Selling an OB/GYN Practice: How to Prepare for a Transaction

How to Prepare an OB/GYN Practice for Sale or Strategic Partnership

Selling an OB/GYN practice should not begin with calling buyers.

It should begin with preparation.

A physician practice transaction can involve years of financial history, multiple providers, employees, payer relationships, contracts, operating systems, patient relationships, and the future role of the owner after closing.

The more thoroughly those issues are understood before a practice reaches the market, the better positioned the owner may be to navigate buyer questions, due diligence, negotiations, and competing transaction structures.

For many practice owners, the first instinct is to ask:

Who might buy my practice?

A better first question is:

Is my practice truly ready for buyers to evaluate it?

Below are several areas OB/GYN practice owners should consider before beginning a formal sale or strategic partnership process.

1. Clarify What You Want From a Transaction

Before evaluating buyers, an owner should define what success actually looks like.

There is no single correct reason to consider a transaction.

You may be thinking about:

• Retirement
• Reducing administrative responsibilities
• Creating personal liquidity
• Bringing in a strategic partner
• Recruiting additional physicians
• Expanding into new locations
• Strengthening management infrastructure
• Developing a succession plan
• Reducing personal financial risk
• Positioning the practice for its next stage of growth

Those objectives should influence the entire transaction strategy.

An owner who wants to retire within a relatively short period may need a very different transaction structure from an owner who wants to continue practicing and participating in future growth for another decade.

The goal should not simply be to obtain the largest number on an initial offer.

The goal should be to determine what combination of economics, future role, flexibility, risk, and practice continuity best supports the outcome you want.

2. Understand the Practice’s Normalized Financial Performance

Buyers will want to understand the underlying economics of the practice.

That means more than handing over a recent profit-and-loss statement.

Owners should have a clear picture of:

• Historical revenue
• Historical profitability
• Physician compensation
• Staffing costs
• Facility expenses
• Non-recurring expenses
• Owner-specific expenses
• Collections performance
• Revenue by provider
• Revenue by major service line
• Significant changes from year to year

One of the most common concepts in an M&A process is normalized earnings.

The objective is to understand what the business would reasonably earn under a sustainable operating structure after accounting for unusual expenses, owner-specific items, and other appropriate adjustments.

If financial information is unclear or inconsistent, buyers may discount what they cannot confidently understand.

Clean financial reporting does not create value by itself, but it makes the underlying value of the business easier to demonstrate.

3. Evaluate Provider Depth and Owner Dependence

An OB/GYN practice may be very successful while still being heavily dependent on one or two owners.

That matters in a transaction.

A buyer will likely want to understand:

• How much revenue each physician generates
• How many physicians and advanced practice providers are employed
• How long those providers have been with the practice
• Provider productivity and capacity
• Recruitment needs
• Whether providers are expected to remain after a transaction
• How much clinical revenue is directly tied to the selling owner
• How involved the owner is in administrative decision-making

The central question is continuity.

If the owner reduces their clinical schedule or eventually retires, what happens to the practice?

A business with diversified provider production and established operating leadership may present less transition risk than one where nearly every important function depends on a single physician.

That does not mean an owner-dependent practice cannot transact.

It simply means the issue should be understood before a buyer identifies it during negotiations.

4. Review Payer Mix and Revenue Concentration

Practice owners should know exactly where their revenue comes from.

That includes both payer composition and other forms of concentration.

Areas buyers may review include:

• Commercial payer concentration
• Medicare and Medicaid exposure
• Self-pay revenue
• Revenue concentration by provider
• Revenue concentration by location
• Major referral sources
• Hospital relationships
• Revenue contribution from individual service lines

Concentration is not automatically negative.

The concern is whether a material portion of the practice’s economics depends on something that could change after the transaction.

Understanding these dependencies early gives the owner an opportunity to explain them appropriately and determine whether any risk can be reduced before entering the market.

5. Understand the Economics of Each Major Service Line

OB/GYN practices can have very different service models.

For some groups, traditional obstetric and gynecologic care represents the overwhelming majority of revenue.

Others may have additional procedures, diagnostic capabilities, complementary women’s health services, or other ancillary offerings.

Before going to market, owners should understand which parts of the practice actually drive financial performance.

That can include questions such as:

• Which services generate the most revenue?
• Which generate the strongest margins?
• Which depend on one physician?
• Which are growing?
• Which have excess capacity?
• Which could realistically expand?
• Are there services that create complexity without meaningful economic contribution?

Buyers will generally be more interested in sustainable economics than a long menu of services.

Being able to clearly explain how the business works makes it easier to position the practice intelligently.

6. Identify Operational Weaknesses Before Buyers Do

A practice can produce excellent clinical results and still have operational vulnerabilities.

Potential buyers may evaluate areas such as:

• Staffing
• Management depth
• Scheduling
• Billing and collections
• Financial reporting
• Technology
• Recruiting
• Human resources
• Vendor management
• Administrative processes
• Documentation

Owners should ask themselves:

If someone unfamiliar with this practice examined the business today, what would concern them?

Maybe the physician owner approves every decision.

Maybe financial reports are difficult to reconcile.

Maybe employee responsibilities are poorly documented.

Maybe one key administrator holds most of the operational knowledge.

None of these issues automatically prevents a transaction.

But identifying them before going to market gives the practice an opportunity to improve, document, or at least properly explain the situation.

7. Review Key Contracts and Agreements

A buyer may examine a wide range of agreements during due diligence.

