Four Keys to the Successful Sale of An Aesthetic Practice

We recently communicated with a well-known aesthetic surgeon with whom we often speak at medical conferences. He alerted us to the fact that his very successful practice was recently acquired by a large “platform” backed by investors, which was looking to expand further nationally. This conversation was neither unique nor surprising.

As wealth advisors to more than 1,500 physicians and practices in all areas of medicine, we have seen this trend in place for over a decade. This consolidation and mergers and acquisitions (M&A) activity has found its way into aesthetic medicine and likely will be here for the foreseeable future. If you are considering a sale or merger, or if it may be a possibility in the near future, you should understand the following four keys to success. Implementation of these pre-sale action items can prove to be extremely valuable whether you end up selling the practice or not.

1. Prepare financially

Preparing the practice financially not only means having the books and records organized and in order but can be more broadly defined as maximizing the value of the practice to a potential acquirer. This can be achieved by creating processes and procedures for everything in the practice—from patient intake and checkout to post-appointment follow up and marketing.

As an example of this hyper focus on processes, one consultant points to a 35-point checklist for cleaning the bathroom that a successful plastic surgery practice uses. Apply that focus to every internal process and patient interaction, and the “systematizing” of a practice becomes clear.

Not only do such systems add value to an acquirer (as they know that this practice is regimented and can thrive through systems rather than by any one person running the show), they also add significant value to the practice. It will run more efficiently on a day-to-day basis, be able to thrive through employee turnover, and will likely be more profitable—even if a sale never occurs.

Preparing the practice financially also includes maximizing EBITDA, which is “earnings before interest expense, income taxes, depreciation and amortization expense.” Nonrecurring expenses, owner-related expenses and excess owner compensation are often added back in the equation. This calculation allows the potential buyer to determine what the practice’s profit would be if the buyer owned the practice and had to pay reasonable compensation to physician employees. Getting a good handle on your practice’s EBITDA today and looking for ways to improve it may prove very valuable, whether or not you sell.

2. Determine the right type of transaction

When it comes to mergers and acquisitions, one size does not fit all. One practice owner might be looking to sell 100% and consider the transaction to be a type of “exit.” Another may be exploring the sale of a majority ownership or minority stake, while others may consider a combination of equity (ownership) and debt. The choice depends on whether the owners plan to relinquish control of the practice, want to add a financial partner to help them grow but stay in control, or hope to achieve some other objective.

Larger practices, especially those with great systems and EBITDA, may consider becoming a platform practice—one that brings on an investment partner and acquires a host of smaller practices in a geographic region.

For smaller practices, the most realistic option is to be acquired/merged into a larger practice. Many of these deals are extremely lucrative, so this scenario should not be seen as a negative.

3. Find the right advisory team

The right advisor team will provide the expertise to make sure the other factors are in place; they will help to properly prepare the practice, maximize EBITDA, and secure the right type of transaction.

The team should start with the personal financial advisor(s) for the partners who can advise the doctors on the ramifications of a transaction on their personal finances and life goals. If a potential deal doesn’t fit with the physician’s personal life and financial goals, why even consider it? The team will always include a certified public accountant (CPA), often from the practice’s CPA firm, and will sometimes involve a special transaction CPA with experience in these types of deals.

A mergers and acquisitions attorney, ideally with experience in medical practice transactions, is essential. He or she will ultimately represent the practice to make sure that the agreements reflect the best possible deal for the practice and its owners.

Finally, the team ideally includes an investment banker who represents the practice. Unfortunately, many physicians do not consider this type of advisor. This is often a mistake, as the investment banker can often add many multiples of their fee in value to the deal, especially those with experience in medical, and even aesthetic, deals.

An investment banker we know, with experience in the space, makes clear that their knowledge of the industry (what deals have transpired at what values) and competitive process (bringing in other potential buyers to create bidding activity) typically put the practice in a much better position. In fact, many bankers work primarily on a “success fee,” which ensures that they do well only if the practice does well.

4. Prepare mentally for the “why” behind the deal

When a transaction occurs, things may change dramatically, including practice operations, physician compensation, and employee management. So that everyone feels positive on the other side of the transaction, each participant should understand his or her personal goals and motivations from the outset.

If you will remain in the practice post-sale, understand your motivation going into the transaction, and think through what your practice and life will look like years after. Consider these questions: Why are you making the deal? Is it because you want to give up administrative headaches and let somebody run the business part of the practice? Will you be comfortable taking direction from others and not being in control? If the motivation is financial, will you be okay with lower ongoing income after the deal is complete?

Conclusion

As mergers and acquisitions continue in the specialty, many aesthetic physicians will eventually consider becoming part of the trend.

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