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LEGAL ALERT
Private Equity Transactions for
Health Care Professional Practices
PATRICK J. HADDAD, ESQ. AND KATHLEEN A. WESTFALL, ESQ.
The trend of private equity firms acquiring medical and other health professional practices continues, notwithstanding the effects which the COVID-19 pandemic has had on the delivery of health care services. This article addresses various issues of interest to physicians and other health professionals concerning transactions with private equity firms.
What is private equity?
The term “private equity” generally refers to an investment fund which purchases companies that are not publicly traded. The investment fund will be managed by a firm which uses the fund’s assets to acquire or otherwise invest in privately held compa- nies. A combination of cash and the fund’s equity securities is typically used as consideration for the acquisitions. Each investment fund and its manage- ment firm will have its own investment strategies and preferences for investment. For example, some funds and their managers will target specific indus- tries, such as health professional practices. The
management firm will often oversee the restructuring of the businesses acquired by the fund. Ultimately, after a given period of time, the management firm will attempt to sell its portfolio of acquired business- es or interests in the fund at a higher value, which in turn will result in cash or other consideration being paid to investors in the fund, including those who sold their businesses to the fund.
Why would physicians or other
health professionals wish to sell their practices to private equity firms?
Physicians and other health professionals in private practice may have limited options to sell their professional practices. Traditional options include sales to other members of the same profession. For example, junior physicians in a medical practice may buy-out the senior physicians’ interests in the medical practice when they retire. Alternatively, some professional practices may have the option to sell to
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MARCH/APRIL 2021 | WWW.OCMS-MI.ORG