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Private Practice ENT Buy-in. $25 million discounted valuation for non-voting shares.

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  • Private Practice ENT Buy-in. $25 million discounted valuation for non-voting shares.

    We are an ENT single specialty physician group of 6 physicians and 2 midlevels.

    There are currently two physician equity partners, three income partners, and 1 associate. The three income partners wish to buy in. We are being offered 16% of the shares each. We have each been with the practice between 5-10 years. We received a valuation from our accounting firm from a valuation expert (but non medical / non healthcare expert) that would put a 16% share at 4.1 million dollars. The buy in would roughly increase our salary by 400-450k (they are projecting more in the future). The overall practice valuation is ~$25 million (this is supposedly discounted from $43 million due to it being non-voting shares)

    These are our questions:
    1. Has anyone else had a buy in so high for a private practice physician group for which they have been already a part of for several years.
    2. Is this a good investment? Seems like our ROI will take well over a decade when interest and taxes are taken into account.
    3. Is there a tax advantageous way to accomplish this
    4. How long have the ROI’s been on other practices been?
    5. For a 400k bump in salary what would you pay as a buy in?
    6. Is there a common buy out formula that most groups use when partners begin to retire?
    7. We are trying to negotiate voting rights as well.

    Appreciate any input/help from the community. What price and what parameters would you pay for a buy-in?

  • #2
    I have zero experience with ENT groups but there is 0% chance I would do this. Whose accounting firm? The group's as in the two equity partners' firm?


    • #3
      Is the valuation “expert” the spouse of one of the equity partners? Practices are typically valued at multiples of EBITDA. Private equity deals typically get negotiated in the 4-6 range. Unless the practice is extraordinarily lucrative, the valuation appears to be very high.


      • #4
        Unless there are some sort of unusual assets held by the practice, there is absolutely no way a single specialty group of 6 ENT docs and 2 midlevels is worth 25 million (let alone 43 million with voting shares).


        • #5
          what are you getting for this practice buy-in? if you have been working for these guys for all these years, have they been making money on your collections?


          • #6
            Wow. It’s hard to no where to start with this one. I’m not ENT but ran a large medical partnership for many years. First, partners are partners. You can’t expect to walk right in, but after a reasonable time (2-3 years) everyone gets a voice at the table. Sounds like the top dogs want to have you pay them even more without a voice. If you make 400k more as a partner, that means the equity partners have been taking this from you, year after year. So if you’ve been doing this for seven years that’s already 3M in sweat equity. Private Equity never buys a practice. In essence, they give the practice a loan and expect to be paid back in spades. The difference is in those deals the senior docs may pocket a good chunk and the younger docs pay it back. So if someone can pay you a salary you’ll take and make $400k in profit with 6 docs the practice might generate $2.4M a year. So maybe, just maybe they could sell this practice for $15M with the kicker that all docs would continue on a reduced salary for 2-3years. Sounds like the “equity partners” have more than earned your share of the practice in 5-10 years you’ve been there. Unless this is a boutique practice doing nose jobs for the stars the financials don’t make sense to me. If this is a bread and butter practice and you’ve been there 5-10 years without equity I’d think you’d paid your dues.


            • #7
              I used to do M&A for a living a long time ago. There is zip zilch zero chance that this valuation is in any way legit. Also beware the projected increase in revenue, I have never seen a business achieve the increased profits projected for the acquisition - if you all have already been working there for years, why would the revenue suddenly increase now after the equity partners start checking out?


              • #8
                How much real estate does the practice own?

                Unless the 4mil buy in includes substantial immediate part ownership in very valuable real estate no way I would do that.

                I agree with others. Know your overhead, know your collections, and find out how much equity partners have been making off you. (5-10 years is more than fair)

                Then personally calculate rough value of current owned assets and divide that buy 6 to get your rough buy in.

                Assuming good practice, 5-10 years of service already provided, tangible assets like owning the building, and I like/trust my partner's i'd maybe go as high as 3x. Meaning i'd consider 1.2mil. Thats assuming i've only been there 2-3 years. In your position it should be less.

                Good luck


                • #9
                  That’s ridiculous. Do you have an enforceable noncompete?

                  how hard would it be for the 3 income partners and associate to leave and start your own practice?


                  • #10
                    $4.1 / $4.5k = 9.1 years of additional working to be a full nonvoting partner. Add that to the previous 5-10 years you mentioned. I think you folks should wave good bye and start off on your own. This is not a money deal, this is a toxic partnership, Just saying, it is a ripoff.


                    • #11
                      Im almost not even mad and kinda impressed at this situation. It is super egregious and so amazing.

                      Things you've learned are really important though. After ten years of your "partners" taking an extra 400k from you, theyre offering you to try to recoup it off future fantasy income, equivalent to another decade of your life? This is so very bad.

                      I dont how or what you could be doing outside having a nice office in Manhattan that is 90% of the value here. Even in pure cosmetics with revenue of 3M on average per doc, this seems insane.


                      • #12
                        That's just nuts... If we told our non-partner GI docs the buy-in was $4m they'd stop laughing long enough to walk out. Insane..


                        • #13
                          I don't think they ripped you off for 400K per year for the past 5-7 years.

                          I think they are making a false promise of increase in salary after collecting your 4.1M buy in. Unless you were grossly underpaid all these years and did not find out about your collections with an I/E statement.


                          • #14
                            It's sad seeing how some private groups take advantage of others. However, did you not discuss a path to partnership when you started? The 4 of you should break away and form a new group away from the 2 equity partners. Easier said than done obviously, but they have been taking advantage of you.

                            This reminds me of Dr. Evil, "100 billion dollars"


                            • #15
                              As others have asked, what kind of hard assets does the buy-in include? Does that include ASC income? Some sort of massive ancillary that ENT might use? Incredibly expensive real estate?

                              That valuation is insane. I typed up a big long response about valuation and EBIDTA but then deleted it, because without more information about what the practice partnership includes, it was too much speculation.