Healthcare M&A

Considering a strategic transaction of your healthcare business...

Physician-owners and executives are inundated by companies who want to partner with their surgical facility or practice. When considering a potential strategic transaction, the real estate and current lease is often an afterthought. This is typically because the physician-owners may not be seeking a sale-leaseback at the onset of the strategic transaction or know that a poor lease could lead to future conflicts or operational issues and a reduced value for the real estate.

Physician owners are rightfully focused on the intersection of the best strategic partnership and maximum sale proceeds. However, the real estate is a very valuable asset and the facility lease should not be ignored.

8 Reasons to Review Your Lease and Consider a Real Estate Sale Prior to a Strategic Transaction

1. The value of medical real estate depends on your lease and your new business partner may not allow you to modify the lease after the strategic transaction.

2. A review of your lease may show that the lease terms are not in line with market terms and conditions, which could lead to a reduced value and future conflicts with your new partners.

3. Selling your real estate prior to a strategic transaction removes potential conflicts regarding your real estate with your existing and new partners.

4. Removing real estate from a buy-in makes it easier to add new physician-partners to your business, and new partners will increase the value of your business.

5. Selling your real estate can clear your balance sheet of debt, providing for a better price for the business sale.

6. Real estate buyers can pay for building expansion/renovations and additional buildings to help fund growth and increase the value of your business.

7. An analysis of your lease will confirm if the rent represents fair market value. You have the opportunity to lower the rent to increase the EBITDA, resulting in a higher strategic sale price. If the rent/sf is below market, you could increase the rent to achieve a higher real estate value.

8. Real estate brings the highest valuation in a sale when you have a new long-term (10-to-15 year) NNN lease.

Physicians Advised

Evaluate Your Real Estate and Lease Prior to Strategic Transactions:

Having the real estate and lease reviewed by experts does not take the focus away from a strategic transaction. Modifying your lease or selling your real estate can often add additional value or enhancements to a strategic transaction.

A strategic transaction is a complicated process best handled with the guidance of experienced strategic advisors, attorneys, and accountants. The timeline on this transaction may be 12-18 months depending on the intricacies of the business and variables.

A real estate sale process typically closes within 4-6 months of the initial listing and commencement of the competitive process. Removing the real estate and lease from the strategic transaction in the beginning of the process often removes an additional complexity from the business sale.

Whether physician real estate owners decide to move forward and sell their real estate prior to a strategic transaction or decide to retain it under a lease that best fits the long-term needs of their business, they can put themselves in a better position by knowing all of their options.

Our partners and associates have advised hundreds of ambulatory surgery center physician-owners on development, merger and strategic acquisitions of ASC’s, surgical hospitals and physician practices businesses.