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AHLA's Speaking of Health Law
Choose Your Own Adventure Guide: Considerations for Physicians Entering into Partnerships
Physicians continue to be sought after for partnership or acquisition by health systems, private equity-backed enterprises, and other investors. When met with the opportunity, physician groups must determine whether to partner with one of these organizations, remain independent, or join non-private equity/hospital-backed supergroups. Jed Roher, Partner, Husch Blackwell LLP, speaks with Jessica Stack, Principal, Veralon, and Glenn Prives, Member, Epstein Becker & Green PC, about deal-terms frequently encountered by physicians and the potential trade-offs of selecting one partner over another. Jessica and Glenn spoke about this topic at AHLA’s 2022 Health Care Transactions Program in Nashville, TN. Sponsored by Husch Blackwell.
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Support for ALA comes from hush Blackwell, a law firm builts around one idea to lead clients from where they are to where they want to be teams of lawyers with a depth of experience in a particular industry, work together across practice specialties to deliver comprehensive solutions, to help clients achieve their goals. Partners, associates, and legal professionals collaborate closely on client matters to ensure that each client benefits from the collective knowledge of the firm. For more information, visit hush blackwell.com.
Speaker 2:Hello, and welcome to this ALA podcast. Thank you for joining us today. My name's Jed rower. I'm a partner with hush Blackwell. I have the pleasure of talking today with Jessica stack and Glen PR preve about, uh, some content that they recently presented at the, a HLA transactions conference. And we'll talk about what that was and kinda get into the conversation. But before we do that, uh, I thought it'd be helpful for everyone to hear a little bit from Jessica and Glen about who they are and their backgrounds. So, Jessica, do you wanna start us off with an introduction?
Speaker 3:Sure. My name's Jessica stack and I am a principal consultant with Verlon. We're a boutique healthcare consulting firm. Um, so we provide planning and strategy transaction advisory and valuation support to our healthcare clients. Glen,
Speaker 4:Thanks, Jessica. And thanks Jed. My name is Glenn previs. I'm a partner in the Newark New York city offices of Epstein, Becker and green. I'm a healthcare transactional regulatory attorney, uh, providing advice on strategic transactions and other regulatory matters.
Speaker 2:Excellent. Thank you both. And, and as Glenn mentioned, um, and as I kind of alluded to this conversation is gonna be an extension of a, a session that Jessica and Glen led at the ALA transactions conference in Nashville recently, and the context of that discussion, which we won't relive, but will inform kind of what we talk about here today. But the context of that discussion was, um, a choose your own adventure for a, a physician practice looking for a new partner. Um, and I guess just before we dig into some of the content here, you know, Glen and Jessica, you know, again, without redoing that presentation, you know, do you wanna just kind of talk about the, the three scenarios that you were articulating, the three potential partners that you were articulating, um, and, and kind of helping a physician group think through the different, uh, realities of, of those different partnerships with the different players? What, what were those three?
Speaker 4:Sure. So what we were looking at was a very common transaction nowadays, uh, with a private equity firm, doing an affiliation with a physician practice, um, typically for a large upfront purchase price, uh, and then a go forward compensation arrangement and management's, uh, service organization arrangement. Um, thereafter. We also looked at the traditional hospital affiliation with a physician practice focusing on professional service agreements, um, and employment arrangements, not necessarily all the other, uh, GAT of different hospital physician affiliations that there are. And then lastly, um, the combination of formally independent practices into a large super group, also known as a group practice without walls,
Speaker 2:You, and as we talk today, you know, I think it's probably helpful for us to just think about, you know, our, our topics as kind of pre transaction during transaction and, and maybe post transaction, just to organize our discussion a little bit. And, and one thing that was very kind of a very interesting part of your presentation was just, and I think Glen, you made the joke that in addition to our, our JDS and our consulting degrees, we also got psychiatry degrees, right? I mean, one thing that's very, was very interesting about your presentation was just, you know, how many different perspectives a selling group might have in terms of optimal outcomes for the group and for different individuals and, and how those pair up with potential transaction outcomes. So as, as an advisor, working with a physician group, who's maybe seeing this coming down the, the, the line, how do you have that conversation? How do you help the, the physicians be honest with each other, with themselves about what they want kind of going into the transaction? Ha are, are there any tools that you use or, or things you try to do to help facilitate those conversations?
