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Private Equity buying head doc out. A good deal for Jr docs?

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  • #16
    This seems to come up so frequently, I guess a sign of the times. I understand how it wasnt thought about in past practice formation or hiring decisions. However, going forward I think there has to be something in the contract about buyouts, if theres an offer, vesting schedule in lieu of not hitting partnership, etc...so its all very clear up front. Wont make the brand new hire any happier they get much less, but it wont seem like a trick and it will make sense.

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    • #17
      “you will be (more likely) moving on to greener pastures”
      Keep in mind the Sr Doc will be less willing to compromise on non-competes if the deal falls through. It will not be back to business as normal. Consider carefully your exit options and potential pitfalls. He has demonstrated a willingness to pocket money at the expense of the jr docs.

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      • #18
        What state are you practicing in?- that can affect how enforceable the non compete is.  Personally, unless you are seeing a significant cash bonus, I'd band with the other junior drs and run. The VC will recoup their loss (up front payout) over the long term  (lower but guaranteed salaries).  If only one of you decide to leave, the senior dr will probably attempt to enforce the non compete.  But if all of you leave to set up shop elsewhere, will the senior dr have enough resources to actually go through the process of enforcing the non compete with each and every one of you?  Also, is your non compete so restrictive that he will most likely lose in court? You (jr partners) should all get a lawyer who is familiar with non competes in your state to review your contracts before proceeding.

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        • #19




          The head doc and sole owner of our multi-office practice has decided to sell to a VC or PE group.  All of us junior docs were expecting to be able to buy in and achieve partnership status at some point in the future.  Obviously that cannot occur now.

          The head docs point was that his shares were so expensive due to the valuation of the practice that they were unobtainable for a reasonable buy out number.  Because we are losing any potential partnership he is going to give all of us a small number of shares in the new VC owned company.

          Obviously we would be getting shares for free which is great but all of us would miss the first financing round and obtain no financial benefit.  The gifted shares only have value if the practice goes through another financing/investment round.  I don’t know how those shares could be sold or liquidated and if the company doesn’t succeed in ramping up profits to sell to a future VC group in the undetermined future we all end up with worthless shares.

          I may point out we are all bound by iron clad restrictive covenants so leaving is…challenging…!

          It seems we are all losing a lot (future ownership and control) and may have to now endure a slave-driver management position all to receive shares that MAY or MAY not have some future value.  None of us know how MANY shares are being gifted either.

          Am I asking to much?  He is giving these shares away which on face value seems generous but also ties us to the new company and keeps everyone around instead of a mass exodus.  It may be secretly more self-serving.  It just seems he gets an enormous paycheck from a lot of all of our combined work while we get stuck out in the cold with a carrot dangled out in front of us.

          I would appreciate anyone’s advice or comments on the matter.

           

           
          Click to expand...


          Number 1 lesson learned, never trust when money is involved.  Never sign a non compete that would force you to move if things don't work out.  At this point, get an experienced lawyer to examine your contract to see if the non compete is actually valid.  Even if it is, nobody can force you to not work but may they may be able to monetary damages from you.  Best is to negotiate your way out of the non compete but you could always just quit and open up anyway and see what happens; first couple of years will be stressful.  You could also look for a position at the local VA. Non competes are not enforceable to the VA.

          BIGGEST RED FLAG: Contract assignable.  The only reason for a contract to be assignable is for the owner to sell you.

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          • #20
            Best to be the founder yourself for many reasons.

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            • #21




              The head doc and sole owner of our multi-office practice has decided to sell to a VC or PE group.  All of us junior docs were expecting to be able to buy in and achieve partnership status at some point in the future.  Obviously that cannot occur now.

              The head docs point was that his shares were so expensive due to the valuation of the practice that they were unobtainable for a reasonable buy out number.  Because we are losing any potential partnership he is going to give all of us a small number of shares in the new VC owned company.

              Obviously we would be getting shares for free which is great but all of us would miss the first financing round and obtain no financial benefit.  The gifted shares only have value if the practice goes through another financing/investment round.  I don’t know how those shares could be sold or liquidated and if the company doesn’t succeed in ramping up profits to sell to a future VC group in the undetermined future we all end up with worthless shares.

              I may point out we are all bound by iron clad restrictive covenants so leaving is…challenging…!

              It seems we are all losing a lot (future ownership and control) and may have to now endure a slave-driver management position all to receive shares that MAY or MAY not have some future value.  None of us know how MANY shares are being gifted either.

              Am I asking to much?  He is giving these shares away which on face value seems generous but also ties us to the new company and keeps everyone around instead of a mass exodus.  It may be secretly more self-serving.  It just seems he gets an enormous paycheck from a lot of all of our combined work while we get stuck out in the cold with a carrot dangled out in front of us.

              I would appreciate anyone’s advice or comments on the matter.

               

               
              Click to expand...


              It looks like you've got the situation pretty well sized up.  Obviously it's not a good deal for you.  You are what is being dealt.

              Your options aren't great, but it is what it is.

              As has been suggested, if enough of you threaten to leave upon sale, that will kill the deal.  It would require a lot of coordination, though.  Not nearly as easy as it ought to be.

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