Consortium Sale: Growing Value for Physician Practice Owners

As an investment banking advisory firm, our group represents practice owners in business sales and capital raises. It is common for our team to be in confidential discussions with multiple owners in the same healthcare segment at the same time, including in the dermatology market. These owners are contemplating hiring our firm to represent them in a sale and often ask how they, as sellers, can drive the utmost value in a sale process. In certain situations, we propose a consortium sale to capture enhanced value. In short, this occurs by partnering with at least one other practice in a sale and engaging an experienced investment banking advisor to manage the consolidated sale process.

A consortium sale is taking two or more businesses in the same industry and presenting them together to the market of buyers. On the surface, presenting two or more practices in a sale can appear straightforward and simple. However, a material amount of preparation, communication, and vision are required of all key parties to execute on this strategy. As an investment banking advisor who has successfully executed this playbook, we understand these key steps and outline them for readers below.

Consortium Identification

First, candidates need to be selected for the consortium. Consortiums have been formed not just along industry lines but also based on pre-existing relationships that owners had with one another. It is easier to get excited about teaming up with another practice in a sale if you, as an owner, have a lot of respect and affection for the other consortium candidate(s) and have a complementary, not competitive, fit with the other practice(s).

While we might suggest a strong candidate based on our experience and knowledge of the situation, the consortium parties decide who is included in the collective sale. It is important to note that in a consortium sale the candidates will not formally merge or integrate prior to a transaction. Instead, they will be presented together as one platform acquisition opportunity that could be formally merged and integrated after the close of a consortium transaction.

Preparation and Presentation

To successfully execute and deliver enhanced value in a consortium sale, the following key positioning points must be addressed:

• Explain why these practices integrate well as a consortium. Articulate how these practices will operate together post-close and the synergies that they will realize together once they are formally under one umbrella.
• Ensure that the owners of the respective practices agree on motivation and end goals. Disagreements and lack of alignment in a consortium sale can create significant issues and reduce the chances of a strong outcome.
• Define the best buyer options to increase valuation and certainty to close. Whether strategic buyers or financial sponsors, the best market of buyers should be defined prior to starting a process.
• Drive competition so that buyers are motivated to present aggressive valuations for the consolidated consortium platform.
• Manage the process with a focus on milestones, diligence-worthy materials, and momentum. A more disciplined sale process increases the likelihood of an optimal outcome.

Why a Consortium Approach?

To answer this question, we will reference the typical financial sponsor playbook for acquisitions. A financial sponsor’s goal is to buy a platform (ie, first investment) at a buyer-friendly valuation and to complete add-on acquisitions at even lower valuation multiples. This arbitrage strategy allows financial sponsors to create enhanced returns, though at the expense of the sellers.

With a consortium strategy, we are flipping the financial sponsor approach on its head to benefit both business owners and sellers in the following ways:

• A consortium sale can result in a higher valuation by leveraging the arbitrage benefit to the seller’s advantage.
• A consortium sale can generate interest from buyers who might not pursue the practice in an individual acquisition scenario.

Dermatology and Aesthetics Case Study

In 2023, two dermatology and aesthetic practices based in the Western US formed a consortium with the goal of a consolidated sale. As highlighted earlier, these practices fit the recommended rule of thumb: they had complementary service offerings, operated in a similar region through multiple locations, and did not compete. In addition, each of the practices had similar organizational cultures and values. The owners of each practice had a long-time relationship and had profound respect for each other’s business. Individually, these practices were being frequently approached by buyers already active in the dermatology and aesthetics industry.

These two consortium members, operating under the same organizational structure post-close, would realize a tremendous amount of growth, revenue, and cost cooperation. The story of why these practices made sense together was very compelling.

Our firm had existing relationships with both practices through our tenured experience in the dermatology and aesthetics sector. In 2023, a comprehensive sale process was begun with the consortium members, which included strategic buyer and financial sponsors in the pool of buyers. The goals of the transaction have been to focus on a group of strong-fit buyers, which the practice owners approve of, and to obtain a premium valuation for all consortium members. As of October 2023, there was strong interest and offers from a range of quality buyers, and a targeted closed transaction in the first quarter of 2024.

Investment Banker’s Role in a Consortium Sale

With proprietary experience in the consortium approach and successful client transactions of this structure, we are focusing on executing on the following goals:

• Managing the consortium transaction process
• Delivering buyers who will aggressively compete
• Facilitating communications between all consortium partners
• Advising clients on ways to drive value and organizational strength
• Articulating the vision for how consortium candidates can successfully operate together and why a buyer can pay a premium value and still obtain their return objectives

In summary, our end goals are to fully represent the consortium clients and their interests, to drive value, and to find a best-fit buyer for the consortium’s future benefit.

While the consortium approach may not be a reliable opportunity for every practice, there are many healthcare practices that could benefit from this strategy. It can be a tremendous way for a practice owner who is considering a sale to obtain a significantly enhanced value. Give thought to other practices that may be candidates for a consortium partnership with you, consider contacting those owners to begin a conversation, and schedule an informal discussion with an experienced investment banker to explore this potential opportunity.