Speaker 4:So it's funny you say that J because it's definitely not easy<laugh>, and, and I've definitely learned that one approach is not necessarily the approach for everyone. Um, you know, I'll say first and foremost, it's having a meeting with all the different partners in any group, and it's sitting the partners down and really just asking them to be honest with each other as to what they're looking for, because the results of this conversation are gonna end up leading to the, the direction that they're gonna go as group. And this is probably one of the most important decisions they will make in their entire career. So there's really no secret sauce. It's just folks forcing them to sit together, preferably in the same room, um, and just putting their feelings on the table and seeing where it goes from there. And, and one of the things we, we did mention at the time, and it's certainly relevant is you tend to have partners who are in different stages of their careers, um, and how these transactions are approached and how they're structured can vary. Based upon you've got, whether you've got a group that has a lot of younger partners or mid-career partners or senior partners, and sometimes some of these arrangements are advantageous for, um, the senior folks, but not the younger folks in vice versa. One example I'll give is you look at a private equity transaction that has a very, very large upfront purchase price, but then to kind of pay for that over the next five years, the level of compensation is much lower with somewhat uncertainty after the initial five years, that's a transaction that makes a lot of sense for a senior physician. It may make less sense for a younger physician. So that's just an example, but getting those perspectives on the table from the beginning is so, so important. And yes, as, as the attorney, at least sometimes playing referee umpire, choose your word of choice in at conversation, Jessica, I think you probably have similar experiences.
Speaker 3:Yeah. Yeah. I mean, we're working often with the hospital side, um, the buyer side on those transactions, but it can be similar in trying to understand, um, what that goal is from a different direction, but you still wanna understand the goal, um, not just amongst the physicians themselves, but the buyer wants to know for the conversations to have a positive outcome. Um, but I'm curious Glen, how often, or if that you see, as the physicians come to the table, they're either sort of saying what they think is the right goal, but by the end of a transaction, that's not the direction they had because either maybe they didn't know themselves what their real goals were or just the offer. You know, the big dollar offer really attracts them in the end, even if they thought they had some other focused goals at the beginning.
Speaker 4:So it's a really good point. Um, the definitely the big dollar sign, uh, certainly overrides a lot of other considerations, good and bad. Um, you know, if you're able to get the folks, to be honest in the room from the beginning, you know, there may be people who say, I definitely, definitely don't want to do a private equity transaction. I definitely want to, uh, establish a closer affiliation with a hospital, but then maybe let's say most of the group votes instead who vote with PE. And then you come to the end of the end of the line, you have a vote to approve the deal and it's unanimous across the board, um, happens actually more often than you think<laugh>, you know, they, there's sort of the concept. It's, it's funny, you know, J you, you mentioned the psychiatrist, uh, concept here. So we'll go with group think here for the moment. Um, and, and that people think a certain way and even dig their Hills in a certain way, but you know, when the rest of the group or the majority group decides to go a certain way by the end, um, those folks tend to tend to come around most, uh, most PE most physicians, um, want to do what's good for the group as a whole. Um, it's the rare physician practice primarily, I'm talking about large practices. It's the rare practice where everybody is completely aligned on exactly the same point, exactly the same direction, but most will accommodate what the group as a whole wants to do, because they want to see the group succeed and they want to see the group do well strategically.
Speaker 2:Uh, no, and, and that makes a lot of sense. And I guess it's a, a reassuring thing to hear that that's been true in your experience. Certainly been true in mind as well, um, that that folks tend to coalesce on, on what's best for the group. And, and I think you, you all mentioned too, from a stakeholder perspective, you know, it's not just the partners that the partners are often thinking about, right. It's also the associates or the, you know, the other providers in the group who, who may not have an ownership stake may not have a, a role in the decision, but will nevertheless be impacted, right? So I'm, so those are, those are important things to talk with them about as well. Um, and I guess just staying with kind of the pre-transaction topic and, and, you know, Jessica, I know that there are heading into a transaction, you know, things that sellers can do with respect to their, you know, how they're spending money, what they're spending money on, how they're reflecting things on their financial statements, right? There are things that sellers can do to position their financial statements in a way that's more advantageous or, or less advantageous in a, in a transaction acknowledging a lot of that goes through a, a quality of earnings anyway, but, you know, and I wanna get into what some of those things are, but even before we do that from both of your perspectives, both in terms of kind of the articulating the goals, and then giving enough time for kind of pre transaction financial planning, like when do you wanna be talking to a selling physician group about some of these topics? How, how far in advance of a anticipated transaction? Do you want be in the room and in the mix as an advisor?
