Should You Sell Your Practice Privately or Corporately?

Karl Salzsieder, DVM, JD, CVA, owner of Salzsieder & Associates, TPSG, LLC / DBA Total Practice Solutions—­Northwest, gives his pros and cons about whether to sell a practice privately or corporately.

Interview Transcript (slightly modified for readability)

“The plusses and minuses of selling privately versus selling corporately [are] that many sellers are so passionate about the relationship with their clients that they’re worried that if they would look at corporate maybe the staff would leave, maybe the treatment protocols would be different, the pricing for the client fees might be different. So, many sellers are concerned from a day-to-day practice operation point of view that selling to a corporation could be harmful not only to the non-DVM staff, but to the DVM staff because commonly DVM associates will leave under corporate management.

The plusses are really giant effects on economics because the corporate buyers do not have to borrow money. Therefore, without the cost of capital, they pay a significant amount more. So, there’s a big financial benefit. And there is the possible harm to the practice operations even though corporations are unsupportive of them, are working hard to do their best job of management, but there are differences, and there are new corporate buyers that don’t have that track record of how they do corporate management.

So, I’m in favor of both. Probably the sad ending is commonly, for financial reasons, a seller might go to corporate because of the bigger sale price harming the general relationship feeling of an associate that planned to buy in for years and now cannot afford to because they have to borrow money and can not compete with the corporate offer to buy.

What we’re doing to help associates overcome the lack of ability to buy if a corporation is going to give the high price, is that those sellers, in some cases, are willing to put their relationship with their long-term associates over the corporate high price and try to meet in the middle of the road on price so that the associate buyer is not getting straight, fair market price for the public market, but they’re not having to pay the high corporate price. They’re paying somewhere in between if the seller will do some carryback financing subordinate to the bank amount that the bank will lend. So, if the seller is willing to do financing to allow that buyer to pay more than fair market but less than corporate, it’s workable.

The first step, which also should have been the first step when they were considering selling as an exiting doctor, whether long term transition or quick sale, [is that] they need to be working with their financial planners and their attorneys and their estate planners and figure out how much money do I really need. I have a listing, I am working with a seller, and that’s exactly what has happened. After I said price B for corporate, price A for private market, the seller said, ‘My wife and I and the financial planner have decided that we need this much money. We don’t need as much money as corporate might offer, so we’re going to see if we can make a deal with the associate.’”