July 21, 2020
 
Question:

Jennifer,

I'm ready to sell.  Is there a discount applied to my practice price because of Covid-19?  What can I expect from the market? 

Appreciate the response.  

Dr. P

Answer: 

In general the valuation formula will depend on your specialty and practice size; the smaller the practice the lower the return.  What I'm seeing these past few weeks in the deals we are currently handling is a trend towards buyers looking to protect against the chance of another shutdown, increased cost of operation with PPE, and potentially lower volume.  Generally this adjustment is handled by moving part of the purchase price out of cash on closing and making payment of the remainder on meeting target metrics.  In states outside of NY with less regulation this concept is called an "earn out" and is crafted in the purchase agreement.  In NY with our strict corporate practice of medicine you see the earn out concept oftentimes parked in an employment agreement and tied to personal production.  So, what I've just covered is the concept of value being reallocated to continuation of services and the meeting of certain metrics as a condition of payment - to ensure value received for the purchaser. 

Apart from value protection mechanisms being deployed, to date I am not seeing significant haircuts on pricing.  I am seeing some fire sales from certain doctors who have been slowing down and did not have thoughts towards a sale, per se, but now are looking for a colleague to transfer records.  I note these practices in a separate category than a discounted category because the sellers/transition-ers I am currently assisting did not have much of a mind towards recouping a purchase price or preparing to maximize value in the first instance, and have been hit over the years with substantial attrition already.  


 
 
 
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