You’ve been contacted by an MSO, and they’ve invited you to join their network of practices. They’re backed by private equity, and they tout 10x or more exit multiples. But where does the majority of that exit money go? Do you get a say in your future after that sale?
Before signing that LOI – make sure you get answers to the following questions so that you, the doctor, can maximize your outcome.
What happens after I join the private equity-backed group?
They say that you will retain autonomy but many decisions will be made by the MSO. For example, some MSOs pressure you to maximize revenue, which may mean seeing patients faster or focusing on higher margin services. An MSO may also push you to use their preferred suppliers and make hiring and firing decisions in your office. Are you ready to give up this control? Or are there alternative structures where these decisions can be shared?
How does private equity work with oral surgeons like me?
The MSO’s PE partner is important because they ultimately call the shots, including determining how to maximize income. What kind of culture will the PE firm create? Will doctors have a seat at the table? Are doctors treated with respect? How many times have they worked with doctors in the past? It’s also important to know what the firm’s objectives are. A growth firm will focus on finding additional partner practices while other firms may focus on squeezing every nickel out of their existing partner practices.
When does the MSO plan to sell, and will I have a say in who the MSO sells to?
It’s important to understand if you will have the ability to grow your EBITDA before a sale and how long you will wait until you get your second bite of the apple. (More on that below.) Also, you may like the current manager, but they may sell in a year to the highest bidder – do you have any say in the terms of that transaction or how it will impact you and your practice?
I got a 10X EBITDA multiple; that’s great, right?
“Our practice has over $1mm of EBITDA, and we got a 10X EBITDA offer; that’s great, right?” WRONG. Did you ask what the terms of your stock ownership are? How was the share price determined? Is your ownership at the same level as the private equity firm, or did they push your ownership down to only your practice level? Did they include the growth in your rollover in that calculation?
Some firms are touting growing your rollover 5 – 6x; that is possible but the average MOIC (multiple on invested capital) on the rollover is 2.5x, so it isn’t a conservative estimate.
The answers to these questions could cost you hundreds of thousands in lost returns.
My broker told me the buyer is going to pay the fees for joining, how does that work? What does the rest of the transaction typically look like?
This is one of the biggest myths out there. Rest assured, if the broker is going to make the buyer pay the fee, it will mean fewer proceeds for you. Bottom line: negotiate the fees upfront based on how much work the broker will actually do. In a typical MSO deal, you will sell 100% of your practice and reinvest 20-30% back into the MSO. They will work with you to grow your EBITDA, but that means that they walk away with 70-80% of the improved EBITDA while you only get 20-30% of that increase.
Wouldn’t it be better to find a partner with which you could grow your EBITDA before you sell to a PE-backed group? And own 91% of your practice upon a sale, so you benefit directly from that growth?
Allied OMS is a doctor-owned private equity firm in the OMS space, and we’re committed to maximizing the value of your practice before your first bite of the apple.
We don’t have a share price; we have a tracking stock
We help you grow your EBITDA before a sale
Our doctor-run Board of Directors means doctors have majority control and make all decisions regarding exit
Doctors get 91% of proceeds from a future sale
Don’t let the overflow of emails from MSOs promising high exit multiples keep you from understanding the deal you’re taking.
Contact us to schedule a 15-minute intro call and learn more about how we best serve doctors.