Considering a transaction is an immensely personal and impactful decision. Shareholders must consider multiple economic and interpersonal factors when deliberating when and how best to pursue a partnership. A group might be interested in partnering with a financial sponsor to pursue growth, consider retirement in the relatively near future, or want to mitigate the personal financial risk of having most of their wealth concentrated in their practice. Again, each shareholder’s decision is incredibly personal and is usually a combination of several factors.

Increased private equity interest in orthopedic services represents an opportunity for physician shareholders to seek access to growth capital and pursue personal financial risk mitigation with a tax-advantaged cash windfall. In contrast to traditional bank loans, private capital offers the flexibility to customize solutions according to the specific requirements of the business. It also fosters alignment of incentives among partners, facilitates financial diversification, and introduces enhanced expertise that was previously unavailable to orthopedic practice shareholders.

In a typical deal structure, private equity sponsors will typically make a control investment, greater than 50%, in a practice and invite shareholders to maintain rollover equity which is a percentage (e.g., 30% – 40%) of equity into the newly formed entity or platform practice. Additionally, shareholders no longer personally guarantee the financing of the Company. Other factors such as productivity, day-to-day management, and facilitating the growth of the newly formed entity become the primary concerns of the physician shareholders and management team, while the decisions are made by the clinical leaders of the organization. As this entity grows organically and through onboarding new physicians and additional practices; profitability increases through the realization of operational and administrative efficiencies. Physician shareholders participate in the growth through continued ownership in the platform entity, while not having to personally guarantee capital for growth. Shareholders often participate in the substantial appreciation of equity value in the platform entity upon a secondary recapitalization, or “second bite of the apple,” after what is typically a five-to-seven-year period. In conclusion, shareholders can monetize the hard-earned value they have achieved over their careers while reducing personal financial risk through asset (practice) diversification and pursuing broader growth strategies while meaningfully participating in the upside of such growth. 

With a proven track record in M&A advisory services with more than $1 billion in aggregate transaction value generated, Westcove excels at orchestrating curated and competitive processes for physician practices. This ensures that founders and operators receive their deserved value for years of dedication to their patients, communities, and other stakeholders. Westcove’s pivotal role lies in preparing clients for success by offering strategic guidance, connecting them to an exclusive and carefully selected network of financial and strategic partners, and diligently managing the marketing process to secure optimal results in valuation and key deal terms.