Speaker 3:Yeah, sometimes I think, you know, is it ever too early? If you're thinking, I think that when you start thinking about this possibility that you're wanting to partner or sell, um, it's not too early now how much involvement that you need may vary if that early on. Um, but I think it, there needs to be enough runway. If you're talking about repositioning yourself for the most advantageous transaction, there does need to be enough time for any change that you need to make to be implemented so far as to actually show it doesn't need to be a year of performance improvement necessarily, but you do need to start showing enough movement that a buyer comes in and they're just, it's not a wish list of changes that you're gonna make. Um, so I don't, I don't know, Glen, would you say six months is enough, or maybe even you do need the years that six months in, you can start the conversation.
Speaker 4:So I've had the experience of coming being brought in before, um, a group has decided which way they want to go. I've had the experience of being brought in during LOI and term sheet negotiations. And I've also had the experience of here's our signed LOI. It is what it is at this point. Um, you know, I, I think from an attorney's perspective, the ideal time probably is at LOI while I am brought in, um, you know, by groups to sit there and help them figure out what their strategic goals should be. To some extent, I always think that's a better role for, um, a consultant, um, or an investment bag in certain circumstances. Not that a lawyer can't be helpful, but there in this day and age, there isn't much, that's sort of legal about that discussion. Um, agreed. I do like being brought in, when you get to an LOI stage while theoretically the consultant or investment banker has gotten you to that stage, there are certain legal concepts that are in an LOI and while an LOI, other than maybe a standstill clause or confidentiality clause is non binding, uh, it is certainly not a good look if during negotiations and a definit agreement, you, um, deviate from the LOI. So to the extent that certain indemnification concepts or non-competes, or not are gonna be negotiating the LOI, I'd really love to be involved with that. I think that's the right time, you know, on, on our end, um, you know, two things that, um, we tend to recommend to groups that they kind of sort out ahead of time and jet. I think you were alluding to this, which is kind of the financial planning or, you know, QV standpoint. You know, I view that as more of the role of, of the consultant or the, uh, or the investment factor. There's really nothing, you know, legal in there for a student. I just don't know that we necessarily add value there. Um, when it comes to maybe, you know, doing a compliance search. So if we have a, client's a very, very large physician group, and I mean, very large, while we ideally say we'd like you to do a compliance checkup for any type of transaction reality dictates in terms of cost benefit analysis that only large, large groups are really going to, you know, engage in that and that expense of time ahead of time, if they are gonna do that, we, we, we will help, but even there a compliance consultant really can do just as well, not a better job.
Speaker 3:That's a really good point because the kind of entity though, it's a size and the organization type matters. And Jed, you talked about, you know, the positioning in terms of internal change. Some organizations may not have, um, they may have already achieved great efficiencies and be performing in a way that there isn't a lot of change needed, um, to better position themselves. So really does kind of depend where they're at in their own evolution, um, how much prep work they need to do before they go to market to find a partner and then bring in the legal team for that LOI.
Speaker 2:Yeah, no, that, that makes good sense. Um, but, and I guess just for the second, Jessica is thinking about it, you know, what are, if, if there is some ability to, to reposition or find efficiencies or kind of rethink, you know, rethink expenses, I mean, what are there some common themes that you see with physician practices where, you know, Hey, these are a couple of things that I understand. You've all been sole owners. You're probably taking all the profits out as comp, right. But as you're starting to think about positioning your financial statements for sale, are there common areas where you see position groups focus or is, is it kind of all over the map?
