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| Dear Friend,
Bad advice.
There it was on the broker’s site, the business broker, that is. The context was the sale of various healthcare facilities, deals which, by definition, involve the sale of less than 100% of the business. Picture, for example, the typical acquisition of a surgery center, with the selling physicians remaining on as co-owners.
The offending “advice”? — That the broker would work to get you, the seller, as much money as possible because the sale was, after all, a once in a lifetime event. And that is the problem.
Across all industries, the huge majority of companies, perhaps as high as 70% or more, desiring to find a buyer never actually sell. Why? Because the seller or sellers stake the deal on making a killing, hoping to pull out all that cash that they failed, or were unable, to pull out all along the way.
The key to success in business is to create a succession of events in which you’re pulling out cash, whether that’s a series of healthy paychecks along the way or a series of building and selling companies. It’s not slapping a high price on a solitary deal hoping that a greater fool on steroids will come along and pay it to you. Real buyers don’t usually fall off of turnip trucks.
Don’t fool yourself that a single ASC tied to a two-person medical practice in middle of nowhere USA sells for the same multiple as a 45-facility deal purchased by publicly traded company. If you pulled out money along the way, you wouldn’t have to worry about it.
There’s another way of looking at it, too. The broker is lying to you about valuation. He’ll let you know when he tells you a few months down the line that you have to be reasonable because, after all, “you do want to find a buyer, don’t you?”
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| | | Business Life in the Time of Coronavirus Mini-Series
The coronavirus crisis caused a short term economic crisis for many medical groups. Our mini-series shows you the way out. Plus, many of the concepts discussed are applicable during both good times and bad.
[If you haven't already seen them, follow this link to watch our entire series.] |
| | Watch Tuesday's video here, or just keep reading below for a revised, more polished transcript:
You're undoubtedly familiar with the term “FOMO” – Fear Of Missing Out – where people are terrified that unless they jump to do this and that they will miss out on some fantastic opportunity.
However, the opposite problem, what I would call “Fear Of Branching Out” impacts many medical group leaders. Let me give you an example:
Pick an avatar, a leader of an anesthesia group at Hospital X -- we’ll call it “Community Memorial St. Mark’s.” Let’s say there’s a cohort of seventy anesthesiologists, maybe CRNAs too, and they’re providing services pursuant to an exclusive contract. They’ve been doing it for fifteen years, and another opportunity comes up five miles away. Do they pursue the opportunity at the other hospital?
No they don’t, because after all, "We have to show we’re dedicated to Community Memorial St. Mark’s. What if the hospital finds out we’re working someplace else? What if we can't manage both facilities?"
Well, these days having a contractual relationship with only one facility is a sign of tremendous weakness, and it's being signaled loud and clear by the group to the facility. The signal of weakness is that the hospital knows darn well that if you don’t enter into a renewal exclusive contract, there is no other reason for your group to exist.
Now think about that, pretending that you're the hospital administrator. You’re negotiating with someone on the other side, and you know that if they don’t take the deal you're offering, they’re screwed. They have no more reason to exist. How much pressure could you put on them?
The same dynamic exists in many other contexts. It could be a restaurant with one location and renewal of the lease. It could be – how about this one – an imaging facility with MRI machines that would cost who knows what, but a prohibitive amount, to move, and you’re the landlord demanding high rent. How high is high?
The same thing happens to you in reverse if you’re a medical group leader and the hospital knows that they have you over a barrel. They make a proposal to you that’s disadvantageous for you, but they know that if you don’t accept it, then the group pulls the plug.
I’ve represented clients in the past who've pulled the plug. They didn’t branch out, didn’t go and cover many facilities, didn’t spread the risk of loss of a contract over the course of many facilities, and they’ve walked, dissolving the group.
But most groups won’t walk, most groups cave.
Don’t put yourself in the position of having to cave simply to preserve whatever vestige of business remains. Build your negotiating strength and do it through building your options.
Think about it. The more options you have, well, the more options you have.
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| | How to Deploy the Secret Sauce of Opportunistic Strategy
Webinar On Demand
They say that COVID-19 has changed the world, creating the "new normal." Many of your colleagues and many hospital administrators are running scared.
Others, leaders like you, know that crisis means opportunity.
Let me provide you with the strategic tools and insights that you need in order to seize opportunities, whether they’re in the context of your current business relationships, the expansion of your business activities, or the creation of new ventures.
You will learn:
•Defense as a defective default: It’s necessary, but not sufficient.
•Exploiting weakness: Drop the guilt and identify opportunity.
•Flat line negotiation is fatal: Understand its myths and limitations.
•Negotiation reality: Learn to identify and deploy on multiple planes to affect the outcome.
•Maneuver: Harness the power of maneuver, both in overall strategy and in specific negotiation strategy.
