The buy-out: question about selling your private group

[WCIFanGirl]

I understand that when a private group sells to a national company/PE, each shareholder typically gets some combination of cash and equity in exchange for lower compensation and less autonomy going forward.

I am wondering, what prevents the physicians in such scenarios from just taking the buy-out, leaving the group, and finding a different job? In order to take the buy-out, does the physician shareholder have to commit to X number of years of employment?

As background I am a full partner/shareholder in my group and frustrated with the increasing productivity demands/decreasing flexibility of our large private practice. I feel like I am already getting many of the "downsides" of PE ownership, and question whether I would want to stay with the current group long enough for my annual distributions to make up for a big one-time cash buyout and a subsequent opportunity to leave and do something part-time or locums.

[Donnie]

WCIFanGirl wrote:

I am wondering, what prevents the physicians in such scenarios from just taking the buy-out, leaving the group, and finding a different job? In order to take the buy-out, does the physician shareholder have to commit to X number of years of employment?

Click to expand...

A non-compete agreement as part of the sale will typically stipulate that you cannot compete with the practice within 2-3 years after selling it.  Typically non-competes have fairly narrow geographic ranges.

[ACN]

I've also heard there are buy-outs that have the stipulation that you remain on staff (an employee now) for X amount of years (usually at a lower income than as private partner).  Once X years are up, then you can "restart" at a new practice.

[lucas]

ACN wrot

 

[q-school]

we did not have anything preventing anyone from leaving after the sale.  however, the original non compete remained in place and you would have to leave town.  incomes were roughly the same afterwards in our situation.

the payout was several years, and some were worried that they somehow would get shorted if they left prematurely.

there was one year where they made a double payment when tax laws were changed to try and reduce the effect of tax change.  i doubt anyone would have been shortchanged by leaving town, but i heard a lot of paranoid comments.

 

[The White Coat Investor]

It's all about the contract. When a typical national CMG takes over a SDG in EM, they typically offer huge buyouts (millions) to the senior partners if any, or smaller buyouts (a few hundred thousand) if it is a truly democratic group with broad ownership. They hope most docs will stick around for at least a few years so they have time to recruit replacements, but don't generally require you to do so. It's relatively easy to replace a few docs quickly with their "firefighters" and the rest over time with new recruiting.

If you do stay on, you're generally paid less (or paid the same for much more work more likely). The longer you stay, the less good of an idea taking the buyout and joining the CMG becomes and the newest recruits and those who would have joined the group later are the ones who are really hosed.

[VagabondMD]

Our proposed deal was 90% cash at deal closing and 10% equity, the latter rolled in over 4 years, 25% per year.

There was a 2 year non-compete, and negotiating this was one of the sticking points because due to the nature of our practice and distribution of our imaging centers, our rads would have been essentially locked out of working in our metropolitan area.

[15hrsaday]

OP, that's a great user name.