Over the last few years, we’ve been experiencing an increased number of practice mergers. Some of these are borne out of the desire to gain scale locally by forming ‘super partnerships’, while others are aimed at resolving problems. Either way, there are important steps to consider before a practice merger takes place.
Apart from the belief that 'bigger is better', practice mergers are typically motivated by seeking to resolve one or more of the following problems:
- Difficulty in recruiting partners
- Lack of potential buyers of a surgery
- Too much time spent dealing with regulations and paperwork
- Current partners approaching retirement
- Inability to provide a broad enough range of services such as 7-day opening
Merger or acquisition?
Whatever the motivations, GP practice mergers usually fall into one of two categories: true ‘mergers of equals’ and acquisitions.
The difference is important, because a true merger creates a business which is different from the original practices whereas an acquisition simply make one of the practices bigger.
Due to the regulations, both mergers and acquisitions will use the legal mechanism of going into partnership, and both will almost always be referred to as merger. However, it’s the reality on the ground is very different.
In an acquisition, the acquiring practice will impose their own systems, processes, management, controls and so on. Partners from the acquired practice will either be in a minority in the new, bigger practice, retire, or possibly become salaried. This scenario is most common when a single hander is retiring and looking to dispose of their practice, or when one of the practices is much larger than the other.
In a merger, however, all of these things will usually be looked at before selecting the ‘best from both’, The partners from both practices will generally stay on as partners in the new partnership with a shared vision for the future. Often this will involve new ways of working such as a management board to make day to day decisions in the enlarged partnership.
Caveat emptor (buyer beware)
Whether your practice merger is a true merger or an acquisition, there are risks and problems inherent in the process. GPs often seem to believe that a merger or acquisition is simply a question of drafting a new partnership agreement. Not so.
If you’re considering merging with or acquiring another GP practice, remember to ensure that you take the time to fully understand the other business. This process is known as due diligence, and encompasses identifying the actual and potential issues inherent in each practice, and deciding what the new merged practice will look like. Potential issues could be financial or legal so you should be looking at both the accounts and the various contracts and legal obligations.
For example, we’ve seen mergers that resulted in the transfer of large dilapidations costs on buildings, mortgage redemption costs, long forgotten pension fund liabilities, and legal disputes with current and previous employees. When these later crystallise in the merged practice they can come as an expensive surprise.
Download our step-by-step guide to ensure you don’t miss anything out when preparing for and executing a merger or acquisition.
For more information about practice mergers and acquisitions and any other related issues, please contact Daphne Robertson on 01483 511555 or email [email protected]