Big Business. Small Practice.

February 14, 2019

Times are changing, today’s optometrist needs to be aware of how a new market force may impact the transition of their office.

In some ways, the marketplace for transitioning an optometric practice has never been better.

Over the last several years, the value for optometric practices has remained constant. All of the myriad challenges faced by optometry, such as managed care, big-box retailers, online providers, etc., have been priced into the marketplace. Since the recession in 2008, the financing and capital markets have responded well and provided the necessary capital to young doctors desiring to buy a practice.

Those two factors, along with the increase in baby boomers reaching retirement age, have made the transition marketplace extremely active. Any young optometrist desiring to be in private practice ownership will have no trouble locating a very good practice to buy and will find the capital necessary to finance the sale.

However, a new player has entered the marketplace and is affecting the sale of the traditional optometric office.

 

Consolidators Come Out

For many years, most optometric practices were sold in the classic conventional manner. As a doctor reached retirement age, he or she would start looking for a new or younger doctor wanting to be in private practice and start the negotiations to make the sale happen.

The traditional market to buy an optometric office was a young doctor, three to five years out of school—many of whom associated with the practice as an employed doctor before deciding to move forward with the purchase. This model is still alive and well, and many offices transition ownership in this way.

In the last five years, however, a new market force (often referred to as “consolidators or aggregators”) has entered the scene. Consolidators or aggregators are generally for-profit groups or large medical groups desiring to buy their way into the market in a particular region of the country. Many of the aggregators and consolidators are gaining access to venture capital markets, allowing these groups to fund acquisitions and gain a large footprint regionally.

From a strict business model standpoint, having consolidators or aggregators in the marketplace can be a good thing.

Undoubtedly, it has changed the supply and demand dynamic while perhaps also altering the traditional method for selling or buying a practice. Capitalism is built on this principle of supply and demand, and it operates in all markets, including optometry practices.

The ebb and flow between sellers and buyers is an active force of every marketplace. Today’s optometrist needs to be aware of how it may impact the transition of their office.

For the selling optometrist, having another demand-side “customer” is a positive trend. But, like any new force in the marketplace, there is a certain disruptive quality as both sellers and buyers adapt to this new market force.

 

3 Transition Points

A few important points should be kept in mind by the doctors entering this stage of their career if they are considering a complete sale of their office.

First, for a consolidator or aggregator, buying your practice is a business transaction and does not involve any emotional qualities as it may for the selling doctor. It is a good idea to stay focused on the terms and conditions of the deal and realize that it’s business and not personal.

Second, you may find that the purchase price offered for your practice is acceptable, but the offer for your continued employment after the sale is not what you had wanted. It is important to realize in these types of transactions that you cannot have it “both ways.”

Before entering the process, do some soul-searching so you are clear on what is most important to you. Stay focused on achieving those deal points. If long-term employment is the most important issue to you, negotiate those points first and realize you may have to concede some of the purchase price to get the deal done.

Finally, not all consolidators or aggregators are willing to cash the seller out at closing, as some may require you to carry some of the purchase price back through a promissory note.

If your retirement portfolio does not allow for that much risk, this type of a transition strategy may not be for you.

 

Are You Ready?

For many years, most optometrists who graduated from school in the mid-’60s or before have believed (and were taught) that their practice would be a substantial part of their retirement portfolio. As practice values have declined over the years and the cost of optometric education for young doctors has skyrocketed, selling a practice is not easy.

These two factors have collided at a time when most optometrists are planning on a return on the capital and asset investment of their practice to help fund or supplement their retirement.

The exit strategy is not complicated, but must be thought through and strategically planned in order to reduce stress while maximizing your return on investment. Determine the time frame for the transition out of the practice within a year or two. This will give you the time needed to plan your work and work your plan, as it is usually a very personal event for most optometrists.

The timing of the sale, and perhaps retirement, is something only each individual optometrist can answer for themselves. There are many factors that go into making this decision, not the least of which is how a doctor has planned for their retirement.

Once you have decided to leave your full-time-practice, implementing an exit strategy by bringing in an associate doctor to buy the office, or selling your practice outright or to a consolidator, should move forward.

For many doctors, their practice has been their life’s work. Transitioning to the next phase of life is both emotional and rewarding. With enough lead time and thoughtful planning, you can make your exit strategy work for you. 

 

Ready to start planning your exit strategy? Learn more about our Transition Programs or contact Bill Nolan below.

Bill Nolan

Executive Vice President of Williams Group
Email Bill

 

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