Speaker 3:I mean, in terms of what they're doing, it may be all over the map, but I think some of the ones that we see, um, organizations that have sort of moved into that evolution, where they might end up with the better, stronger purchase prices. Um, a lot of that has to do with the staffing model. If we're talking about physician practice, not switching over to surgery centers and urgent care and such yet, um, having a robust staffing model that includes mid-level extenders, that includes junior physicians in the pipeline, so that there is sustainability. Um, but also so that when those owners do change their compensation model, um, there's still room between the senior doctors and the junior physicians, as well as the mid levels of physician assistants and nurse practitioners. So, and it, I think about that with any professional firm really, but it's true in healthcare as well. If you having an organization that has no mid-level, um, that compensation versus purchase price trade off is gonna be hard to balance. Um, versus those that have that staffing model, um, sort of optimized others are sort of just the obvious checking your vendor contracts and your leases. Are you overpaying for any, not overpaying, but could you renegotiate to better rates perhaps? Um, are there efficiencies, there was one surgery center, some switching back to that example, um, that had a really effective practice or surgery center manager that would show the P and L to each surgeon, um, every few months. And the goal was just to educate the surgeons about each of them had their favorite type of supplies, for example, that they would order, and they were trying to move them all to be on one vendor contract, so they could do one type of purchase for certain supplies. Um, and so showing that quarterly impact P and L allowed the physicians to understand how some of their decision making affected the whole business. Um, so that was, I thought a really great example of prospective management sort of bottom up.
Speaker 2:That's impressed. I, I, I've
Speaker 4:Not that before, but that, that is a very interesting approach.<laugh>
Speaker 2:Yeah. Just trying to, to show the providers the impact of their decisions in ways that they might not be thinking about it, right. When it, it didn't really impact them in a meaningful way in terms of comp or anything else. That's, that's very interesting. Um, so, so staying kind of pre transaction, I think this is the one, the one topic that I am going to ask you to repeat from your presentation. Cause I, I think it was, you know, I think it is super important and I think it is a, uh, an insight that I think we all struggle with how to impart to, to our clients. Um, but you're getting closer to a sale and people are trying to coalesce around why do a transaction? And you start hearing things like, well, my, my friend, so and so at this position group in this other state, you know, well, I know they got an 18 times EBITDA for their, for their practice. So, you know, I, I know what our EBITDA is, so I know what my purchase price should be and, and kind I'm fixated on this number. And, and obviously the, the kinda multiple information is out there in, in trade press and popular press, you can find anecdotal, you know, kind conversations about, about multiples of people are getting, but Jessica, how reliable are those, are those multiples? I mean, how, how much should people be seeing at, in 18 X in some trade publication and kind of like latching onto that and, and doing the math to figure out what they're gonna get in purchase price.
Speaker 3:I mean, it's a great example because people will pick the outlier. They'll, you know, they'll tell you the most, the highest number that they saw are heard and they'll ignore the ones that maybe are on the opposite end, um, that they see out there. So it's, it's a challenge that we face in terms of everyone hears it, they talk in that way. Um, but translating it to what it means for a specific business, I think is where we have the educational opportunity, um, with both buyers and sellers. Um, and, you know, we talked in the presentation about sort of the traditional valuation approaches. And I think it's worth just mentioning here that the market approach, which looks at the price is paid out in the market is one of the approaches we consider. Um, but the income approach, which is based on the future, really in this case, cash flows to that are true to an owner, uh, is the most important approach. And it considers a specific performance of that business. And I think that, you know, we consider both and we need to reconcile them. And in saying that it means that if that number is true, there's a number out there that's 15 times or 18 times EBITDA. Then there must have been something about that specific business. And then it adds a bunch of caveats in a moment, um, that suggests that the historical EBIT R really was so different from future performance that would warrant the kind of growth and profit margin change that you would have a historical number that would result in a value. Um, that is so high. Now the truth is there's a lot of noise in that market data. Um, not all of those purchase prices are fair market value. They may be strategic value. They may be neither. Um, because of the hospital's, if the hospital's cap is fair market value, they may offer for something less. If a different buyer is considering what the business will look like post transaction with all their specific strategic improvements, they probably won't offer that total number. They'll offer something in between, um, because they wanna make sure that they have the opportunity to benefit from the transaction as well. Um, so there's, that's one reason there's noise in those numbers. The other reason, and especially, I wanna talk about this in terms of COVID there's so much noise is cuz typically that if you set aside what you're hearing from the media and you look at a sample LOI and it might have, oh, there's going to be