Dan King: [0:00] Hello everyone. Title of this episode is Selling Your Group Practice While Caring for Your Clinicians. Dan King: [0:08] This is going to be an impromptu version Dan King: [0:10] Of a talk that I gave last week in Nashville at the Mental Health Marketing Conference. Dan King: [0:16] If you haven't had the chance to go, it's an awesome conference that Steve Turney puts on every year in Franklin outside of Nashville. And it's really split into three parts. Dan King: [0:26] There's. Dan King: [0:26] Really three key Dan King: [0:26] Steps to being able to sell your practice while. Dan King: [0:30] Caring for your clinicians. Dan King: [0:32] Of course, there's many, many more steps. So this is a high-level summary. But the three steps are, number one, get crystal, crystal clear on what you want from a sale or sale-like transaction. Dan King: [0:46] Number two, find a buyer that is very much aligned with you in terms of what you want to achieve. Dan King: [0:52] And then step three is design the right post-close role for yourself. Dan King: [0:57] So I'm going to go into each Dan King: [0:59] Of these in depth. Dan King: [1:00] On the first piece, what do you want from a transaction? I have spent a Dan King: [1:03] Lot of time over the last three years. Dan King: [1:06] Speaking to more than 80 Dan King: [1:07] Owners of group practices about why they're interested in chatting with us, about an investment, about the kind of transaction that appears to them to be a sale. Dan King: [1:19] I use these words purposefully because when we think about a sale. Dan King: [1:23] Most people think about selling their business. They assume that they're going to be selling 100% of their business to someone that's going to come in and run their business. That sometimes happens, but there's lots of other types of transactions that some people will consider a sale. but that don't fit that definition. So as an example. Dan King: [1:42] Our typical model is to buy a majority of a group practice, not 100%. We might buy 65%, 70%, 75%. Dan King: [1:51] And then we might actually keep the founder in place. Dan King: [1:55] So instead of removing the founder and running Dan King: [1:58] The whole practice, the day-to-day of the practice ourselves. Dan King: [2:01] We will often keep the founder in place. And we will support from a bit more of a distance. Dan King: [2:06] As majority owners of the practice, it's in our interest to help grow it, but we would only work with someone in this capacity that we really, really trusted to run the day-to-day. Dan King: [2:16] And then over the course of the next, let's say, four to six years working together, we will grow the practice to the point where it is far more valuable Dan King: [2:25] Than it is today. And so you get what we call a second exit. So this model is sometimes called a two bites at the apple model because you. Dan King: [2:35] As the founder get two Dan King: [2:36] Exits. First exit happens when we buy a majority of your business. Dan King: [2:40] This can work differently in different industries, but in mental health, Dan King: [2:43] Working capital isn't all that important. So this is to say businesses don't need to keep a ton of cash on their balance sheet in their bank account. Businesses can run with very little. Dan King: [2:53] So when we buy a majority of Dan King: [2:55] A group practice. Dan King: [2:56] The founder gets to keep the vast majority of that cash, Dan King: [3:01] Okay? So we sometimes describe this as taking chips off the table. You get a first exit when. Dan King: [3:07] We do the transaction, the initial transaction together. And then as partners working together over the next four to six years, if we can execute successfully, Dan King: [3:15] The business is now worth far more. Dan King: [3:17] And then you get a second exit when we decide to resell the Dan King: [3:21] Practice to a values aligned. Dan King: [3:23] Second buyer. Dan King: [3:25] That's your second bite at the apple. Dan King: [3:26] Now, in some cases, Dan King: [3:27] We won't get into this in depth. Dan King: [3:29] You can actually get a Dan King: [3:30] Third bite at the apple where maybe the company goes public. when the company goes public. Dan King: [3:36] The public markets Dan King: [3:38] Now can buy equity in the company. Dan King: [3:41] That's a third bite at the apple. Dan King: [3:42] Your shares are now potentially worth a hell of a lot more. We don't do that. Dan King: [3:46] I do know people that have done that. Dan King: [3:48] Okay, so it can absolutely happen that you get a third bite at the apple. But more common is a two bites at the apple approach. Dan King: [3:55] You'll see that this is vastly different from selling 100% of your business to one buyer, Dan King: [4:03] Right? Who's going to. Dan King: [4:04] Remove you from the equation and run it themselves. So there are a variety of different types of transactions. And the type of transaction you pick should be largely dependent on what you want. You're the owner. The business is there. Dan King: [4:19] Well, you know, there are stakeholders that you care about and that you want to serve. Dan King: [4:23] You built this business for you and others. Dan King: [4:25] Okay but ultimately you go you want to do what's best for you as well