When they start in practice, most new radiologists fear one thing more than most. Will a private equity firm buy out my practice even before I make partner? For one, this lousy timing can lead to the abandonment of the promise of partnership. Or even worse, it can cause the loss of a job. We discussed a bit about private equity buyouts in a previous blog. But, this week, one of my residents asked a great question. Is it possible to tell which practices are headed for a private equity buyout? So, I thought that would be an excellent topic for today. (Residents come up with the best ideas!) More importantly, I think this will be helpful for many of you in deciding on which practice to join.
How Old Are The Partners?
You might think that age has no boundaries. But that aphorism does not strike true in the world of ownership. If you are looking into a practice where most or all partners are over 50, you may want to think twice.
Think of it this way. Why would someone over 50 not want to receive a premium buyout when their work life may only last another 5 to 15 years? If you, as a partner, had the option of taking a payout of a few million dollars, you would undoubtedly want to consider it, especially since you can continue to work in the same practice, perhaps at a slightly lower income level. But that does not matter. You have received a flush payment that you can add to your investments for your retirement. You would probably come out way ahead of the game.
On the other hand, if most of the partners are under 50, a private equity buyout would not benefit them as much. Why? These folks would be losing out on a higher annual income than owning one’s practice brings. And these radiologists have many more years of work ahead of them.
Location
Depending on the location, a practice may or may not be enticing to a private equity firm. So, what kind of sites would stimulate these companies’ appetites? If I were a private equity firm, I would want to ensure that the practice has a good payor mix. Therefore, the more affluent the community, the more likely a private equity firm would swoop in and buy an imaging business.
Also, if I were a private equity firm, I would want to ensure that I could rapidly recruit radiologists for my practice if the former employees were to leave. So, I do not wish to choose a very rural location where it may be hard to attract on-site radiologists. Or, I do not want to pick a place that may seem undesirable to radiologists.
Age Of The Practice
This factor is likely one that you probably have not thought much about. However, the age of the practice itself can affect how quickly a private equity firm can buy it out. Suppose a radiology business has had long-standing contracts with a hospital or imaging center. In that case, it is much harder for a private equity firm to swoop in and make a hostile takeover. You may have heard of something called goodwill. If a practice has had a contract for, say, fifty years, the price of that goodwill becomes very high. And guess what? The private equity firm would likely have to pay that price to buy out the practice. Private equity firms don’t like to shell out more money than they need.
What Is The Market For The Other Practices In The Area?
So, if you are looking at a practice and you notice that private equity firms have already bought out most of the other imaging centers in the area, well then, likely, the business you are interviewing at will be next. Generally, it is not a good sign when you are talking to the last independent practice in a neighborhood. Likely, that independence won’t last too long!
Partner Dissatisfaction
Finally, you should get a sense of the “esprit de corps” of the partners in a practice. Who wants to let go of a good thing if everyone is happy? Probably no one. So, if the partners seem satisfied, that goes a long way in preventing the business from getting bought out. So, be careful to interview the partners and talk to colleagues to find out how the partners feel about where they work. Smiles can make all the difference in the world.
What Is The Moral Of All This Talk About A Buyout?
Well, it naturally comes back to due diligence. Joining a practice is a significant decision you should not take, especially when you plan to work there for the next 10, 20, or 30 years. Therefore, the possibility of a private equity buyout should be another factor to consider when you are targeting where to interview. You certainly do not want to be left in the dust as an employee when you find out the partners have taken a deal!