a proposed price. If it's dated this way at let's just say eight times EBITDA, the EBITDA that ultimately that will be based on is a normalized baseline performance. Um, there will be a process of discussion to understand what's happened in the last few years. What is the baseline today and the expected future performance. So, especially right now, after two years of the pandemic and wildly different impacts on financial statements, um, the process of normalizing those out means the baseline EBITDA that the multiple that you, that, you know, the purchase price results in multiple love may be very different than what gets reported to the media. Um, so I'll just give a couple simple examples. We've uh, I think I talked in the presentation about certain specialties being favorably impacted by the pandemic and others negatively. Um, so for example, if you took a surgery center and I'm sort of taking some examples from our work and changing the numbers a little bit, um, but we had, you know, a surgery center that was significantly impacted in the volume. Um, they weren't able to adjust staff enough that it offset expenses. So they had a really rough year leading into a transaction and their reported EBIDA on their actual financial statements was only, let's say 500,000, but once you assumed that some of that volume was gonna be back, they could right size their, um, their staffing model. And there were some other changes just looking at their actual historicals, their normal baseline EBITDA that management and we felt was comfortable. And the buyers felt were comfortable, was one and a half million. So if the purchase price is 10 million, the reported multiple would be 10 million on 500,000, which is 20 times or you're 18 times multiple out there reported. But when you normalized out some of the wild swings from the pandemic, the actual multiple was 10 million over one and a half from a business perspective, which is closer to seven. Um, and we, the opposite was true for some urgent care that we looked at where the COVID testing volume, that urgent care. And I mean, I'm based in New York city. Um, and we solve COVID testing tents everywhere, um, for the past year. And they're still up in a lot of areas and that was a big boom to those organizations and yes, they might keep some of it, but won't continue at the level. It continues. So it was the opposite. They might report a really low multiple because if a transaction wants just say closed at 40 million and their performance was 10 million, that suggests a low multiple four times. But really once all that testing goes away, their actual EBITDA is much lower. So there's just all of these swings. And so what do you do with that? I think<laugh> is the takeaway when I'm telling you there's just noise, what do we do? Um, I think it's just a reminder to look at what's out there and understand when under these transactions happen, who are the buyers and sellers that at least is available. If you're looking at the information and talking to the seller or the buyer in the case of specific transaction, you're working on and sharing with them, how they may be similar, but also be may, may be very different. And then that reminder that what's reported is not doesn't reveal all the details of the specific transaction, the specific performance and the specific future performance pertaining to the deal at hand. That's a lot sort of, kind of jumping around all the different scenarios. So you can ask me follow ups or we can go into
Speaker 2:Specific. Yeah, no, and it's great. And, and I, and we can stay on that topic, but also just to kind of bring in something Glen you were talking about before. And I think something that, you know, that not struggle, but a question I get a lot from clients or something I have to push on clients sometimes to think about is involving external advisors, other than lawyers. Right? And they, they, they don't wanna spend the money. They don't see the value, but I think Jessica, what you were just articulating and, and whether, you know, it's a, it's a valuation consultant, it's an investment banker. I wanna talk about what the different roles are, but you know, that kind of market perspective and that ability to have some intelligence that gets behind those numbers to help interpret some of that D that data. I mean, that's, it's such a key insight that evaluation consultant or an investment banker can bring to the table and, and really help, uh, a seller understand the deals that are being presented to them, you know, and, and how those deals compare to market in a way that, you know, Glen and I, for, for whatever we can bring to the table, that's, that's not something we can bring to the table. Right. And, and so, you know, understanding that there is so much noise out there, but there is a way to, to parse through it if you have the right information. I think that that's, that's really important.
Speaker 4:Yeah. I mean, to build on that point, Jedi, I mean, you're right. We, we struggle at times to get clients, to hire the other advisors that are absolutely key to this process. And I, and I try to explain to, um, you know, clients what those other advisors can do. And at the same time, explain, you know, a lawyer's limitation in the process, because I want to try to show the value that those advisors can add, but you know, that that's an uphill battle, but as I'm sure you can appreciate J you get this too, you and I get asked all the time, what's the market for multiples? What, what is this, what is that? And, you know, we can, we can generally state what we have seen on deals we have worked on, but that's certainly a far cry from what the market standard is because we're, that's not our job. That's not our role. We're, we're not out there gathering all that market data. And so many times I end up saying, you need to hire consultant to hire an investment bank. You need to hire evaluation from, I mean, so many times. And, um, you'd like it to fall unless deaf ears, unfortunately.