as your clinicians and so if you know the right time is now to move on you can do that completely or if you're still excited about the business but you want a partner if you think to yourself i don't want to handle the entire burden of running this myself you can bring in a partner and de-risk your financial future with the two bites at the apple model. Dan King: [4:53] Different investors are going to be a fit for different parts, different objectives that you might have. So this is why step one is to really. Dan King: [5:01] Get crystal clear on what Dan King: [5:02] You want. Knowing some of these possibilities that you could bring on a partner who. Dan King: [5:07] Could invest in financially improve your own Dan King: [5:10] Situation as well as that of the company. Dan King: [5:11] Or you could leave completely. Maybe you're burned out and you've decided, Dan King: [5:15] You know what. Dan King: [5:15] I built a good Dan King: [5:16] Business that I'm happy with that I think someone else would. Dan King: [5:19] Be interested in Dan King: [5:20] Taking off my hands. I just want to be gone from it all completely. Or maybe there's a middle ground that might interest you. Dan King: [5:27] I've given you two extreme poles on the spectrum. But I give you those polls to give you a sense of the different possibilities, Dan King: [5:35] The most common possibilities, the most common. Dan King: [5:37] Directions you could take through a transaction. So I want you to consider very, very carefully what you want. Dan King: [5:44] And if you don't know what you want. Dan King: [5:45] Speak to friends. Speak to other people that have either done transactions or people that have made major transitions in their group practices. Dan King: [5:54] If you don't know anyone like that. Dan King: [5:56] Join groups. Dan King: [5:57] Drop me a line. And I can point you to groups where practice owners work together to help each other through business challenges. Dan King: [6:05] Some of them are even free. It's a good chance to meet with people that are in your shoes. Dan King: [6:09] And so if you don't know what you want. Dan King: [6:11] It's good to have conversations that can give you input in your decision-making process. Dan King: [6:16] Step two, once you've decided what you want, the next step is to find an investor that is aligned. So either way you look at it, if you are going to sell your practice, you're going to bring on a business partner, you're going to have a partner. Dan King: [6:30] Even if you're selling 100%, you're going to be partnering very Dan King: [6:33] Closely with that investor. Dan King: [6:35] For however long the transaction takes and potentially some time afterwards. Dan King: [6:40] Even in the event of 100% sale, they're going to want your advice at least for a while if they're buying your asset. So you're taking on a partner, and the most important thing in a partnership, the most important thing to look for is. Dan King: [6:54] Do you want the same things? Are you aligned? You want to ask Dan King: [6:57] Challenging questions of your potential partner. Dan King: [7:00] Just as they should have you, Dan King: [7:01] To determine what's in alignment for both of you. Dan King: [7:04] The worst thing you can do, Dan King: [7:06] Even if your partner is high integrity. Dan King: [7:07] Is to pick a partner that wants something different. Because then your Dan King: [7:10] Energies are going to be moving in different directions and it's going to be just a mess. Dan King: [7:15] So very, very high level. It's more complicated than this. There's three types Dan King: [7:19] Of investors that you could seek out. And I'm going to situate them on a spectrum of the. Dan King: [7:25] Most institutional to the least Dan King: [7:27] Institutional. Dan King: [7:29] Generally speaking, the more institutional an investor you go with, the more corporate your experience will be, potentially the more money you could get and the wider variety Dan King: [7:38] Of practices they. Dan King: [7:39] Might be interested in buying, Dan King: [7:41] But also probably the less flexibility there may be in their model too. You've got to factor that into account. A private equity fund or a strategic investor like a hospital system, a bigger medical company of some kind. Dan King: [7:55] That's the most institutional. In the middle of the Dan King: [7:58] Spectrum are investors like us where, you know, we're not a formal fund. Dan King: [8:03] But we are professionals, very experienced in what we do. Dan King: [8:06] Sometimes we're called independent sponsors. And then the least. Dan King: [8:10] Institutional end of the spectrum are individuals. They're often called searchers or search funds. Dan King: [8:16] Sometimes these are people who aren't really funded by anyone at the beginning. Dan King: [8:20] Who are just going out into the world looking for a business to buy. But the least institutional types of these Dan King: [8:26] Are called self-funded. Dan King: [8:27] Searchers. There's a whole Dan King: [8:28] World of them out there. People that are funded by what's called an SBA loan. Dan King: [8:35] This is a partially guaranteed government loan that many banks are in the business of offering and it can be used to finance more than 90% of the purchase price of