Others see a crisis and freeze in fear. Learn how to see the opportunities and obtain the tools to increase your odds of obtaining them.
The price to attend is $479. The cost of not attending is astronomical. |
| | | Wednesday - The Covid Impact on Healthcare Entity Valuation - Medical Group Minute
Watch the video here, or just keep reading below for a slightly polished transcript:
Although infection rates (which may be meaningless) and Covid-19 related hospital censuses (which are highly relevant) vary throughout the country, two things are for certain.
First, there remains, and will likely remain for the next year or longer, despite the talk about vaccines, a very high likelihood of additional “nonessential” case shutdowns. Take, for example, the decision last week by New Mexico’s governor to place a new “temporary” ban on elective surgeries.
Second, unless you’re lucky enough to find a buyer with a short-term memory problem (or one run by 30-something MBAs focusing on “getting deals done” to collect this year’s bonus), the value of most healthcare businesses is in the range of 50% less than it was a year ago. For some, that’s a low estimate of the drop in value.
And, here’s a third point for your long range consideration. That’s the fact that governors have become so emboldened to exercise dictatorial power, and the public has been so meek in bending to it, that future shutdowns for other “epidemics,” however defined, are likely. Bad flu season. Shut them down. You think I’m kidding. I’m not. Just wait and see.
So what’s the takeaway for you? Well, depending on just who you are, it means that unless you have developed a unicorn type practice or healthcare business, you need to adjust to the new reality. You need to find ways of making your business far more profitable, far more malleable, and far more resilient, finding every edge in order to (i) pull out current cash so you are not dependent upon a later, large purchase price that might never come; and, (ii) depending on how your business is structured (such as an ASC), to increase EBITDA in order claw your way back up to an acceptable, even if low, valuation.
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| | | Listen to the podcast here, or just keep reading for the transcript.
“Bob, we’ve got to give you your two weeks notice. Here’s a check for the next two weeks’ compensation. Just pack your personal belongings and Jerry, here, will see you to the door.”
Of course, if your medical group has a contract with a facility, say an exclusive contract, it can’t technically be “fired.” But its contract can be “terminated.” If there’s a without cause termination provision, especially a short one, in the contract, it might be a distinction without a difference. You’ll still be looking for a new job.
In times like these, when larger groups are displacing local ones with greater frequency and the power is shifting in favor of facilities and away from physicians, it’s time to rethink agreeing to short without cause termination provisions.
First, especially if you’ve ignored my argument that it’s essential that your group provide services at multiple facilities to create a safety net against over-reliance on one facility relationship, 90 days if not nearly enough notice to either find another “home” or wind up doing business and find your group’s members other jobs.
Second, depending on your state’s laws, the 90 day termination notice period might be a cap on the length of contract damages in the event the facility simply tosses you out without notice or otherwise breaches your agreement.
Termination provisions and provisions governing what happens upon termination are taking on larger importance in any medical group deal.
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| | | Calibrate Your Compass
Read our exclusive RedPaper to guide you through this evolving situation.
The coronavirus crisis caused a short-term economic crisis for many medical groups. Our RedPaper shows you the way out. Plus, many of the concepts discussed are applicable during both good times and bad.
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| | Help Us Help You With Helpful Content
What tailored content would you most like to see during this
time? How can we focus on solutions to your most pressing strategic concerns?
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| | | | We all hear, and most of us say, that the pace of change in healthcare is quickening. That means that the pace of required decision-making is increasing, too. Unless, that is, you want to take the “default” route. That’s the one is which you let someone else make the decisions that impact you; you’re just along for the ride. Of course, playing a bit part in scripting your own future isn’t the smart route to stardom. But despite your own best intentions, perhaps it’s your medical group’s governance structure that’s holding you back.
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| In fact, it’s very likely that the problem is systemic. The Medical Group Governance Matrix introduces a simple four-quadrant diagnostic tool to help you find out. It then shows you how to use that tool to build your better, more profitable future. Get your free copy Free.
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| | | | Whenever you're ready, here are 4 ways I can help you and your business:
1. Download a copy of The Success Prescription. My book, The Success Prescription provides you with a framework for thinking about your success. Download a copy of The Success Prescription here.
2. Be a guest on “Wisdom. Applied. Podcast.” Although most of my podcasts involve me addressing an important point for your success, I’m always looking for guests who’d like to be interviewed about their personal and professional achievements and the lessons learned. Email me if you’re interested in participating.
3. Book me to speak to your group or organization. I’ve spoken at dozens of medical group, healthcare organization, university-sponsored, and private events on many topics such as The Impending Death of Hospitals, the strategic use of OIG Advisory Opinions, medical group governance, and succeeding at negotiations. For more information about a custom presentation for you, drop us a line.
4. If You’re Not Yet a Client, Engage Me to Represent You. If you’re interested in increasing your profit and managing your risk of loss, email me to connect directly. |
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