Negotiating contract to include protections against private equity acquisition

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

  • Avatar Tim 
    Status: Accountant
    Posts: 3043
    Joined: 09/18/2018
    Earnest refinancing bonus

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

    Might be a problem for new employer as well. Sometimes the attempted enforcement isn’t really about the individual, it’s about the competing group or hospital. Enforceable or not.

    Old employer partners may also have buyout terms that has contingency payouts that your production impacts the performance metrics. Not targeted on you per se, but your production was included in the targets.

    Enforceable or not, it’s a lot of baggage until it’s resolved (court ruling if needed).

    #220049 Reply
    Avatar G 
    Status: Physician, Small Business Owner
    Posts: 1799
    Joined: 01/08/2016

    Interesting discussion.  I wonder if it would be good to ask these questions in person to start; it might be hard to get the proper tone with the written word (although you’re just curious, it could read like a list of demands…).

    #220056 Reply
    Status: Physician
    Posts: 2493
    Joined: 05/01/2017

    Truly fascinating discussion that has made me think about similar groups in my field.

    I think if I were the OP I would negotiate this as hard as humanly possible. OP is a retina surgeon, hardly a dime a dozen specialty like myself (EM) and as such probably does have some leverage.

    I could see this being shot down very quickly but when you think about it that’s pretty unreasonable on the part of the group, especially the leadership. I would spend 0.0 seconds worrying about whether or not this was fair. It’s not fair for groups like this to sell to PE firms leaving a bunch of jr partners holding an empty bag while a few older people skip away merrily. As others have said it’s just your strength as a negotiator.

    I would also be worried that if you did sneak this past the goalie that some future buy out could just be structured in a way so as to dance around your contractual rights on a technicality but that’s just my general paranoia speaking.

    While I have no plans to join a small democratic group, I’ve often thought that if I was in a situation where I had to I would attempt to protect myself against just such a buy out.

    #220071 Reply
    Avatar 8arclay 
    Status: Physician
    Posts: 24
    Joined: 01/30/2019
    GUtiger wrote: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!

    Click to expand…

    Ill definitely have to consider this. Luckily, Im trained in two specialties so could move from one to the other for a couple years in the event of a non compete, although I would much rather not. Itll be interesting to see how this plays out. I wish I had the foresight to consider these things when I initially joined last year, although I dont know how I would have seen it coming.

    #220078 Reply
    Avatar pulmdoc 
    Status: Physician
    Posts: 434
    Joined: 09/19/2016

    The easiest ways to protect yourself against pre-partner buyout heartache:

    1) Short path to partnership. 6 years is a LONG time to be an associate. Sure the partners don’t want to sell now, but what if in 5 years Medicare reimbursements are half and someone’s making a too-good-to-pass-up offer?

    2) is related to #1. As little “sweat equity” as possible. There’s no way it should take you 6 years to pull your own weight in the group. All the time between when you become self-sustaining and when you become partner is sweat equity, with the loss of revenue real but unmeasured. The more sweat equity you have in the group without the benefits of partnership, the more precarious your position. Losing 50% of lifetime earnings from your employer getting bought out is crazy talk. Making less money and having a smaller buy-in is tax efficient (due to marginal tax rates) but is non-transferrable and can’t be cashed out, so if you leave or the group gets bought out its just POOF

    Poison pill contracts sound good but they only protect against a specific scenario. Minimizing sweat equity-even if it means a bigger buyin amount-protects against ALL scenarios where you leave the group prior to partnership, not just a buyout.

    #220398 Reply
    Liked by Tim

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