaction advisor, personal wealth planner, attorney and accountant is critical in helping you to navigate the more complex aspects of the sale.

Unlocking the full potential of your practice value is a process that’s replete with risk. A basic understanding of the process, terms, players and your team will go a long way towards mitigating downside risk and ensuring a successful, regret-free transaction.

Josh SwearingenAbout The Author: Josh Swearingen, Director at TUSK Practice Sales has over 15 years of leadership experience in the healthcare industry, most recently serving as the CEO for Vesper Alliance, an MSO located in Cincinnati and Columbus, OH. Josh is also the Co-Founder of Reverse Aesthetics, a medical spa and anti-aging practice in Columbus, Ohio. Josh received his B.S from THE Ohio State University.