Ready to sell? Experts offer advice on doing so successfully

FigureRichard Carmen, AuD, is hoping to find just the right purchaser for his solo audiology practice in Sedona, AZ. Since last fall, Carmen says he has talked to numerous audiologists and a handful of corporate representatives who have expressed interest in buying the successful practice that he started from scratch in 1990. A 40-year veteran of the profession, Carmen has the only solo practice located in this relatively small, affluent community, whose beautiful red rock landscape and high-desert climate make it a popular winter destination for snowbirds from the North as well as a refuge for people escaping the scorching summer heat of more southerly Arizona. He's had a couple of offers from corporate entities that have been acquiring independent practices around the country. But he worries about selling to a chain because, he fears, they may be rejected by many residents in a community that frowns upon large corporate owners and prefers to patronize the majority of businesses in Sedona that are locally owned. Carmen also worries that the practice's reputation for expert, personalized service that he worked so hard to build could disappear under the wrong ownership. “I built a good name in my community, and I'd be remiss in my obligation to the community if someone bought the practice and didn't continue the same kind of work,” he says. Carmen is willing to wait for a buyer who fits well with the community. As of late June, he says he was engaged in serious discussions with two independent audiologists, but nothing had come to fruition. His situation is one of many such scenarios playing out around the country as a large number of audiologists and hearing instrument specialists who built up strong, independent practices over the past 30 or 40 years have reached a stage in their lives when they are considering exit strategies that will enable them to cash out and either retire or move on to new ventures. Some are looking to sell a turnkey operation and walk away from the business; many others would be willing to stay on for months or even years to facilitate a smooth transition to new ownership.Figure: Richard Carmen.In addition to people whose businesses are already on the market, there are many other hearing professionals who know they should begin thinking about selling their practices in the not-too-distant future, but may not know where to start. NATIONAL COMPANIES LOOKING TO BUY In recent years, corporate entities in the hearing care industry have been responsible for a surge in acquisitions as they seek to expand regional or national practice networks by buying independent practices in targeted markets across the U.S. and Canada. Many owners report receiving unsolicited calls from companies asking if their businesses might be available. Even if owners have not been thinking about selling anytime soon, such calls often prompt them to consider the value of their practice and the merits of cashing out sooner rather than later. This increase in purchasing activity by corporate networks has also inspired some business owners to seek out younger practitioners coming up through the ranks of the profession who would consider purchasing their practice and maintaining its independence, says Kathy Foltner, AuD, chief executive officer of AuDNet, Inc., a national branding network of audiologists based in Burnsville, MN. One of its goals is to match up prospective sellers with buyers who want to own an independent audiology practice. The company promotes its expertise in assisting audiologists who need help in preparing an exit strategy and aiding practitioners who feel ready to position themselves for a purchase. While there may be no shortage of younger audiologists and hearing instrument specialists who want to own their own practice, it is often difficult for them to find someone to lend them financial backing, says Foltner. Successful independent practices often are worth hundreds of thousands of dollars or more, an amount likely to be out of reach for younger audiologists, many of whom are recent graduates of AuD programs already saddled with hefty student loans to repay. Financial considerations aside, some hearing professionals may be intimidated by the thought of running a business if they've spent most of their career focusing on the clinical side, honing their diagnostic and fitting skills rather than learning how to manage a business. The good news for sellers is that the younger crop of audiologists who have graduated with AuDs are better trained than the master's graduates of the past to deal with business-related issues. Most doctor of audiology programs require graduates to have taken business courses that clue them in to the process of running a practice. Some offer classes that teach future entrepreneurs how to develop a business plan to open their own office or make a convincing case that they can take to a financial institution when they're looking for a big-ticket loan. This article will explore some of the issues hearing care practitioners should consider in preparing to sell a practice. It will also include advice from business experts and from hearing professionals who have been through the process of putting a business in shape to maximize its value to a purchaser as well as to ensure continuation under the new ownership of the quality of services and the steady flow of patients they worked so hard to establish. In surveying the landscape for who's in the market for hearing healthcare practices, some might conclude that the great majority of businesses on the selling block are being snapped up by chains intent on expanding their market share in specific cities or regions throughout the country. Many such companies have deep pockets and can handily afford to absorb expensive solo practices or multi-site clinics. In fact, some of these companies have been buying practices at a brisk pace for years and their appetite seems unlikely to abate anytime soon. On the other hand, there are still many independent practitioners looking to become their own bosses. Change of strategy at HearUSA HearUSA, Inc., a West Palm Beach, FL-based company listed on the American Stock Exchange, owns about 150 hearing care clinics that operate under a handful of name brands (including HearX and HearUSA). It had been growing organically until May 