Would a Joint Venture Work for You As an Exit Strategy?

A Joint Venture is basically a partial purchase of your practice by a corporate group. It is an
acquisition model used by corporate groups to insure the continued support and involvement
of the owner. This is more commonly used with a practice the buyer likes a lot and believes has
potential but may only have 1 to 2 Doctors including the owner. It is a way for the buyer to
mitigate their risk.

Typically, they will determine a total enterprise value and then purchase 70-75% of the practice
based on that enterprise value. The owner will retain ownership of the remaining 25-30%.
There will be a certain time frame expectation that the owner can cash out his ownership share
and that timeframe is usually tied to an employment agreement to retain the employment of
the owner as well. The timeframe is usually 3-5 years.

The primary benefit to the owner is that they will get a higher enterprise value, as opposed to a
100% acquisition of the practice, and they will continue to receive dividends on their ownership
share. So if the buyer has the infrastructure to grow the practice, the owner benefits from
increasing dividends and a potentially higher cash out price at the end of the 3-5 year holding
period.

The downside to this form of selling your practice is that there are more legal documents to
decipher through in the form of LLC Operating Agreements and Partnership agreements that
are not part of a sale of 100% of the business. The other downside is that the buyer does have
controlling interest and you are somewhat at their mercy if there are decisions to be made
regarding the vision for the future of the practice. So, it is important that some of those
discussions happen before the sale is finalized to be sure you, as the owner, and the buyer are
on the same page.

We will likely see more Joint Ventures and Partnerships with Corporate groups in the next few
years as a way for them to mitigate their risk in a market that has a serious shortage of Doctors
to fill your shoes, as an owner, when you get ready to leave your practice.

Contact the Total Practice Solutions Group Broker in your area to find out if a Joint Venture or
Partnership is a viable Exit Strategy for you.

Dr. Richard Alker
TPSG Broker, Florida Region

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