Succession Plan/Framework

[DocHenry]

Hi everyone,

I'm a radiologist in a professional company partnership with near equal ownership. My partner is about 5-10 years from their predicted retirement. My partner also fully owns an imaging center that provides the far majority of our professional company's revenue.
I'd like to secure some sort of succession plan with him.
Verbally they have always mentioned that their plan is to sell their share of our professional company and the imaging center to me when they retire; the age of retirement keeps changing bout currently is about 5 years from now.

I softly attempted to see if they would put something in writing about a succession plan when my partner had stated previously that they would be retiring in 2 years and at that time they were unwilling and again just said that my plan is to sell to you when I retire. When I pressed them that having something in writing would be good for me and clarify my future they mentioned, "well that's life and you will have to deal with uncertainty but my plan is to sell to you".
Things between us haven't been the best for the last 1/2 years for many reasons, I think part of it is major differences in the way we want to run our company, partly because of the difference in where we both are in our professional careers.

A major concern of mine is that if the ownership in the imaging center changes, ie: they sell to someone else; that potentially will leave my professional company
without its largest revenue source (devaluing my company greatly). The imaging center is not very well run/profitable but it allows us to own the professional company, which allows us a great deal of flexibility/profit.

I am at a fork in the road in my professional career:
- continue things as is and hope for the best (they sell me the imaging center when they retire or I have enough outside cashflow/investments that if they don't sell to me but someone else I can walk away)
- I walkaway now completely and start my own imaging/professional radiology company
- start my own imaging center and feed our current professional company to do the reads/reports, similar to what they are doing with their imaging center.

I'd like to have a conversation with them again about putting something down in writing about a succession plan; I was thinking that if I can secure at least a 1st right of refusal on a fair market sell price that would give me at least some idea of my future.
I do not want any partial ownership in the imaging center, we have enough interpersonal/interowner issues in our smaller less complicated professional company

What else can I ask for in writing in a succession plan? How can I persuade them it is in the best interest of the companies and them to write a succession plan or at least have a more concrete plan for the future of the companies and my involvement?

I appreciate any and all help! I tried to give an overall good picture of my current situation but please ask me any questions if things are unclear.

[Hatton]

You need a lawyer.

[CordMcNally]

And possibly a backup plan.

[Tim]

"well that's life and you will have to deal with uncertainty but my plan is to sell to you"
Actually says it all. He plans to sell to the highest bidder with no date or time frame. The reality is if you want to buy the whole practice you will need to come to an agreement on the terms and conditions and a price.
I am sure you have read about M&A stories. Some are called a hostile takeover and some are called a merger and some have a deal with a substantial breakup penalty. I would not recommend a right of 1st refusal, you want a time certain and terms that you can live with. You will need professional help in negotiating the deal.
At this point, for you "time is money". He needs to respect that you have to deal with "uncertainty". An agreement is the solution.
The very definition of an agreement. This is not a succession plan, this is a sale of a business. Pure M&A. You happen to be physicians.

[MPMD]

i agree with Tim

as an outsider it sounds like this person is not going to sell this to you so i would not put your eggs in this basket.

[xraygoggles]

Yea - sounds like they will most likely sell to some private equity or conglomerate. That's been the trend lately.

[VentAlarm]

That sort of flippant response is kind of a nonstarter. Some people are just jerks - I try to avoid them as much as possible.

[Panscan]

Hi everyone,

I'm a radiologist in a professional company partnership with near equal ownership. My partner is about 5-10 years from their predicted retirement. My partner also fully owns an imaging center that provides the far majority of our professional company's revenue.
I'd like to secure some sort of succession plan with him.
Verbally they have always mentioned that their plan is to sell their share of our professional company and the imaging center to me when they retire; the age of retirement keeps changing bout currently is about 5 years from now.

I softly attempted to see if they would put something in writing about a succession plan when my partner had stated previously that they would be retiring in 2 years and at that time they were unwilling and again just said that my plan is to sell to you when I retire. When I pressed them that having something in writing would be good for me and clarify my future they mentioned, "well that's life and you will have to deal with uncertainty but my plan is to sell to you".
Things between us haven't been the best for the last 1/2 years for many reasons, I think part of it is major differences in the way we want to run our company, partly because of the difference in where we both are in our professional careers.