a small business So particularly if your Dan King: [8:46] Practice is on the. Dan King: [8:47] Smaller end of the spectrum this may be the right type of buyer for you Dan King: [8:51] Many different people can get access to SBA loans. Dan King: [8:54] You just need to be a U.S. citizen or a green card holder. And in fact, if you're selling Dan King: [8:58] A group practice. Dan King: [8:59] You may not know that your clinicians, one or more clinicians, Dan King: [9:03] Could work together on an. Dan King: [9:04] SBA loan to be able to finance the vast majority of the purchase price for your practice. Dan King: [9:09] So that's a possibility very very. Dan King: [9:13] Few clinicians consider Dan King: [9:15] Especially clinicians who have smaller practices an sba loan is it's called an sba 7a loan is a very real possibility to to exit your business if you're in the range of i'd say at least 300 000 of annual profit below. Dan King: [9:31] That would be a Dan King: [9:31] Little tricky but. Dan King: [9:32] If you're in the Dan King: [9:33] 300 000 to i'm gonna say 800 000 range it's. Dan King: [9:38] A very very Dan King: [9:39] Viable option, maybe up to a million or slightly more of profitability. Dan King: [9:44] That's a very real option for you. Dan King: [9:46] Okay. So if we start now on this least institutional end of the spectrum, these searchers tend to be friendly. Dan King: [9:54] You know, they're individuals. Dan King: [9:55] They may not be the most professional buyers in the world. Dan King: [9:57] But many of them are very smart. Many of them go to top MBA programs and working with them, you know, should feel Dan King: [10:05] A little warmer. Dan King: [10:06] And fuzzier than working Dan King: [10:08] With a super intense institution that has a staff of 50 people in suits and ties. You probably also get some flexibility. Dan King: [10:16] Working with them. Dan King: [10:17] And it can feel like a more human process. Dan King: [10:20] Which, you know, in mental health is important. Dan King: [10:22] Sometimes dealing with a super institutional. Dan King: [10:24] Buyer with a Dan King: [10:25] Suit and a tie isn't the most fun in the world. And they can be on the intense side of the spectrum, believe you me. Dan King: [10:31] However, these folks are restricted. Dan King: [10:33] If they're using an SBA loan, as many of them are. Dan King: [10:36] That loan has certain constraints. Dan King: [10:38] Typically, it's best suited to 100% buyouts. Dan King: [10:42] Not always in every single case, but in most cases, Dan King: [10:46] The SBA loan is for 100% buyouts, not two bites at the apple type approaches. Dan King: [10:52] You need a different form of Dan King: [10:53] Financing to do a two bites at the apple approach. So those are some of the trade-offs. If you look at a firm like ours. Dan King: [11:01] We're often called independent sponsors where, you know, we have raised some capital, Dan King: [11:06] But we are backed by a bank. We're backed by some other firms that provide debt and equity capital to. Dan King: [11:13] Us for our acquisitions. We are almost like a Dan King: [11:16] Layer of middlemen between a private equity fund, if you like, and a bank, and you. Dan King: [11:24] We do do a two-bytes-at-the-apple approach. Dan King: [11:26] We are not funded by SBA loans. Dan King: [11:28] So we Dan King: [11:28] Have more flexibility. Dan King: [11:29] In terms of how we deploy capital and more capital to deploy than a less institutional player, but we typically do not do 100% buyouts, Dan King: [11:37] And our model is definitely not a fit for everyone. You could kind of look at us as in the middle. Dan King: [11:43] Where we're more professional Dan King: [11:45] Than a typical. Dan King: [11:46] Self-funded searcher would be, Dan King: [11:47] But we try to be a bit more human than dealing with a private equity fund directly would be. You can look at us as middle people, as translators. So we speak mental health and we speak business. If you take a look at, And one of the other things that makes us different is we're specialists. Dan King: [12:05] So we only invest in outpatient mental health practices. Dan King: [12:08] And we have the ability as independent sponsors, not having a formal fund. Dan King: [12:12] We have a Dan King: [12:13] Formal fund that invests and co invests with us in the deals that we do. You know, they certainly have some influence over us, but we are our own people as well. We're like a different layer. Okay. Dan King: [12:25] And we have a Dan King: [12:25] Series of specialists who work with us who are very knowledgeable about different aspects of the business of mental health. So that could be renegotiating insurance rates upwards. That could be adding services to a therapy practice. So helping a therapy practice become a more comprehensive behavioral health practice that offers medication management, psychological and neuropsychological testing, Spravato, TMS, other services beyond therapy. Dan King: [12:50] We have the ability and the expertise to add those. Dan King: [12:54] So that's some. Dan King: [12:55] Of the benefits and Dan King: [12:55] Drawbacks of working with us. on the most. Dan King: [12:57] Institutional end of the spectrum, Dan King: [12:59] You have the best funded buyers out