Announcement

Collapse
No announcement yet.

Partnership Buy-In Post Private Equity Buyout?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Partnership Buy-In Post Private Equity Buyout?

    Hi All,

    New here and hoping for some sage wisdom. I have been working with a private practice and had begun the buy-in process for the partnership track after approaching my 3 years of tenure with the practice. Right around this time, the practice was bought out by a private equity and each of the partners received a generous payout while I received about a 1/3 of that "as a kind gesture," as I was not yet considered an "official" partner due to not having completed my "buy in." I was grateful for this but now my salary has been cut by at least a 1/3 (and potentially more), and am having some remorse because the additional compensation for the buyout only adds up to about two years of reduced income/retirement contributions.

    I was recently informed that I would still be required to complete the full "buy-in" process, which will result in me paying into the practice about 270k. I'm not the most financially-astute person regarding the legal aspects of partnerships but I was under the impression that once a private equity buys out the practice, that there are no longer partners and that all physicians are considered employees. Since I did receive some payout for the buyout and was issued shares of the new PE firm, I presume I may have some grandfathered buy-in liability but am unsure if buying in "in full" makes sense from a legal perspective at this point.

    I'd really appreciate if anyone has knowledge in this area that can let me know if this sounds plausible or legitimate. Thank you!

  • #2
    Sorry about this - you were caught in an unfortunate (to put it mildly) position. It all depends on the contract. It sound as if your company remains intact, but with a new shareholder. I would certainly consult with an attorney experienced in these situations.

    I am also starting to believe every doc going on partnership track should consider adding a clause to their agreement that considers the implications of this event and gives the potential partner certain options. I have yet to see one.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

    Comment


    • #3
      Yeah it was really nice for them to give you 1/3 of the buyout when you had put in almost 100% of your associate time towards becoming a partner. The partners in your group took the other 2/3 of your sweat equity for themselves. The bought out partners are usually obligated to stay 3-5 years to collect the full amount of the buyout. The 1/3 you were given likely comes with similar strings.

      Now you find yourself working in a fake private practice group controlled by a company that does not work for any of the profits being generated. It's very easy for the PE company to ramp up productivity requirements and cut your salary to recoup the money they spent buying out the practice.

      I would be looking for another job.

      Comment


      • #4
        agree with above poster- look for another job if they are still trying to extract a partnership buy in now- there is no more real partnership, the PE group owns you now. Also, expect an exodus of those original partners once their servitude period is up. Sorry this happened to you but at least you got some of a buy out amount, even though you wouldve been better off without the sale.
        Curious- if you stayed would you be writing the check to the PE firm, or your former "partners"? That answer will tell you all you need to know.

        Comment


        • #5
          Since these buyout folks are typically way more sophisticated than an associate in the practice, the terms of your contract will determine everything as far as your options.

          You may not be able to leave now without losing the buyout funds that you received. So you will have to run a spreadsheet to compare the various scenarios. Leave the practice and pay whatever penalties are in the contract, or stick it out to keep the funds you received. You may unfortunately find yourself in a no win situation. If you leave for a better job, you likely have to pay them back. If you stay, your pay is reduced and the workload is higher.

          The senior partners made out well because they got their big payout, and they are likely to depart in the near future once their short term contractual obligation has been fulfilled.

          Comment


          • #6
            Originally posted by zlandar View Post
            Yeah it was really nice for them to give you 1/3 of the buyout when you had put in almost 100% of your associate time towards becoming a partner. The partners in your group took the other 2/3 of your sweat equity for themselves. The bought out partners are usually obligated to stay 3-5 years to collect the full amount of the buyout. The 1/3 you were given likely comes with similar strings.

            Now you find yourself working in a fake private practice group controlled by a company that does not work for any of the profits being generated. It's very easy for the PE company to ramp up productivity requirements and cut your salary to recoup the money they spent buying out the practice.

            I would be looking for another job.
            Totally fake PP group. What exactly are you buying into now with your $270k? You are an employee of a corporation in which you have little say and in which the real owners are profiting from your work. I would pass and look for another job, if it is feasible. It is probably worth having a physician contract specialist with experience in this exact scenario (since I am sure some version of this story has been recently playing out across the country) look at your contract and clarify your options.

