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American Association for Physician Leadership
American Association for Physician Leadership

Selling Your Medical Practice? You’ll Need an Exit Strategy

by John M. Collard

October 18, 2018

Selling Your Medical Practice? You’ll Need an Exit Strategy - Banner Image


Looking to pursue other ventures? Want to maximize your retirement position. There are alternatives for you to reap the spoils of your life’s work.

Looking to pursue other ventures or retire? There are alternatives for you to reap the spoils of your life’s work and investment.

When reality sets in that you are your practice, you’ll have to decide when you want to pack it in and leave. Who will pay for a medical practice when the chief revenue producer is leaving? Not many. What is your exit strategy? How do you maximize your retirement position?

There are alternatives for you to reap the spoils of your life’s work and investment. You can sell your single-shingle practice. Or build a formidable going concern through merger/acquisition to attract attention from private equity or special interest buyers. Or expand into developing a medical facility to leverage a real estate investment.

Build a Formidable Practice

You must build the practice so that it runs without you, using revenue producers (doctors and surgeons) after you leave. This can mean growing the practice into a bankable, scalable, sustainable business before you sell. While small practices are sold, they usually get attention from clinical buyers, hospitals or large medical practices at a low price point, because value is in the patient base.

The real money is in selling a going concern — a company that delivers professional medical services for fees and achieves profit and cash flows — at a higher price point. Your focus shifts from making a living to return on investment for investors. It is critical to have well-documented policies and procedures in place for each business process.

You have built the practice by delivering what patients want and need. Now it is time to shape that practice to emulate what buyers and investors want.

Buyers/Investors look for:

Shown by:

Business that creates value

Consistency, position, economy of scale

High probability of future cash flows

Performance history, patient base growth

Market-oriented management team

Focus on revenue production, growth

Ability to sell, produce, thrive and grow

Track record of patient growth, acquisition

Fair entry valuation

Realistic return potential

Exit options

ROI multiples

Combine to Grow

One strategy that can produce an excellent payday in exchange for your equity ownership position is a combine-to-grow methodology. Simply pursue combining several practices through merger or acquisition, then sell the larger entity for top dollar. The private equity community is very active in this space, where there is a strategic presence in a geographic area, central back-office and reporting systems. But it must be of substance.

Consolidation and roll-up is driven by the complexity, turmoil and risk of practicing medicine today. The new combined practice provides management, compliance, facility, human resources and financial infrastructure so that their doctors can practice medicine.

Partnerships often can be merged in no-cash transactions, where there is a combination of equity interests. The new entity then defines which partners [you] will move on when a selling event occurs, and which new doctors will run operations and move up within the organization. You can take advantage of multiple locations to grow the geographic footprint. The more transactions assimilated, the more that value grows.

Develop a Medical Facility

A different approach: Invest in and develop a medical facility or clinic to create a physical infrastructure. Bring together several doctors as partners who all invest equity to form a limited partnership, which will own and manage the facility. Build a new facility or refurbish an existing building, then lease out the space to the partners’ practices and similar professionals. Raise capital to finance the development and buildout. This approach can form an annuity for the future, or the entity can be sold at a capital gain with a 20 percent to 30 percent return on investment.

RELATED: Private Practice or Hospital? A Choice of Autonomy vs. Reach

You are now leveraging a fully leased real estate investment that provides medical services. Whether the facility is near a hospital system to augment services or in a standalone location, you bring multiple medical services to the population in need. Market analysis clearly indicates that there is a growing need for services as aging baby boomers advance into retirement years. Market analysis also shows a growing market for facilities to provide such services for 20 years into the future.

Board of Advisers

To make these strategies work, there must be a working knowledge about these complicated processes. Bring in a respected third party, like an outside director(s) or a consultant specialist, to guide you. These professionals have gone through this process before. Hiring an expert can establish credibility with potential merger partners, lenders and investors. Often, a bank or creditor will work with a third-party expert where they might hesitate to work with you alone.

RELATED: Encourage Patients to Speak Well About Your Practice (Reputation Matters)

Advisers bring a working knowledge of growing new businesses. They also bring an independent perspective, strategic thinking, objectivity, contacts, capital infusion and transactions. Don’t hesitate to use this newfound expertise as you start a new endeavor — growing a multioffice practice or building a new facility. Advisers can be a resource while you tend to patients.

Raising Capital/Soliciting Buyer Interest

Whether you raise financing or solicit potential buyers for the new business, the approach can be the same. There is a three-step method to get results, money and/or buyers:

  1. Send a personalized transaction overview (term sheet) to thousands of lenders, investors and buyers to solicit their interest. Your email merge function works well for this task.

  2. Send an executive summary, which details the deal, to those who express interest.

  3. For those with continued interest, present them with an operating plan with assumptions and financial forecasts. Be prepared for their detailed investigations.

Most advisers will have a list of lenders, investors and buyers who are looking for deals; some have longer and better-quality lists than others. These specialists can help the process of preparing solicitation documents, perform the email merge function to locate investors and buyers, and negotiate a transaction.




Going Concern


Cash investment

Already there

Small. No-cash deals.

Yes. ROI is high.

Value is in …

Patient base

Many patients.

Real estate lease revenues.

Sell at …

Book value

4-6 times cash flow plus book value.

6 times cash flow
plus real estate equity.

Annuity could be …




Typical buyers

New doctor.
Large practice.

Private equity

Real estate investor.
Health care provider.

Future Involvement

Usually none, after some transition.


Run real estate venture.

Compensation for raising money and/or selling a company varies by adviser, but there will be fees for preparing the process and a “success fee” upon completion of a transaction. Many advisers use a modified Lehman Formula geared to the size of the deal. Expect a percentage fee to be higher for smaller deals, because there is a similar amount of work to financing or selling small deals as there is for larger ones.

RELATED: Driving Engagement, Value and Success in Medical Groups

It is not hard to raise money or sell a practice if you put the right tools in place and the deal is investable. Be the “good deal” and you will raise capital or sell your practice. Remember: Your piece of a larger entity can be much more than if you stand alone.

John M. Collard, is chairman of Maryland-based Strategic Management Partners , turnaround management firm specializing in asset and investment recovery, outside director governance, and investing in and rebuilding underperforming distressed troubled companies.

John M. Collard

John M. Collard is chairman of Maryland-based Strategic Management Partners , turnaround management firm specializing in asset and investment recovery, outside director governance, and investing in and rebuilding underperforming distressed troubled companies.

For over 45 years.

The American Association for Physician Leadership has helped physicians develop their leadership skills through education, career development, thought leadership and community building.

The American Association for Physician Leadership (AAPL) changed its name from the American College of Physician Executives (ACPE) in 2014. We may have changed our name, but we are the same organization that has been serving physician leaders since 1975.


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