2005, when it changed its strategy to accelerate its growth through practice acquisitions, says Gene Fell, vice-president for business development. In the last 12 months, the company has purchased 11 clinics and more deals are in various stages of development, says Fell. He notes that HearUSA identifies potential sellers via direct marketing to practice owners in selected markets throughout the U.S. He also receives unsolicited calls from audiologists and hearing instrument specialists interested in selling their businesses. “Since 2004,” says Fell, “there has been renewed vigor among some of the larger [hearing care] companies that are looking to consolidate and own more practices in certain markets. The quickest way to accelerate revenue growth and profitability is to acquire clinics.”Figure: Gene Fell.Like other national networks buying up independent practices, Fell says that HearUSA is looking for well-run businesses that have a good location, measurable profitability, and a growing patient base. Companies typically look for owners who are willing to stay on for a transition period after the sale to facilitate a seamless change in ownership, he adds. Sonus seeks practices on the rise Sonus is another national hearing care chain that has been purchasing hearing healthcare clinics at a rapid clip. The Plymouth, MN, company, which is a division of Amplifon USA whose parent company is Milan-based Amplifon S.P.A., acquired 70 new practices last year with combined revenues of about $14 million, bringing its holdings to more than 150 practices in the U.S. and Canada, says Marshall Rosner, vice-president of acquisitions. In the first 5 months of 2006, Sonus had acquired six more practices and Rosner says he was working on 10 more deals as of late May. He adds, “Sonus plans to continue growing its business at this pace for the foreseeable future.” One criterion Rosner looks for when scouting for new practices is a diversity of business sources. His company likes to buy clinics that draw their patients from more than one place, including physician referrals, database marketing programs, and newspaper advertising. Sonus also prefers to buy practices from owners willing to continue working at the clinic for about 3 years. Rosner explains, “If the revenue generator is ready to sell and walk out the door, that has less value to us.” He adds, “I also like to see businesses that have 60% new patients each year because clinics that depend on repeat sales for the bulk of their revenue aren't as attractive to us. We're looking for businesses that are profitable and on their way up in terms of growth rather than on their way down.” Avada values a strong reputation Another large chain is Avada Audiology, which was founded and is owned by a group of successful dispensers. Since 2000, the Louisville, KY-based company has been selectively adding hearing care practices to its stable of more than 200 offices in 17 states, says Steve W. Barlow, chief executive officer of Avada and chairman of Hearing Healthcare Management (HHM), the Columbus, OH, company that owns Avada. Most of its practices are located in the Midwest, but Avada also has a strong presence in North Carolina, New England, and Washington. Barlow says that when considering possible acquisitions, Avada prefers multi-site practices that have strong reputations in their local market and follow good protocols that emphasize patient care as the foremost important aspect of their business. Another high priority, he says, is being able to retain the owner/operator of a practice after the sale.Figure: Steve Barlow.Barlow, a board-certified hearing instrument specialist, had his own clinics in Louisville before he and other regional directors formed HHM. Thus, he says, “I've been in the situation of having my own business evaluated, and I know that I'm looking to pay what the practice is worth today, not what it might generate in the future.” MARKET INCLUDES INDIVIDUAL BUYERS TOO Plenty of individual audiologists and hearing instrument specialists are also purchasing private practices, but because this part of the market is fragmented, it's difficult to get accurate statistics on the level of activity. AuDNet, Inc., which offers audiologists a place on its web site (www.aud-net.com) to list themselves as interested buyers or sells, had 143 buyers and 14 sellers registered in its database as of late spring, says Foltner, the CEO. She says that one of her company's core objectives is to create a mechanism by which audiology practices can be bought and sold and preserve their autonomy rather than being swallowed up by one of the national chains. “We want to help independent practitioners transition to other independent practitioners so private practice doesn't disappear,” says Foltner, who owned and operated a large practice in Michigan for many years. “It's been my experience with corporate consolidators that the value is placed on the hearing aid transaction vs. the providers and their relationships with patients.” She adds, “I don't think any good business person should sell their business for a cause. But I believe you can sell your business to another entrepreneur and still get top value for it.” PLUSES AND MINUSES The very different experiences and reactions of two practice owners approached by the same prospective purchaser illustrate some of the reasons that sellers may decide to do business with a network or, alternatively, insist on finding an interested individual. A successful transaction David Hill, MS, owned a profitable audiology practice with locations in Glenview, IL, and nearby Evanston, for 36 years until he sold it to Sonus in 2004. He hadn't been actively looking to sell, but after receiving calls from several different corporate entities, he decided to hear them out. “Sonus made me an offer I couldn't refuse,” says Hill. While declining to give specific figures, he notes that the deal was a cash earn-out that gave him one-third of the payment when the transaction closed, another third spread over 2 years, and the remaining third to be determined in part by annual revenues posted by the practice in the 3 years after the sale. He agreed to keep working at the practice for 5 years as a salaried employee, but he spends only 3 days a week in the office, which permits him to continue his diagnostic work on staff at two hospitals. The transaction worked out