Speaker 2:Um, no, no. And that's super helpful. And I guess, you know, Glen, just, you know, for, I know it's probably more relevant to, to our clients maybe than to the listeners here, but, you know, in, in a nutshell, how would you encapsulate the role of, of those advisors and are there others that, that you recommend a client get involved accountants or, or otherwise mm-hmm
Speaker 4:<affirmative> so let's break it up a little bit. Um, if you're at the initial stage as a group where you're trying to decide, do I go with PE, do I go with a hospital? Do I say, join a super group? I think a general consultant is the right person. There not an investment banker, an investment banker's role is really gonna be in most, not all, but most instances to kind of bring you to market when you already know the type of partner you want. Um, so it, you know, a consultant who has experience advising physician groups on strategic options should be brought in at that point to, you know, have that initial conversation with the group. What are you looking for? What is each person looking for and try to package that all together. Now, sometimes I think there can be a little difficulty as when does that person's role end, cuz let's face, it just alluded to what you were saying before Jed, in terms of, um, trying to get clients to pay for those types of advisors. It's important to define what, when they start and also when they're done. And as far as I'm concerned, if the group can then decide, we want to go, let's say, for example, the PE and we don't want the other two options. I think that consultant is done at that point. Uh, that that's my that's where I think almost hit the end of what they can do if you're going to go to the PE route. Then at that point, I think you're engaging an investment banker and I'll come back to that in just one second, if you're gonna go with the hospital probably means that the physicians themselves have some sort of relationships with the folks at the hospital. So I think the physicians on their end can then pursue those relationships themselves. Same thing with the super group. In most instances where you might be deciding, let's say it orthopedic was the example we were using in our presentation. If you decide you wanna join orthopedic super group, it's gonna be the physicians who really have that relationship and drive that not some sort of outside advice. So I think the physicians can run with it at that point, if you're going to PE though it there's no substitute for an investment banker who has experience in your space, kind of packaging you together in the best light possible. Uh, if you want to call the book, the booklets, you know, whatever, whatever you want to call it, but, but preparing some nice propaganda and then taking you to market sometimes, you know, there are a lot of large investment banks out there who really cater appropriately to large physician groups because their fees, you know, SU sustain that type of platform. But there are a lot of lower middle market investment banks who do just as great of a job at a lower price point because they're looking at it lower EBIDA physic groups, smaller groups. There's in my, in my mind, there is an investment banker for all sides. And so the investment banker that's when they get involved to go help find the match, the lawyer really comes in when the, the group has kind of, you know, sort of said, this is the firm. I, I think we want to go with, let's get that LOI doesn't mean you can't go back to market. Um, but you know, when you, you want to kind of get close. And then to me, it's both, it's all of the investment banker, the lawyer and the accountant, looking at the LOI, there probably isn't much for the accountant to do in that LOI. Um, but it depends on the LOI. I'll be honest with you. Let's face it as, as all three of us know summer, you know, have more details than others. Um, and there's always a little bit of a weird balance of what's too much in LOI versus too little. Um, but that's when those folks really come to the table and get involved the accountant who usually has the historical knowledge of the group more than the invest banker and the attorney know, knowing their history should be looking at the LOI. The invest in banker is looking at certain of the key business terms and the lawyer also key business terms, but the, but the legal stuff, you know, as well. And then to me, it falls to the investment banker at that point to help with due diligence production, help with, um, you know, kind of valuation reacting to valuations that might come across the line reacting to Q of the accountant's gonna be involved as well. But the investment banker's role does not end. They've not completely earned their fee when they've said TAA, here's an assigned LOI. The lawyer comes back into play during due diligence, typically on the sales side, only if there are certain issues in due diligence that the seller has concerns about. You know, we, I don't see our role as having to look at every little piece of information that the seller is going to produce that that that's just cost not cost effective. But for example, I just was on a call with a client today, um, a group that had to complete, um, an orthopedic, a, uh, a stark, uh, a stark compensation questionnaire that buyers council had wanted. And I had to work. I had to work with a client through that, which, you know, that's something we should be involved in, you know, in, in producing some of the responses to the diligence request list. There's a couple of audits that went on from payers. There were couple self-reported HIPAA issues that stuff should get vetted by your council, but not nothing else at that point. Um, and then when we get to agreements, the lawyer, the lawyer's role is obviously to work through a lot of the legalese. The account is going to help look at the tax aspects. In addition to tax counsel, the account's gonna help with some of the historical reps about the financial statements, but the still the investment Becker they're still not done yet. Um, you know, we, I have historically used the investment banker as a way to get to the buyer directly. Sometimes when I, as council cannot do that, when I wanna send a message across. And when the client themselves felt too nervous, um, I've also used the investment banker to negotiate some of the business terms sometimes. So that as we all know, we we'll get, sometimes when we try as lawyers try to negotiate a term, we'll get the response from opposing counsel. Well, that's a business term, you know, AKA hands off, you should not be spouting that. All right. There's different perspectives on that, but fine. Then I'll use the investment banker to do that. Um, and then, you know, I think we're, we're running all together, account investment banker and lawyer right up through closing. I think, you know, that's closing is when that ends up cutting off at that point.