            Comment


            • #7
              Does your group own real estate or any ancillary services? The old partners could still retain part of ancillary services and receive distributions from those services. If not, I’m not sure what you’re buying. I guess you could buy more shares of the new practice

              Comment


              • #8
                Thank you all for the helpful replies. I'll definitely heed everyone's advice and will look obtain legal help for additional guidance.

                Comment


                • #9
                  Sorry to hear about your situation Hobbes. I have had a few friends go through a similar situation, one stayed and one left. For those just starting out I strongly encourage all individuals taking a partnership track job at a PP to include wording in the contract as to what happens if the group is bought prior to you becoming a partner.

                  As for this situation, the devil will be in the contract details. Definitely get a lawyer to review. What are you buying with your buy in now? Is your stake diluted by the PE ownership stake? If so has the price of your buy in decreased appropriately? And so on.

                  Comment


                  • #10
                    “I was not yet considered an "official" partner due to not having completed my "buy in."
                    • Seems like old employment contract was in effect.
                    • 1/3 payout in gratitude? No paperwork? It’s called a contract.
                    • Cut in compensation? What does your contract say?
                    • Now complete buy in for $270k? For a non-existent “opportunity”?

                    Sorry for being harsh. It sounds like somewhere along the line you didn’t read or understand documents that were put in front of you.

                    You don’t need to be financially or legally astute to understand basic obligations and benefits. Please use this as a learning lesson. Do your homework and try to pull to together the documents and understand what your contractual benefits AND obligations are at each step. THEN contact legal advice. Having done the reading assignment and homework will make your attorney interaction tremendously more beneficial.

                    It is likely the “1/3 gratitude payout” has legal implications. You didn’t appear to negotiate, simply accepted payment. Both the PE and partners were very much aware, it was part of their negotiations.

                    Try to look at this objectively and determine the best options.
                    • Current employment
                    • New employment and an exit plan based on obligations reviewed by your new attorney.

                    I don’t expect you to understand the legalese or how amounts were determined. You do need to understand the results and your obligations.
                    Sorry for the situation.

                    Comment


                    • #11
                      Originally posted by Hobbes_MD View Post
                      Hi All,

                      New here and hoping for some sage wisdom. I have been working with a private practice and had begun the buy-in process for the partnership track after approaching my 3 years of tenure with the practice. Right around this time, the practice was bought out by a private equity and each of the partners received a generous payout while I received about a 1/3 of that "as a kind gesture," as I was not yet considered an "official" partner due to not having completed my "buy in." I was grateful for this but now my salary has been cut by at least a 1/3 (and potentially more), and am having some remorse because the additional compensation for the buyout only adds up to about two years of reduced income/retirement contributions.

                      I was recently informed that I would still be required to complete the full "buy-in" process, which will result in me paying into the practice about 270k. I'm not the most financially-astute person regarding the legal aspects of partnerships but I was under the impression that once a private equity buys out the practice, that there are no longer partners and that all physicians are considered employees. Since I did receive some payout for the buyout and was issued shares of the new PE firm, I presume I may have some grandfathered buy-in liability but am unsure if buying in "in full" makes sense from a legal perspective at this point.

                      I'd really appreciate if anyone has knowledge in this area that can let me know if this sounds plausible or legitimate. Thank you!
                      You didnt read your contract or the buyout contract? If not, do it now.

                      Comment


                      • #12
                        What field are you in?

                        Comment


                        • #13
                          I'm a PCP. I understand that there was lack of due diligence on my part throughout the process and am motivated to clarify things with an attorney. Thank you all.

                          Comment


                          • #14
                            I don't understand how these practices who have been purchased by private equity firms ever hire new partners/associates. Sure the existing partners get some cash, but new physicians coming into the group just get a private equity partner who sucks 1/3 of the revenue from everyone without actually generating anything.

                            They threw the OP a bone with some cash that will cover the losses for two years, but once that is exhausted, the deal stinks.

                            How can they ever recruit new physicians?

                            Comment


                            • #15
                              Originally posted by Mitchel674 View Post

                              How can they ever recruit new physicians?
                              New grads who dont know any better. A doc coming fresh out of training with significant debt may look at a $300k and think "awesome!" not knowing theyre leaving a significant amount on the table

                              Comment

                              Working...
                              X