Depending on the practice, those may include:

• Physician employment agreements
• Advanced practice provider agreements
• Facility leases
• Equipment leases
• Vendor agreements
• Payer agreements
• Management contracts
• Partnership or shareholder agreements
• Hospital-related agreements
• Other material business contracts

Before formally launching a transaction, practice owners and their professional advisors should understand which agreements are material, when they expire, and whether they contain provisions that could become relevant during a change in ownership.

Discovering an important contractual issue after negotiations are already underway can create unnecessary friction.

8. Anticipate Due Diligence

Due diligence is often one of the most demanding phases of a transaction.

Once a buyer has progressed beyond an initial offer, it may request significant documentation to verify the financial, operational, legal, and organizational information presented during the process.

Owners can make this phase much easier by organizing information before it is requested.

Typical areas of review can include:

• Financial statements
• Tax returns
• Provider information
• Employment agreements
• Payer information
• Corporate documents
• Material contracts
• Leases
• Billing and collections
• Compliance-related materials
• Employee information
• Operational data

A well-organized practice can respond more efficiently and with greater consistency.

More importantly, preparation may uncover issues before the buyer does.

That can give the owner and their advisors time to evaluate the issue, determine its significance, and decide how it should be addressed.

9. Develop a Credible Growth Story

Buyers frequently want to understand what opportunities exist beyond the practice’s current financial performance.

Those opportunities could include:

• Recruiting additional providers
• Increasing provider capacity
• Expanding an existing location
• Entering additional geographic markets
• Growing established service lines
• Improving operational efficiency
• Capturing unmet patient demand

But owners should be careful not to turn the growth story into unsupported optimism.

The strongest opportunities are supported by facts.

For example:

• Existing patient demand exceeds provider capacity
• A location has room for additional providers
• A successful service line has clear room to expand
• Historical recruiting has produced measurable growth
• Existing referral relationships support expansion

A realistic, evidence-based growth story can help a buyer understand why the practice may be strategically attractive.

10. Decide What You Want Your Role to Look Like After Closing

One of the biggest mistakes an owner can make is focusing entirely on the transaction price while giving insufficient thought to what happens the day after closing.

If you intend to continue practicing, understand what you want your future role to look like.

Consider:

• Clinical schedule
• Compensation
• Administrative responsibilities
• Leadership responsibilities
• Decision-making authority
• Growth expectations
• Recruiting responsibilities
• Retirement timeline
• Flexibility to reduce hours
• Length of expected commitment

An owner who wants to continue practicing five or ten more years may evaluate a buyer very differently from someone planning to retire shortly after a transaction.

This is one of the reasons financial and non-financial outcomes should be considered together.

A compelling purchase price may be less attractive if the post-transaction role does not fit the owner’s goals.

11. Do Not Let the First Buyer Define the Market

Physician practice owners are increasingly approached directly by buyers and investment groups.

An unsolicited offer can be flattering.

It may even be a very good offer.

But without understanding the wider market, it can be difficult to know.

Different buyers may value the same practice differently based on geography, strategic fit, existing operations, growth objectives, and their own investment priorities.

Transaction structures can also vary substantially.

One buyer might offer more cash at closing.

Another might offer greater retained equity.

Another could provide a better long-term professional fit.

Another may place greater value on the practice because of a specific strategic need.

A structured process can help the owner evaluate opportunities in context rather than treating the first proposal as the only available benchmark.

12. Assemble the Right Advisory Team

A physician practice transaction is not something an owner should navigate alone.

Depending on the transaction, professional advisors may include:

• M&A advisor
• Transaction attorney
• Accountant or tax advisor
• Wealth advisor
• Other specialized professionals

Each advisor serves a different purpose.

The sell-side M&A advisor helps prepare and position the practice, identify and approach buyers, manage the transaction process, evaluate offers, and negotiate commercial terms.

Attorneys help evaluate and negotiate the legal agreements.

Tax and financial advisors help owners understand the consequences of different transaction structures.

Strong coordination among those professionals can help the owner evaluate decisions from multiple perspectives rather than focusing only on purchase price.

Preparation Can Influence the Entire Transaction Process

There is a fundamental difference between taking a practice to market and taking a practice to market properly prepared.

The preparation process gives owners an opportunity to:

• Understand their practice’s value
• Identify buyer concerns in advance
• Strengthen financial reporting
• Clarify provider and owner dependence
• Organize diligence materials
• Develop a credible growth narrative
• Define their personal objectives
• Compare transaction structures intelligently

At Burgeoning M&A Advisors, this preparation is a central part of our approach.

We do not believe the first step should be racing to find a buyer.

We take the time to understand the practice, its financials, operations, provider structure, opportunities, risks, and the owner’s priorities before determining how the business should be positioned in the market.

That deeper preparation allows potential issues to be identified earlier and helps create a transaction process built around the owner’s objectives.

Considering Selling Your OB/GYN Practice?

You do not need to be ready to transact tomorrow to start preparing.

In many cases, understanding the practice today gives an owner more options later.

Whether you are considering retirement, evaluating a strategic partnership, responding to buyer interest, or simply planning several years ahead, getting an objective view of your practice can help you understand what may be possible and where preparation could strengthen your position.

Burgeoning M&A Advisors helps physician practice owners understand their value, prepare properly for the market, evaluate potential buyers and transaction structures, and navigate the process from initial planning through closing.

Schedule a confidential conversation to better understand your OB/GYN practice value, options, and next steps.