A major concern of mine is that if the ownership in the imaging center changes, ie: they sell to someone else; that potentially will leave my professional company
without its largest revenue source (devaluing my company greatly). The imaging center is not very well run/profitable but it allows us to own the professional company, which allows us a great deal of flexibility/profit.

I am at a fork in the road in my professional career:
- continue things as is and hope for the best (they sell me the imaging center when they retire or I have enough outside cashflow/investments that if they don't sell to me but someone else I can walk away)
- I walkaway now completely and start my own imaging/professional radiology company
- start my own imaging center and feed our current professional company to do the reads/reports, similar to what they are doing with their imaging center.

I'd like to have a conversation with them again about putting something down in writing about a succession plan; I was thinking that if I can secure at least a 1st right of refusal on a fair market sell price that would give me at least some idea of my future.
I do not want any partial ownership in the imaging center, we have enough interpersonal/interowner issues in our smaller less complicated professional company

What else can I ask for in writing in a succession plan? How can I persuade them it is in the best interest of the companies and them to write a succession plan or at least have a more concrete plan for the future of the companies and my involvement?

I appreciate any and all help! I tried to give an overall good picture of my current situation but please ask me any questions if things are unclear.

wait so are they 2 years away or 5-10? Those are quite different.

Why are all your options involving starting your own imaging center? You couldn't just join an existing PP or academic group or even do tele? I think there are a lot more options than you are considering long term.

If you are a 2 man show, is a private equity/tele group even going to be interested in it? Frankly you may be the only person that is interested in buying the thing, especially if it doesn't really make money.

[childay]

wait so are they 2 years away or 5-10? Those are quite different.

Why are all your options involving starting your own imaging center? You couldn't just join an existing PP or academic group or even do tele? I think there are a lot more options than you are considering long term.

If you are a 2 man show, is a private equity/tele group even going to be interested in it? Frankly you may be the only person that is interested in buying the thing, especially if it doesn't really make money.

That was my thought, why buy a nonprofitable center? But I'm not a radiologist

[EastBayHand]

To offer a slightly different view.... these situations are far more interpersonal than formulaic and the first response of "you need a lawyer" is great if you want to ensure that your current rocky relationship goes completely off the cliff. So be careful...

I'm in the same situation as you, the younger partner with an impending/unknown retirement of an older partner. It's hard to live life in the unknown. Unfortunately, your partner isn't exactly wrong. In business, there are no guarantees. If you want guarantees, take an employed job. But as you noted, you appreciate the flexibility of your current set up and I suspect the cost to leave and start your own company/imaging center doesn't make any sense right now or you would have done it already.

My advice is to approach this on a personal level and explain to your partner why you need a plan. Appeal to his personal side so he understands your situation. Things like "I have a family and need to plan for what's coming down the road" or "If I'm going to be buying the practice I need to anticipate the costs" or "I want this business that you built to continue to be successful and if we need to find another partner to handle the volume it takes time to recruit someone." There is zero chance you'll be able to force him into giving you a strict timeline based on what you've said, but perhaps you will feel a little more comfortable with some email or non-official timeline or plan so you know that you're both on the same page.

I know this is incomplete advice and different than what others have said... but it doesn't sound like you want to leave this practice right now. And while sometimes you're not on the same page and it can be tough working with someone like that, it sounds like you value and appreciate your practice and staying is better than the alternative.

[Tim]

To offer a slightly different view.... these situations are far more interpersonal than formulaic and the first response of "you need a lawyer" is great if you want to ensure that your current rocky relationship goes completely off the cliff. So be careful...

I'm in the same situation as you, the younger partner with an impending/unknown retirement of an older partner. It's hard to live life in the unknown. Unfortunately, your partner isn't exactly wrong. In business, there are no guarantees. If you want guarantees, take an employed job. But as you noted, you appreciate the flexibility of your current set up and I suspect the cost to leave and start your own company/imaging center doesn't make any sense right now or you would have done it already.

My advice is to approach this on a personal level and explain to your partner why you need a plan. Appeal to his personal side so he understands your situation. Things like "I have a family and need to plan for what's coming down the road" or "If I'm going to be buying the practice I need to anticipate the costs" or "I want this business that you built to continue to be successful and if we need to find another partner to handle the volume it takes time to recruit someone." There is zero chance you'll be able to force him into giving you a strict timeline based on what you've said, but perhaps you will feel a little more comfortable with some email or non-official timeline or plan so you know that you're both on the same page.

