Before Selling Your Medical Practice, Take These Essential Steps

If you’re an owner of a successful privately held medical practice, you’ve surely noticed the rising trend of practices merging with larger groups or being acquired by private equity buyers. If you’re considering doing the same, Bernstein can help you assess and clarify your options, providing insight on whether a transaction will allow you to meet your long-term financial goals. We recommend taking the following steps before making the leap.  

1.    Get advice from experienced professionals

Consult professional advisors with expertise in medical practice transactions. An experienced accountant and a healthcare M&A attorney are essential. It’s also a good idea to engage a practice consultant or investment banker who can shepherd you through a sale. These professionals, along with your financial advisor, will know what to look for in an offer and how to explain its relevant parts, weigh the pros and cons, and ultimately protect your interests. Early involvement of professional advisors means more opportunities to maximize planning and increase your potential after-tax proceeds.

2.    Consider the culture

Ultimately, financial metrics are just the starting point. Deals must also be a good cultural fit for the owners, employees, and patients of a practice.

  • Does the deal bring more convenience or additional services to patients?
  • Does the acquiring group share your vision for the future of the practice?
  • Will the jobs of current employees be protected?

In our discussions with owners who have sold, time and again they’ve pointed to having a good fit—and a productive relationship.

3.    Does the deal provide enough financially?

There are many angles to explore:

  • Does the offer represent a fair value for the practice?
  • Are the terms of the deal reasonable?
  • Do the financial and qualitative benefits outweigh relinquishing control?

One approach is to measure whether a deal will help secure your future spending needs over your lifetime. Bernstein calls this amount your “core capital,” which we determine based on your current assets, desired spending, and expectations for future investment returns and volatility. You’ll be able to visualize how much wealth you’re likely to have over time given choices you’ve made based on factors within your control: investment options, how long you’ll work, how much you’ll save, and which tax-efficient strategies you’ll utilize to minimize your income taxes.

The following case study provides an example of how Bernstein’s planning helped one client prepare for a sale.

Case Study: Practice Owner in Transition

Dr. Melissa Feelgood has engaged Bernstein for planning and investment advice as her medical group begins discussions to sell their practice to a private equity group. Melissa and her husband Mark are both 60. Melissa is a urologist at Diamond Medical Group, which she owns with five partners. The Feelgoods have accumulated a $10.5 million portfolio and own a home valued at $3.5 million. Melissa’s practice expects to fetch $30 million from a private equity group. Melissa will personally receive $5 million in pretax proceeds, including $3.75 million of cash up front and $1.25 million of rolled equity. The private equity group expects to expand the organization through other acquisitions and efficiencies, and then sell it again in five years for triple its current value. This could potentially provide Melissa with an additional $3.75 million (three times her initial $1.25 million value on the rolled equity). As part of the sale agreement, she will continue working for five years with a 25% reduction in future compensation, earning $600,000 pretax annually. Melissa and Mark’s primary concern is whether the proceeds from the sale will ultimately allow them to retire, despite the reduction in future compensation. They wish to maintain their current spending of $435,000. In addition to Melissa’s income, Mark earns $250,000 per year, and they receive pretax annual income of $100,000 from their shares in Diamond Surgery Center. Upon Melissa’s retirement, they plan to liquidate their $100,000 initial investment in the center.

To help the Feelgoods think through their options, we start by quantifying their core capital—the amount they need to sustain their lifestyle throughout their retirement, despite the possibilities of poor capital market returns, high inflation, and a long life—based on an asset allocation of 70% stocks and 30% bonds. To stress-test their financial picture, we initially exclude any return on the $1.25 million rolled equity. We found that the cash proceeds from the transaction, added to their current $10.5 million liquid portfolio, would secure their projected core capital by their retirement at 65 (Display). Reassured that their primary goals would be met with the upfront cash from the transaction, the Feelgoods turned their attention to estate planning. They wondered if there was any way to reduce the potential impact of future estate taxes on their family’s wealth—especially considering potential changes to the estate tax.

Projected Range of Portfolio Values


Using our Wealth Forecasting System, our median projections show the Feelgoods potentially facing an estate tax bill of over $3 million. If the second sale generates $3.75 million, the Feelgoods could face an even higher estate tax liability. However, the rolled equity represents surplus assets, or assets they will not need to meet their own spending needs. If the rolled equity grows to $3.75 million, it could represent a tremendous opportunity to transfer wealth outside of their estate.

In partnering with the couple’s estate planning attorney, we identified a compelling strategy that entailed giving their rolled equity to a new Spousal Lifetime Access Trust (SLAT), an irrevocable trust created by Melissa for the benefit of Mark, with their two adult children as additional beneficiaries. The rolled equity transferred to the SLAT, along with any subsequent growth and income generated, should be excluded in Melissa or Mark’s estate for estate tax purposes. However, the trustee may make distributions to Mark, if needed. This way, the SLAT allows the Feelgoods to reduce future estate taxes without completely forgoing access to the transferred assets. We project that the trust could grow to $17.4 million in the median case over the next 35 years and could ultimately save the Feelgoods $6.9 million of federal estate tax, leaving their children with 20% more liquid wealth.  

The Feelgoods are now equipped to navigate the transition of Melissa’s practice, knowing that their retirement goals can be achieved even if the practice doesn’t realize the anticipated proceeds from the second transaction.

We Can Clarify the Picture, but the Decision Is Ultimately Yours

Selling a medical practice can be a significant milestone in a distinguished medical career. It can monetize the value of the practice while better positioning it to serve patients in an increasingly complex and competitive marketplace. Through a sale, the practice owner can shorten the timeframe to meeting financial goals.

Bernstein can help practice owners assemble key players while also playing a vital role in advising, guiding, and coordinating your strategy. With Bernstein’s financial counsel, owners can make more informed decisions each step of the way—as well as in the years that follow. 

Daniel Brunello, CFP
Director—Wealth Strategies Group
Morgan Campbell
Associate Director—Wealth Strategies Group

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