Learn how Withum prepared a strategic valuation for a Gastroenterology practice, leading to their successful acquisition by a health system.
Executive Summary
Withum was engaged by the CFO of a regional not-for-profit community hospital to determine the strategic value of a lucrative gastroenterology practice the hospital was pursuing for acquisition. Central to the deal’s attractiveness was the idea that the hospital could employ the physicians and unlock additional patient activity that they were currently performing under the umbrella of a competing system. Because the practice’s facility was owned by the partners through a separate LLC, Withum also performed a real estate appraisal in the event the practice’s real estate would also be acquired.
The Client
A regional not-for-profit community hospital in North Carolina targeting a gastroenterology practice with nine physician partners and an annual revenue of $17 million.
The Challenge
The hospital underwent several rounds of negotiations with the physician owners to arrive at a fair purchase price for both the practice and its real estate. The physicians were extremely productive relative to industry benchmarks and were well aware of the fact that their practice was one of a kind in the local region.
Because the physicians would be employed by the hospital post-transaction, their willingness to sign off on the transaction was conditioned on receiving compensation levels commensurate with their high volumes. However, the hospital did not want to be on the hook for high compensation costs in the event of a productivity drop post-transaction.
The Approach And Solution
To resolve negotiation hurdles surrounding purchase price, Withum analyzed the revenue levels that could be realized post-transaction and gave the hospital greater insight into the practice’s strategic value. Withum also analyzed historical work RVU data for the physicians and assisted the client with structuring compensation levels that maintained consistency with fair market value while requiring certain productivity thresholds to be met.
To resolve disagreements over the practice’s real estate, Withum reconfigured the real estate appraisal into a fair market rent analysis and provided an alternative value scenario in which the physicians could retain ownership of their facility and enter into a lease arrangement with the hospital. The combined efforts made by Withum enabled all parties to come together amicably and close the deal.
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