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| Dear Friend,
Deals die. Why not profit from them, or at least break even?
Although not all M&A deals have them, breakup fees are commonly thought of as fees that a party has to pay, under the circumstances that are delineated, in the event that the party does not follow through and close the transaction.
For example, they're documented by way of language such as this: “As a result of the Company’s refusal to consummate the transactions contemplated hereby which refusal is not permitted by Section 14, a breakup fee of $1,500,000 shall be paid within three business days following termination by the Company to AcqCo.”
In that situation, breakup fees can be seen as a form of expense recoupment or of liquidated damages, and they also involve, depending on the circumstances, a degree of dissuasion or deterrence.
But there’s another less common or even “off label” use for breakup fees: A fee paid to undo the deal after it’s already closed. Although I’ll give an initial example from the M&A context, the concept can be applied in other domains as well.
In the M&A context, consider a deal in which your medical group has sold its practice to “Buyer X”, which could be a PE firm, a hospital, a strategic buyer expanding its existing operations, or anyone else.
As a part of the deal, your partners and you have remained with the practice pursuant to employment agreements. What if, say, 6 months post-closing, the deal just isn’t working out for you, not in the sense of Buyer X’s breach of any agreement, but in the sense that you and your former partners aren’t happy with the deal. For example, it could be a standard PE deal in which Buyer X painted a picture of post-closing Kumbaya when what actually resulted was post-closing to-the-bone cost cutting.
As a result, you want out. If a breakup provision, i.e., a “deal divorce” provision, had been negotiated into the acquisition agreement, it would provide a right, including a deadline for its election, a process, and a price for undoing the deal. There are many ways to structure a breakup provision of this sort and there are many related issues.
Breaking up might be hard, but at least it will be easier to do if you think about the process up front in the manner of a deal “prenup”. Might it be a bad strategy in some contexts? Absolutely. As is always the case, the devil is in the details.
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| | | Tuesday - Pharmacist Compounds Problems with $50 Million Kickback Scam - Success in Motion
Watch the video here, or just keep reading below for a slightly polished transcript:
I recently read a press release from the U.S. Department of Justice reporting on the conviction of a pharmacist and others -- I’m sure physicians will follow -- for a compounded medication scam.
These are pain creams, scar creams and the like, that involve an interesting twist - at least something I wasn’t aware of previously. It's the notion of the scamsters doing "test billings" by putting together test compounded medications, one combining drug A with B and C and then another combining A, D and Q and then submitting them as Medicare claims, Tricare claims, and other federal healthcare program claims to see what strange combination yields the greatest reimbursement. Once they know what pays the most, they'll push their related physician scamsters, who are receiving kickbacks, to write what we’ll call “boatloads” of prescriptions for the high dollar item.
The particular scam mentioned in the press release resulted in $50+ million in fake billings, false claim billings that is, to federal healthcare programs.
The danger here for physicians is that it’s easy to get free money and it’s easy to get hooked up in these scams. When you’re hooked up in these scams it's a guarantee that one of your potential fellow defendants will become a prosecution witness, getting little or no actual punishment for flipping on the rest of you.
It's harder to make money as a physician than it was five years ago, certainly 20 years ago, but there are legal ways to do it and there are illegal ways.
Getting involved with a compound pharmacy that is in all probability actually engaging in the manufacture, the illegal manufacture, of drugs as opposed to the compounding of medications upon prescription by a physician, is an easy way to fall into the equivalent of the La Brea Tar Pits of healthcare fraud.
Somebody’s going off to prison. Just make sure it’s not you.
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| | Wednesday - About the Worst Advice You Can Get - Medical Group Minute
Watch the video here, or just keep reading below for a slightly polished transcript:
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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| | | Listen to the podcast here, or just keep reading for the transcript.
Contrary to the misfortune that befell the first little pig -- you know, the one who built his house out of straw -- I've recently learned that it's actually quite possible to build a solid home from bales of straw.
That is, as long as it's resting on a solid foundation.
Many medical groups, especially hospital-based groups (but the lesson is becoming ever more important for office-based practices as well), have set, or, rather, bet, their future on the foundation of a single hospital.
How stable is that foundation?
Is the hospital going to survive? Will the hospital shift its own foundation and replace your group?
No matter how strong you build your structure, straw, wood or bricks, make sure that you didn't construct it simply on someone else's foundation. How smart is that?
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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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