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Negotiating contract to include protections against private equity acquisition

Home Practice Management Negotiating contract to include protections against private equity acquisition

  • Vagabond MD Vagabond MD 
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    I understand the desire for anonymity, but will revealing the field really out you? If I were to guess, it would be radiology, but only because of the comments about private equity coming in…

    I know of several groups that are very long partnership tracts, but a lot of them tend to be malignant by reputation. Maybe you’ve found the exception.

    I feel like you can hear rumblings of who is going to sell to the big PE firms if you ask the right people. There have been some surprises in radiology (mostly academic places that got bought out).

     

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    Unless you are a pediatric craniofacial plastic surgeon, or something else rare or esoteric, the specialty is not going to give your anonymity away.

    I doubt that it is radiology. In 2019, no candidate would put up with a 7 year partnership track.

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #219849 Reply
    Avatar Brains428 
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    I understand the desire for anonymity, but will revealing the field really out you? If I were to guess, it would be radiology, but only because of the comments about private equity coming in…

    I know of several groups that are very long partnership tracts, but a lot of them tend to be malignant by reputation. Maybe you’ve found the exception.

    I feel like you can hear rumblings of who is going to sell to the big PE firms if you ask the right people. There have been some surprises in radiology (mostly academic places that got bought out).

     

    Click to expand…

    Unless you are a pediatric craniofacial plastic surgeon, or something else rare or esoteric, the specialty is not going to give your anonymity away.

    I doubt that it is radiology. In 2019, no candidate would put up with a 7 year partnership track.

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    I know of a 10 year track that has a tiered junior to senior partnership track. If you make it to full partner, you reap the rewards. Emphasis on the if.

    I know PE fears aren’t isolated to radiology, it just seems to be the continuous talk on the radiology specific/non-financial forum.

    #219851 Reply
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    Avatar mistahans 
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    OK, my field is retina.

    #219852 Reply
    Avatar EndoRobert 
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    I’d reiterate the comment above about maybe this group isn’t the great group you think it is if you’re worried about them, let’s be honest, (redacted) you while lining their pockets with PE coin.

    Easy for me to say, and 6 years is a LONG time frame, but they’ve had zero turnover in two decades and no new associates in 7 years. So everyone is a full partner now? If they’re willing to sell you out over splitting it one more way they aren’t a good group of happy doctors.

    FWIW, my thoughts are heavily influenced and I feel so strongly because I recently watched an E-ROAD specialty that covers our hospital wait until their last associate made partner (5 year track) before selling out.

    #219869 Reply
    Vagabond MD Vagabond MD 
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    FWIW, my thoughts are heavily influenced and I feel so strongly because I recently watched an E-ROAD specialty that covers our hospital wait until their last associate made partner (5 year track) before selling out.

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    Yup, when we were talking with a PE-backed company in 2015, we had an associate. We planned to make him a partner early, so he could benefit from the buyout. The deal fell through, and we still made him a partner early.

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #219880 Reply
    Avatar dentoid 
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    I should also add that I tried very similar negotiations with my group. I ask for a full buy-in at 2 years, I asked for a Buy in at one year, I asked for a protection clause in case they get sold to the hospital. All were a Swift and quick no. I was told that the main reason was that it is unfair to Prior Partners who are still in their buy-in. I told them that I’m just a better negotiator and knew want to ask, that’s not my fault, but they still said no

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    I always wondered how much a protection clause would decrease the transaction value for a referral based specialty? Every now and then you see them in dentistry and the patient base could relocate down the street where that provide moves too once the non-compete/solicit is null from the sale.

    #219891 Reply
    Zaphod Zaphod 
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    I understand the desire for anonymity, but will revealing the field really out you? If I were to guess, it would be radiology, but only because of the comments about private equity coming in…

    I know of several groups that are very long partnership tracts, but a lot of them tend to be malignant by reputation. Maybe you’ve found the exception.

    I feel like you can hear rumblings of who is going to sell to the big PE firms if you ask the right people. There have been some surprises in radiology (mostly academic places that got bought out).

     

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    derm also, other than that… limited

    #219915 Reply
    Avatar mistahans 
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    Some of the biggest retina practices in the country have been/are being bought out by private equity, and a decent number of multi-specialty ophtho groups or optometry groups have been bought as well. I’ve heard of situations where a practice has no intentions of selling to P.E., but all their referrers get bought out, so the retina practice is forced to sell out. All the graduating retina fellows are pretty worried about groups being bought out by P.E., it’s definitely the elephant in the room at all the retina meetings and job interviews.