Speaker 2:Yeah. Yeah. And, and that all makes it, I'm sorry, Jessica, go ahead.
Speaker 3:I was just gonna add, I think, um, where we get involved for the valuation side, which is a little different than the advisory cause that I think aligns with everything Glen said from an advi, the advisory role, um, is when the hospital's involved and there's a fair market value concern. Um, at that point, it's the similar parties at the table between the two. Um, but there will be an extra layer of someone that's versed in valuation because as those terms get negotiated or renegotiated, um, there's that constant eye on, are we creating a misalignment with fair market value by changing the terms? Are we still okay there? Um, for compensation and business, um, acquisition or equity acquisition terms, um, and then on the due diligence, I would, you know, there's the parties that are supplying all the information. And then on that the buyer party side, um, a lot of times they're gonna want more than just sort of the financial due diligence expertise. They will want someone that knows that specialty and that operation specific, um, so that some of the questions around the transition, not just the historical detail and that part of the diligence, but the planning part of it we'll wanna make sure. So for example, if it's orthopedics, like in our example, they'll want folks that are versed in orthopedic specialty to be involved in the diligence team. So I, we were talking like what the physician group is hiring. Um, and I think it changes a little bit depending on who that group is. Who's involved in the larger conversation from both sides.
Speaker 2:Yeah, no, that's a, that's a great point. And, and as you both alluded to, I mean, you could end up with really a lot of players on both sides. Now I'd be interested in this, you know, in your, in both of your perspectives, you know, Glen is kinda the lawyer working on the deal, Jessica, as an advisor working on the deal, you know, I guess I'll start with Glen. I'm sure that you have been in situations where communication between all the people on your side of the fence is suboptimal, right. And, and maybe it's, someone's not involved enough, maybe it's, someone's over involved. I mean, how do you try as the lawyer, I guess, do you view it as your role to try to kind of quarterback that group and provide some process and, and coalescing among all the people on your side of the fence, do you think that's the investment banker's role? Like how do you try to coordinate that communication in a transaction process?
Speaker 4:So, so Jed, you make a great point that it is more often than not suboptimal. I, I wish I could say or think otherwise, but I, it, it wouldn't be true. Um, you know, I, I do look to the investment banker to play that role, and it's not because as the lawyer that I'm trying to pass the buck, but in most instances where the lawyer is billing on a time expended basis, whereas at this point in the transaction, the investment banker's fee has kind of been set and earned. So the more they do, isn't going to result in higher cost, um, to the client, I'll typically look for the investment banker to, to do that. Um, I, I'm just trying to be mindful, um, of, of cost at a certain stage at that point. Um, but you know, if there's, if there's an issue in the agreement itself that might require account and, and I, I should say agreements floral that might require the accountant weighing and the investment banker weighing in that does fall to the lawyer to make sure that those parties are appropriately looped in. But if there are business issues coming up that are relevant to everyone, to me, that's the investment banker to, to coordinate efforts.
Speaker 2:So that makes good sense. I guess, Jessica, on your side, as, as an advisor, I'm, I'm sure you have conversely felt there have been transactions where you've kind of been siloed and maybe not involved in all the conversations you should be involved in with the lawyers. I mean, how, from your perspective, do you try to navigate through that or, or raise your hand or make yourself heard?
