• Eric J. Yetter

Cash vs. Equity: Solving The Selling Decision Dilemma for Young Physician-Owners


As more physician-owners continue to capitalize on the value they’ve created within their practices, selling is understandably a tougher decision for younger physicians, who are often decades away from retirement age. Financially, today’s private equity transactions in ophthalmology are once-in-a-lifetime opportunities, but physicians with long career runways are hesitant to pursue a transaction, fearing they will be “stuck” as an employed physician without upside for the rest of their career. Quite the dilemma.


However, understanding this dilemma, private equity firms have mutual interest in creating aligned incentivizes for their long-term physician partners. They use a couple of scenarios to ensure everyone benefits financially as these ophthalmology companies grow, both organically and through further acquisition.


1. Investing in Rollover Equity


In certain scenarios, ophthalmology acquirers use a blend of cash and equity at close. When the selling company (the practice) elects to take a portion of the closing proceeds in the form of shares in the ophthalmology platform company, the seller is receiving rollover equity. By accepting the opportunity to invest a portion of their proceeds as rollover equity, physician owners maintain their status as a true owner – albeit a smaller ownership stake in a far larger entity.


As a result, these physicians have committed capital to the same investment as their private equity partners. Importantly, these investments have the potential to realize significant returns quickly. When the private equity group seeks to harvest its fund (typically after 3-7 years) those physicians will participate in the sale, or recapitalization, of the platform company at what is hopefully a significantly higher valuation than the buy-in.


2. Maintaining a Minority Position for Recapitalization – Sell Your Practice Twice!


A similar, yet slightly different scenario, involves a private equity partner acquiring a percentage of the practice, often 51% - 70%, while leaving the remainder of the practice under ownership of the physicians but including a put-option on the remaining ownership for a future financial event involving the ophthalmology platform company. Simply stated, the acquirer will let you sell the remainder of your practice ownership when the platform company is sold, or recapitalized, and you will be able to sell at the same multiple as the platform company. Safely assuming the platform company will be sold at a higher multiple than any of its previously acquired individual practices, this can be a lucrative second sale of your practice.


Important ... Remember to Read the Fine Print


These acquisition structures solve the continued incentivization dilemma for physicians, allowing them to immediately invest a portion of their cash proceeds and participate in a “second bite of the apple” alongside their private equity partners. However, the leadership at Physicians First advises that you carefully read the fine print before investing in any equity position.


It’s important to hire an experienced M&A Advisor and attorney as you complete this transaction. For more information on selling your practice and Physicians First's investment banking solution, download our current report here.


This post is for informational purposes only and does not constitute an offer, invitation, solicitation, or recommendation to buy, sell, subscribe for, or issue any securities. While the information provided herein is believed to be accurate and reliable, 127 Capital, LLC (“Physicians First”) and Ashland Securities, LLC make no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person. Certain Principals of Physicians First are registered representatives of Ashland Securities, LLC Member FINRA, SIPC. Physicians First and Ashland Securities, LLC are separate and unaffiliated entities. Securities and Investment Banking Services are offered through Ashland Securities, LLC.


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Securities Products and Investment Banking Services are offered through Ashland Securities, LLC. Supervised by the Home Office, located at 80 S.W. 8th Street, Suite 2000 Miami, Florida 33130. Phone Number 305-279-3176. Member FINRA SIPC. Please refer to BrokerCheck for more information about Ashland Securities, LLC. Physicians First and Ashland Securities, LLC are separate and unaffiliated entities.