    I haven’t gotten any bad vibes or heard rumblings about this group selling to P.E.; quite the opposite, the partners are happy running the group. I also know the market fairly well including their competitors, and P.E. isn’t on the horizon for the region.

    I just know money talks, and things could change in a few years while I am still an associate, so I want to protect myself as much as possible. I have a few friends that have joined retina groups only to be bought out a year or two into practice, so I’m probably a bit paranoid.

    Ultimately every job is going to be a bit of a leap of faith, and this group has already agreed to waive the non-compete clause if they were to be bought by P.E., so that’s probably as good as I can realistically hope for.

    #219927 Reply
    Avatar MD/PhD_wishingitwasanMBA 
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    I am also actively looking at private practice jobs in Urology and buy outs from hospitals/private equity are one of my biggest concerns.

    I haven’t started a negotiation yet because I’m still collecting offers but I would be interested to know how your negotiation turns out. I’ll update this thread if I have anything useful to add.

    It will be interesting to see what sort of clauses Contract Diagnostics thinks will be worthwhile to protect me from a buy out when I get to that phase.

     

    #219951 Reply
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    Avatar bj296 
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    derm – this happened to me AFTER i signed my contract but before i started. did not have a special clause because i had not heard of that at the time. times are very different for us new grads.

    #219958 Reply
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    Avatar wcinewbie 
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    Times are indeed different. Totally understandable to ask for out of the non compete in the event no partnership and a big red flag if its refused for any reason (not fair to the other people).

    #219962 Reply
    Liked by Vagabond MD
    q-school q-school 
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    I don’t understand how an agreement to let you buy in early if they have a deal to sell to PE would even work.

    By definition, if there’s a PE buyout deal, a valuation is established. So then what would be the valuation for you to buy in? Some reduced number? I can’t imagine they would even consider such a proposal. At that point existing partners are agreeing to take money directly from their pocket and give it to you.

    Or if you’re buying in at the valuation established by the PE deal, it’s pointless.

    Am I missing something?

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    i’ve seen it before.  it may or may not be legal, but i’ve seen it before in smaller practices.  it’s never been a deal breaker whether there were 17 partners or 19 partners.  they were simply permitted to buy into partnership prior to the PE buyout.  FWIW, i’ve been in the pre-partner buyout situation as well and was told that it was illegal to allow people even 1 mo away from partnership to become partners prematurely(several hundred physician group).

    #219965 Reply
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    Avatar 8arclay 
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    How enforceable is a non-compete if a group gets bought out in PE like this?

    #220009 Reply
    Vagabond MD Vagabond MD 
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    How enforceable is a non-compete if a group gets bought out in PE like this?

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    Many/most non-competes are technically not enforceable, but the entity that might try to enforce it the non-compete has resources that can intimidate and outlast the young doctor.

    Earlier this year, I signed a contract with a new group, and they had pretty strict non-compete language in it. I requested that language such that any change of control (at the Hospital or at the practice) would void the non-compete, and they agreed to it.

    The problem for me (and possibly the OP) is that the hypothetical new practice owner might view this differently.

    "Wealth is the slave of the wise man and the master of the fool.” -Seneca the Younger

    #220038 Reply
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    Avatar GUtiger 
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    If they won’t give you any sort of early buy in, partial or full, why don’t you ask for a top 1% salary guaranteed for x number of years post buy-out if one occurs. Make sure your employment is protected, though, so they don’t sell and then fire you for begging to expensive. You won’t make the money on the front end, but you could on the back end.

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    Would you mind elaborating on this? Im in the position of being on a partnership track, about a year to 18 months out from reaching it. However, my current group is doing diligence with regards to possible PE. Despite my lower partner-track salary (even lower than typical since I actually negotiated a lower salary to expedite the partnership) I have been the among the top 3-4 earners in a 16 doc group. Obviously Im in a tough spot, and cant see myself not getting the shaft if they go to PE with a buy out. 50-60% career earnings decrease seems about right.

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    If you’re already in a contract that will make negotiations difficult, unless you would really consider walking away. Being amongst the top earners helps, but doesn’t give you any guarantees. If you periodically renew contracts then next renewal period would be a good bet. Otherwise you’re going to have to approach the partners about adding language to your current contract. If you’re very valuable then they may consider it, though it may decrease the value of the practice to PE if there are big required salaries on the tail end.

    If you went this route I would recommend, with a contract lawyer, adding language to the contract that guarantees you a certain salary for a certain number of years post-acquisition with some guarantees about continued employment. You don’t want them to close the deal, then fire you because you’re too expensive.

    It’s definitely worth a shot!

    #220046 Reply

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