Speaker 3:Sure. I mean, I, I agree with Glen, you know, from that cell side, that is the typical, um, group leading those types of conversations. Um, when we're engaged from the hospital side, I think it can vary because, and I would say maybe with any buyer on that side, because they have internal experts on business development and, and transaction folks. So sometimes they wanna be the ones leading that conversation as the, you know, on staff, internal deal team. Um, other times they may ask the third party advisor to lead a conversation or their outside council. Um, so I think it can be interesting and we do try and take the cue from them. We'll raise it, we'll be involved in advising along the way. And sometimes we<laugh>, I I say sometimes we get to be the bad guy and that's probably true for you guys too. Um, if it's a fair market value question, that's usually when I get put on the, you know, the hot chair and say, okay, why can't we pay more? Why is this a term that's getting sticky? Um, so for that, it kind of depends on which role I'm at the table. If I'm at the table at as evaluation advisor, I think I don't necessarily play both roles because I'm playing, I'm coming in to address those questions and there are other deal people, and then we keep a cleaner action, um, to what those roles are. So it's not mixing the two, but otherwise I, I would agree with the process, um, as Glen laid out as well.
Speaker 2:Yeah. Well, and, and I could certainly sit here and talk to both of you for this, about many more hours, you know, any parting thoughts from either of you, something you didn't get to address in the presentation, something you didn't get to address today that you think is really important for, you know, either a, a physician group to consider a, a lawyer or advisor advising physician groups to consider in these kinds of transactions, um, emerging market trend. It could be anything just any kind of parting thought from either of you before we wrap up.
Speaker 4:The only thing I'll note is that, um, although it seems not to be true sometimes very much is true. That physician groups are more strategic options than they've ever had at any point in the industry. Um, and some of those are quite complex. Um, you know, the, the used to be that, Hey, you joined as an associate, you know, a few years later you became a partner. Perhaps you had a buy-in, maybe you didn't have a buy-in, you know, your, maybe the buys over five years, you, you know, did your thing, then it was time to retire. You got, you got a buyout. Uh, and, and now you're talking about, do I become an employee of the hospital? Do I sell the group to the hospital? Do I join the super group? Do I sell the P what does that mean? This, that, and, and the transactions themselves have just gotten ever more complex? So the, the only thing I would say is that I, I think it's more important than ever, um, for physician groups to get the right advisors on board and, and to make sure that they get advisors who are experienced doing these, um, it is pretty easy to screw these up. Um, and, and, you know, for us as attorneys, you know, that's just another transaction and you move on down the line for these physicians, it's their careers, it's their livelihoods, it's their retirements. Um, and so on the one hand, things are great for these physicians. On the other hand, there, there are risks.
Speaker 3:Yeah. And you guys are both healthcare lawyers. And so I'll just add that when Glen talks about folks, you know, finding the right advisors that are experienced doing these transactions, it's experience doing these transactions, you know, with physicians and with hospitals and with the PE with physicians. Um, because that, I do think we see physician groups come to the table that have not brought in healthcare. They they've brought in people that are very experienced with doing deals and lots of deals, but maybe don't understand, um, the nuances of healthcare and healthcare regulations, the way, um, Jed, you and Glen do. And that makes a big difference. Um, when we see where that dropped LOI or where things are when it, when we come to the table. And, um, I'm not that lawyer, um, of course, but when I see what's being brought forward, I can often tell like, who is helping and whether or not they have that healthcare expertise or not coming into the conversation.
Speaker 2:Yeah, no, and, and certainly appreciate that thought. And, and I, I promise this isn't to scratch my back. I'll, I'll scratch our situation, but I think you heard Glen say it before, too on the investment banker side, and same is true on the valuation side, you know, involving advisors who are experienced in the healthcare industry, but also even in the particular specialty at issue, um, can, can make a, have a critical impact on the available pathways. So I, I, a hundred percent agree, um, even though it's self-serving of me to do so<laugh> so, uh, with that I'll I'll thank Glen and Jessica, thank you so much for spending a little extra time on this topic. Um, I really enjoyed hearing the presentation to transactions. It was, uh, fun and fascinating to be able to dive into it more with you here today. Thank you. Tola for allowing us to do this. Um, and thank you all for listening, and I hope you have a wonderful rest of your day, wherever you
Speaker 4:Are. Thank you. Very,
Speaker 3:Absolutely. You
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