What's going on with Private Equity these days?

May 17, 2020
There's a question I get almost every time I speak with ODs, and just in case it's one you're curious about, I thought I would share it: What's going on with Private Equity these days?

The Good News
Across multiple groups, it seems that already-negotiated sales have simply postponed closing until the acquisition target is back up to normal capacity without changes to the purchase price . Perhaps even more surprisingly, I’ve heard of multiple doctors being approached or re-approached by big groups to buy their practices. Things might be delayed, but Private Equity appears to still be very much in the game.

The Headwinds (in my opinion)
While there is still activity in the space, there are also a lot negotiations that have been postponed with no timeline to resume. The biggest headwind can be summed up in one word: uncertainty. The two things that concern me the most are future practice valuations (will EBITDA include the COVID-19 P&L time frame?) and tightening credit (the willingness for banks to lend to groups to buy more practices).

In the short run, I think this will mean focusing on bigger, more profitable practices and saving smaller acquisitions for a later time.

Two Numbers You Should Know Before Talking To Private Equity
A quick disclaimer: I’m not an advocate or opponent of a practice owner selling to Private Equity. My job as a financial planner and investment manager is to help clients evaluate their options and make the best decision based on their personal financial situation.

If you are interested in selling your practice, Private Equity or not, pauses in the market like what we are currently experiencing are a great time to step back and evaluate what your practice (normally) produces for you as well as how much you need it to produce. These numbers are different than a practice valuation, which tells you what someone might be willing to pay for your practice.

The two numbers you should know are:

  1. How much do you need to sell your practice for to meet your retirement goals?
  2. What is the total benefit (after tax cash flow + sale price) your practice is expected to provide to you until retirement?
What Do These Numbers Mean?
From a personal finance perspective, if #1 is greater than #2, you need to rethink your retirement plan by working longer, spending less, or making your practice more valuable. If #2 is greater than #1, it’s a good position to be in, and gives doctors the flexibility in deciding when and to whom to sell their practice. And finally, if an offer on your practice is less than #2, it’s probably not in your best financial interest to accept. 

It may feel early to be thinking of practice sale values, but it's never to early to be prepared for what life brings your way. Knowing these numbers can help give direction and inspiration during a difficult time, and take away some of the emotion of decision-making when it is time to think about selling. While the COVID-19 crisis will undoubtedly have some lasting impact on how we do business and live life, it doesn't mean you should stop planning, building and reaching toward your long term goals!
The views expressed here are as of the date of publication and are subject to change. This information should not be construed as investment advice. It is presented for information purposes only and is not intended to be either a specific offer (or recommendation) Hayes Wealth Advisors to sell or provide, or a specific invitation for any investor. Information herein may have been obtained from sources believed to be reliable, Hayes Wealth Advisors is unable to warrant its accuracy.
All data, projections and opinions are as of the date of this report and subject to change.
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