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Negotiating contract to include protections against private equity acquisition

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  • Negotiating contract to include protections against private equity acquisition

    Hello all,

    First time poster, long time lurker. Thanks to WCI and all the great forum members for significantly advancing my financial literacy and getting me really interested in this stuff.

    Here's the situation-- I will be finishing my training in the not-too-distant future, and I have been on several interviews in my region of interest (Pacific NW, medium-sized city). I know where I want to be, hence interviewing early. I've received an offer to join a very good private practice group in the location I want.

    By all accounts, it is a good situation. Private practice group, no physician turnover for the past 20 years, good work-life balance, fair base+bonus associate compensation, fair partnership buy-in after a certain number of years, very well-compensated once partnership is obtained. I recognize there is no perfect job, but objectively this seems like a really good gig.

    The one potential concern is private equity. My field generates a lot of revenue, and there is a growing trend in my field of groups being bought my private equity. Partners get 7 figure buyouts, while associates/employees get a slight increase in their salary but never have an opportunity to buy-in to the practice. By some estimates, lifetime earnings are decreased by 60% if a group is bought by private equity while you are an employee/associate.

    The group has said they have no interest in private equity, and I generally believe them. But obviously money talks, and everyone has a price. If a PE firm offered enough, I'm sure they would consider selling.

    They will be sending me a contract soon, and my main concern will be including some sort of clauses protecting me in case the group is bought by PE while I am still an associate. I have a contract lawyer who will help with negotiations, but I also wanted to see if you all had any suggestions on clauses/language that could be included in the contract to help protect me in case the group sells to PE while I am still an associate.

    From talking to colleagues in the field and reading, I've gotten a sense of potential clauses I could include in the contract to protect against PE. Here is my list...

    - a certain monetary penalty that would go to me if the group were sold to PE

    - opportunity to buy-in as an equal partner prior to sale if the group were sold to PE (so I could also get a partner buy-out from the PE firm)

    - opportunity to buy-in as a partial partner prior to sale if the group were sold to PE based on number of years I am employed (i.e. if group is sold in my 2nd employment year, and it takes 6 years before I can buy-in, I could buy-in at 2/6 of a full partner share, so I get some buy-out)

    - any other ideas?

    I recognize that I will have little leverage in these negotiations and realistically, they probably won't agree to any of the above ideas. But I would sleep a lot easier for the next ~8 years (until I make partner) if I could get something in my contract to protect my interests. Any advice/thoughts/opinions is greatly appreciated!


  • #2
    Not knowing what field you are in, are you sure this group is as good as you think it is?  6 years to partnership is a loooonggg time- Why does the group need 6 years to decide if you are a good enough fit for partnership? Are you sure there was no turnover in 20 years? I could be wrong, but they sound like a churn and burn type group - making money off of associates who then leave before the 6 years are up, repeat. When was the last partner "made"? Have you asked nurses/PAs/ancillary staff about the turnover, or asked to speak to the last few people who did leave even if it was 20 years ago?  Not to burst your bubble, but if the group really takes 6 years to make associates a partner, I find it highly doubtful they will give anything in the contract stating what you want (a cut of the buyout before your time).  Feel free to ask, and remember if its not written in the contract,  dont count on getting it. Also, a top concern you should also think about for contracts would be the presence of a non compete/restrictive covenant (if allowed in your state).


    • #3
      1) Number hired, Number exits.

      2) The problem with poison pills is you might be gone intentionally making it void. Contract issue prior to deal.


      • #4
        Thanks for the reply. I'm actually pretty confident that this is a good group. 6 years to partnership is certainly long but it's pretty standard for my field (actually shorter than some other groups). They haven't hired any new doctors for about 7 years, and every single hire has made partner. No associates have left (I verified this by talking to people not affiliated with the group). They could have hired a new doc sooner, but they wanted to wait until they were certain the new person would be busy quickly. I actually know someone that works in the field (that I trust) who interacts with the the practice (non-doctor) and they objectively agreed it's a great group with happy doctors, and they strongly recommended I take the job.

        I totally agree about the importance of the non-compete covenant. That will definitely be a key part of the contract.

        And yeah I figure it's unlikely that they will agree to anything more than possibly waving the N.C. if the group is sold to PE, but I want to at least try.


        • #5
          The success of the negotiation has more to do with who wants the affiliation more, you or the incumbent partners. If they have other interested candidates, they may tell you to pound sand. If they are in dire need for a new hire, they might give in to some of your terms. Heck, maybe they will even reduce the 72 month partnership track to 70 months!


          • #6
            How about ask for a shorter partnership track. Agree 6 years seems unusually long.


            • #7
              Shorter partnership contract.

              Ask for a statement stating non-compete is void if office is sold to a 3rd party.


              • #8
                What specialty are you in? 6 year Buy in is ridiculously long... ours is only 2 years and that comes with significance ancillary income. So unless you're making multiple 7 figures a six-year buying is Ludacris.


                • #9
                  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


                  • #10
                    I'd prefer not to state my specialty, just to remain totally anonymous. Unfortunately 6 year partnership track is pretty good for my field... 7-8 years until partnership buy-in is more common. I will ask them to reduce the years to buy-in but they'll probably say no.

                    And the group actually has already agreed to waive the non-compete clause if they sold to private equity, just to clarify. That's probably as much as they'll be willing to give, but I'm wondering if there is anything more I could realistically try to get. Asking to be made partner early if they sold to P.E. is a big ask obviously, is there anything more realistic I could ask for (in addition to waiving the non-compete)?

                    ACN, when you say you asked for "a protection clause in case they get sold to the hospital," what specifically do you mean by that? Voiding the non-compete?


                    • #11
                      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?


                      • #12
                        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.


                        • #13
                          Do you have any leverage? What will you do if they say no?


                          • #14

                            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.
                            Click to expand...

                            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.


                            • #15
                              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).