Finding the next owner of your practice is one of the most significant decisions an owner makes. And since most owners of mental health organizations have limited business training, they do not understand how mental health practices are bought and sold.
Elsewhere I have written about how to prepare for the sale of your practice. Certainly spend some time understanding how to prepare for a sale. Subsequently, you are ready to face the task of finding a prospective owner.
Table of contents
- Who is the next owner of your practice?
- 1. Perhaps someone you know
- 2. Or a hospital or other mental health practice
- 3. An Employee Stock Ownership Plan
- 4. Private equity and venture capital companies
- 5. Initial Public Offering
- What happens without a buyer?
- So who will be the next owner of your practice?
Who is the next owner of your practice?
The number of potential owners may be more significant than you think. Of course, finding the next owner of your practice may take some time so the earlier you form an idea of who might be a fit, the better. The trick is to find a candidate whose interests match your own.
Let’s begin our exploration by looking at who might be interested and why.
1. Perhaps someone you know
One of your practice’s more likely next owners could be someone you know, i.e., a family member or existing employee. The main advantage of brokering a deal with someone you know is the foundation of trust that already exists. You know each other.
I sold my practice to an employee who had worked with me for 20 years. We were able to build on all the experiences with each other to find a mutually satisfactory arrangement.
However, I have also seen situations where familiarity became a disadvantage in the conversations. Sometimes, the negotiations become too personal, never a good idea. Some may feel that the relational history warrants a discount or special consideration. Working through the expectations is one of the most challenging parts of getting an agreement with any potential owner.
2. Or a hospital or other mental health practice
Potentially hospitals and other practices may be interested in becoming the next owners of your practice. At times, hospitals may look to expand their outpatient services in an area. Your practice may fill their need.
Furthermore, other practices may be looking to expand their geographical coverage and expand services. The key to success in this type of deal is finding a synergy of missions.
Whatever the reasons for the interest, the challenge will be about blending different cultures and work processes, building on the strengths of each organization.
3. An Employee Stock Ownership Plan
An Employee Stock Ownership Plan (ESOP) is an appealing method for selling the practice to one’s employees. In this circumstance, your employees become the next owner of your practice. This arrangement takes a reasonably long lead time to put in place. However, it can be the perfect solution in some cases.
To understand how these arrangements are structured and some pros and cons, read these:
These are complicated arrangements, so give yourself the time required to implement the plan properly.
4. Private equity and venture capital companies
In recent years, private equity and venture capital companies are showing a newfound interest in purchasing mental health practices. This attention grows out of an awareness that mental health is going mainstream and has enormous growth potential.
Furthermore, there is the expectation that some large companies, such as Google, Amazon, Apple, or perhaps Walmart, will make a big move into mental health within the next few years. They may become the silent owner of a significant mental health organization.
Not all equity funds are the same
As I have talked with equity fund managers, I have found that not all have the same idea for what happens after the purchase. Yes, they all want to purchase and grow mental health businesses, but what happens next can vary a lot.
Some intend to partner with the mental health owner/managers in a semi-permanent partnership. They purchase a practice to stick through the ownership transitions serving as a financial backer while adding back-office expertise and support.
Others buy practices to bundle them and then sell them to another undefined entity. These companies want to get large as fast as possible, initially focusing on market share rather than profitability. The assumption is that they will bundle all the practices they purchase to sell that entity to a wealthier giant. Then, that next owner will seek to turn the amalgamated entity into a profitable one. At that point, certainly, much will change, including the possibility that clinical salaries will take a hit.
Some recent examples
Look at what Provident Equity has published as an example of a company that wants to partner with practice owners: Provident Perspectives: Investment & Consolidation in Mental Health Services. It is an interesting read for any mental health practice owner.
In contrast, Refresh Mental Health exemplifies a Wall Street-funded company that grew to about 3,000 employees and was sold to a larger Wall Street company. The value of Refresh is now $750 million. The Provident Perspectives article above uses the Refresh purchase as a case study. For more about that deal, see these articles:
- Private Equity Firm Kelso Acquires Majority Equity Interest in Refresh Mental Health
- Lindsay Goldberg Sells Stake in Refresh Mental Health to Kelso & Company
With these arrangements, the challenge will be sifting out who will be a good partner five to ten years down the road. And in truth, the company itself may not have much clarity about its future.
5. Initial Public Offering
Sometimes a private company wishes to become a publically traded one. These companies joined a stock exchange to acquire investors and capital for their continued growth. They do this through an initial public offering (IPO) process. Each stock exchange is a listing of publicly traded companies. Some examples of publicly traded companies in mental health:
And a new breed of treatment approaches that use psychedelic chemicals like psilocybin for the treatment of depression:
As these larger companies grow and become a more dominant force in the mental health space, they will become competitors for more traditional practices. And certainly, they will be hiring many mental health providers. And, of course, it is unclear how well they will do as time goes on.
What happens without a buyer?
Some estimate that the majority of those that try to sell will not find a buyer. When a sale does not occur, the owner typically stays on longer than they may like until they are ready to shut the practice down. The phone number might go to another practice, but the company no longer continues independently.
Perhaps it seems sad that there will not be a next owner of your practice. I do not think it must be. After all, the practice did its job for its active life. It supported many therapists’ clinical work for years. Isn’t that a good enough outcome? I think so. Everything ebbs and flows, so let us celebrate what it was and what it did for us.
So who will be the next owner of your practice?
Finding the right match between buyer and seller is no small thing. And I have come to believe that all options require compromise. Change is hard and yet embracing what emerges is well worth the effort.