there who have more capital than us. Dan King: [13:02] They have hundreds of millions to deploy. Dan King: [13:05] And so you know that they certainly have the capital and they're aggressive. Dan King: [13:09] In how they move, Dan King: [13:11] But probably the process will be a little less human in. Dan King: [13:14] Working with them. Dan King: [13:15] And ultimately, as a fund, they are very directly responsible to their investors. Dan King: [13:21] And so there are incentives, Dan King: [13:22] There are benefits and drawbacks to that. Dan King: [13:25] And different funds may be more or less human in their approach, Dan King: [13:29] More or less warm and fuzzy to work with. Dan King: [13:32] But generally speaking, the more institutional they are, Dan King: [13:35] The more bureaucratic it's going to be to work with them. I should also add that you'll find a variety of different, objectives that they might have. Dan King: [13:46] They tend to want one things. Dan King: [13:49] You know, one fund may just do, a given fund may just do 100%, or they may just do two bites at the Apple deals. They tend not to be the most flexible. Dan King: [13:58] Although within this group of institutional investors, Dan King: [14:01] You'll find a wide variety. Dan King: [14:03] So you want to do your due diligence regardless of who you're dealing with, but to start to understand the lay of the land, those are three broad types of investors you might find in group practices. Dan King: [14:14] Let's get to the third and final piece, Dan King: [14:15] Which is design the right post-close. Dan King: [14:17] Role for you. So you really want to care for your clinicians, Dan King: [14:20] Right? If you want to have your cake and eat it too. Dan King: [14:23] If you want to get a good liquidity event, Dan King: [14:25] Good capital. Dan King: [14:26] On your own Dan King: [14:27] Personal balance sheet for the asset. Dan King: [14:29] The business that you've worked so hard on for so many years, that's great. Dan King: [14:32] And you want to ensure that your legacy is taken care of. Dan King: [14:36] You want to ensure that the people Dan King: [14:37] That you've employed. Dan King: [14:38] That you cared for for all these years are treated well. Well, one way to do that is to do a two-bytes-at-the-apple partnership transaction where you remain in the fold, Dan King: [14:46] Maybe even running day-to-day operations. Could also mean. Dan King: [14:50] Designing a less intense role for yourself where you're more of an advisor. You still go to the office maybe two or Dan King: [14:56] Three days a week, but you're not running day-to-day operations. Dan King: [14:59] All of these are possibilities. Dan King: [15:01] When you're setting out to design what you want. Dan King: [15:04] It's important to think through this full range of possibilities. Dan King: [15:08] Maybe you just want to come in occasionally. Maybe you want to move. Dan King: [15:12] Sometimes we see this, right, where we'll work on a transaction where the founder wants Dan King: [15:17] To kind of check. Dan King: [15:18] In here or there for the next Dan King: [15:19] Couple of years, but it's like one or two days a month, right? Maybe that could be a perfectly reasonable request. Just the investor has to be aligned with it, right? And you want to speak to them early and often about. Dan King: [15:30] What your desire is. The more confident you are, Dan King: [15:33] The faster that investor will be able to get you a yes or a no. the faster you'll be able to get to a yes or a no. Dan King: [15:39] But dream big. Dan King: [15:40] Think about what would be fun. Dan King: [15:42] Think about what you really want. You've built this business. When you do a transaction, it's an opportunity to reshape things, hopefully in a positive direction. One of the things that you can negotiate is a post-close role that will enable you to play Dan King: [15:55] A watchdog role. Dan King: [15:56] To oversee what's happening, Dan King: [15:58] To look at how your clinicians are going to be treated. Dan King: [16:01] Maybe you create a culture role for yourself. If you love hiring but don't want to deal with insurance companies, you love supervising clinicians, Dan King: [16:08] Ask for that. Dan King: [16:10] Carve out the role you want. Create a blank canvas in your mind and think to yourself, what do I want? Really, really want? Dan King: [16:17] And how can I design a post-close rule that reflects that? Dan King: [16:20] So if you do those three things, Dan King: [16:23] It's all about alignment in the end, right? You create in your head a vision of what you truly want through a transaction. Dan King: [16:29] You find a buyer that's aligned with it. Then you carve out the right post-close rule. You absolutely can sell your group practice, care for your clinicians and achieve many, many other objectives. Dan King: [16:39] I hope this gives you some good food for thought. Dan King: [16:42] I wish you well. Drop me a line Dan King: [16:44] If you ever want to talk about any of this. Dan King: [16:46] Dan at firesidestrategic.com. You can also reach out on the podcast website. Dan King: [16:51] That's another way to get me. Dan King: [16:52] We can put that in the show notes. Thanks for listening. Dan King: [16:55] Take care. Bye.