I know this is incomplete advice and different than what others have said... but it doesn't sound like you want to leave this practice right now. And while sometimes you're not on the same page and it can be tough working with someone like that, it sounds like you value and appreciate your practice and staying is better than the alternative.

WBD seems to be a master at this. The informal approach is not confrontational. WBD once said the key to negotiations is finding out what the other party really wants and needs.
It might not be the money. Maybe he really wants security on calling the shots when he exits. Pretty easy, you can’t terminate him and he gives 6 months notice at his choice. Fork or the cash and you have a deal. You need to explore what he really wants. Easier said than done. Win/win.

[DocHenry]

Hi All

Really appreciate the insights:

to respond to all the above:

- I have informally spoken to a lawyer friend about the situation, lawyers speak at the extreme, I'm not there.
- selling to a private equity, conglomerate, or local hospital is a good possibility. they seem to be paying overvalued amounts in the last few years.
- Panscan currently it is 5 years to retirement. There are other options, just not any that I would want to do, I have gotten accustomed to the autonomy of a private imaging center and have built a good referral base and would prefer to attempt starting my own thing (prob would have to do tele to pay the bills at the beginning anyway). We are about a 4.5/5 FTE practice, other non partners.
- the imaging center is profitable but really it's the combination with the professional practice that hits the sweet spot.
- EastBayHand - this is pretty much where my thoughts are right now. not in a hurry to buy the imaging center but also don't want to come in one day and find out the center sold to someone else. it would be "nice" to have ongoing discussions about the eventual sale
- Tim also where my thoughts are, I need to figure out what they really want and try to come up with a win-win.

Any suggestions on some win-win types of deals you have heard of or have been part of? I wanted to have a conversation with him about this soonish.

[Tim]

First thought would be a partnership buyin now, and then the structure of his exit from the partnership, with you getting 51% when he leaves.
Secures him and agreed price and allows you protection from a buyout and the right buy the remaining 49%.
Basically 51/49 and he gives you 2% when he leaves, free of charge.
That completely ignores your concerns about the imaging center 5 years. Same as if you continued for 5 years on your path.
This will indirectly force him to deal with the elephant in the room: Purchase Price but let him retain control.
The downside for you would be your exit terms if it didn’t work out. You would probably take some penalty.
Your attorney’s advice should not be heavy handed. It should be a creative solutions seeking agreement.

Bottom line, he might not want to even consider anything.
I had a phone call today asking if I would sell my house. I simply said, “Feel free to make me an offer.” End of conversation. If they want to present an offer, now we have something to discuss.
He legitimately may not be ready.

[EastBayHand]

I understand your situation and desires (I'm in the same boat), but I'm not sure you hold any leverage to create the security you desire. At the end of the day, he has the ability to sell to the highest bidder and that's *most* likely what he will do. *the caveat is that I have heard of the very occasional and rare circumstance where an aging partner sells a practice to a young doctor at a crazy discounted price when they could have gotten more money elsewhere. Don't count on this.

However, not all hope is lost. The fact is that there may not always be another buyer and it would certainly be easier for him to sell to you. There is also no guarantee the new owners wouldn't continue using your corporation for their reports.

My situation is nearly identical in that my partner owned our building (which also has other tenants) and has said from day 1 that "he will sell me the building." He even offered me to purchase a small % during our partnership negotiations as a sort of "down payment" to be paid later when he wanted to sell - which was supposed to be when he retired in 5-7 years (I declined). Well... circumstances changed and he decided to sell last year. Out of "kindness" he offered me the right of first refusal at a valuation I couldn't afford (>$3m) and ultimately sold it to another medical office building owner. I was pretty sad about it for a few days; both my wife and I felt the rug had been pulled out from under our feet. HOWEVER.... I'm now glad he sold it, and I'm glad we didn't buy it. The new property managers are amazing (far better than my partner ever was), and we included an addendum to our lease locking in our COLA as well as 2 opportunities to renew the lease at 10 years each. So now I have the security of my lease for 20 years, but I don't have to be a building owner/property manager.

So at the end of the day, it sounds like the REAL reason you want to own the imaging center is to maintain your primary referral source. In that case, why not just establish an agreement between your professional corporation and imaging center ensuring you are the primary/exclusive radiology group and include very strict language about your ability to renew that contract? Doesn't that solve the bulk of your concern? (*note, I'm not a radiologist and know nothing about how these contracts are written or what restrictions may apply).