well for Hill, who says he is assured of financial security when he retires and in the meantime can keep working at what he loves, but at a slower pace. He was also pleased that Sonus agreed to continue providing diagnostic testing at his clinics, since many of his patients are referred by physicians and end up purchasing hearing aids after a diagnostic work-up. Hill also says he was glad to be relieved of a lot of pressure when he relinquished the responsibilities of running a practice. He no longer has to fret about billing, insurance, supplies, salaries, and the other “mundane day-to-day headaches that you have to worry about in private practice,” he says. “Now, I come in, I do my work, and I go home.” However, Hill cautions that owners who sell to large companies and stay on for a transition period can expect to lose much of the autonomy they were used to when they were the owner and made decisions without consulting anyone else. For example, he says, he ordered new balance testing equipment earlier this year and 5 months later he is still waiting for approval. “I'm a Type A personality and I like things done my way,” observes Hill. “I'm not used to these kinds of delays. I like the new relationship, but I'd like things to move along faster.” On the other hand Selling to a large company isn't for everyone. About 2 years ago, John T. Zeigler, AuD, says he received an unsolicited call from a Sonus representative who said the company was interested in exploring a possible purchase of his practice in Tavares, FL, near Orlando. Although Ziegler says he wasn't looking to sell at the time, he was curious to learn what the company might be willing to pay. After several meetings and conducting some of his own research, Zeigler became adamant that he would not sell his business to Sonus or any other corporate entity. Based on his conversations, he became convinced the company would eventually end the diagnostic services he was providing at a local hospital. He admits that diagnostic work takes time and generates less money for a practice per hour than selling hearing aids. But he contends those services were a vital element of his practice and part of the professional commitment he had made to his community as an audiologist.Figure: John Zeigler.He states, “I believe most corporate entities taking over private practice audiology concerns will destroy diagnostics because most won't charge for those services and instead will focus on hearing aid sales. I'm afraid [these corporate chains] are turning the business of audiology into fancy hearing aid centers and, in effect, are forcing some audiology practices to reduce or eliminate professional fees.” In the end, he sold his practice to an AuD audiologist who had worked there for 13 years. Zeigler, who agreed to remain on staff during a 6-month transition, says he was satisfied with how things worked out and is glad he did not sell to a corporation. Not surprisingly, Zeigler now serves on the executive board of AuDNet, which is dedicated to preserving independent, individually owned audiology practices at a time of increasing corporatization of the distribution network. In defense of networks Defenders of corporate networks argue that it's unfair to assume a chain will automatically stop focusing on diagnostics or otherwise do harm to the practices they acquire. In the case of David Hill, for example, one of the reasons he gives for being happy with the sale of his practice to Sonus is that the new owner has maintained diagnostic testing. Speaking for HearUSA, Fell says that in many instances the company will continue offering the same mix of services and products and might not even change the names of practices it purchases to reflect the new ownership status. “The real challenge after an acquisition is to continue operating the business in a successful way and not let the clinic lose its identity in our corporate environment,” he says. As an example, Fell notes that HearUSA was close in May to finalizing an agreement to buy an independent practice that generates a substantial portion of its revenue from balance testing and is known for that specialty in its market. He insists that HearUSA has no intention of eliminating that activity or losing the revenue stream it generates. WHAT TO CONSIDER BEFORE SELLING Before anyone hangs up a “for sale” sign—figuratively speaking—outside his or her business, here is some advice from experts on what an owner can do to maximize the value and the price of a practice. Develop a business plan It's essential to develop a business plan that includes an exit strategy as part of the overall long-term goals of the business, advises Tomi Thibodeaux Browne, AuD. Browne co-owned a multi-site practice in the Washington, DC, suburbs of Arlington and Alexandria, VA, for about 20 years before she and her partner, Gretchen Syfert, AuD, sold it to Sonus in 2004. When they opened their doors in the early 1980s, Browne says, not many audiologists were engaged in private practice and those who were had not been in business long. Thus, people opening audiology practices in that era had to figure most things out on their own. But now, says Browne, there are many successful and well-established models for audiologists to emulate. She recommends that private practitioners take advantage of them in making their plans. Browne adds that most AuD programs, such as the one at Pennsylvania College of Optometry where she teaches, offer classes on writing a business plan and she adds that consultants are available to assist in that area.Figure: Tomi Browne has been working recently a long way from Arlington, VA, where she practiced until she and her partner sold the business. Here she's shown at the Nyumbani orphanage in Kenya, where she has gone several times as a volunteer to provide audiologic care and other support to the HIV-positive children who live there.Steve Barlow of Avada Audiology advises practice owners to operate their businesses as if they were preparing to sell them in the near term—even if they have no intention of doing so. Patient care is always the highest priority, he adds, but after that, every business decision made by the owner should be about building a practice that has a sustainable structure and measurable profits for a prospective buyer, he says. “A smart seller will begin building for that as early as possible,” says Barlow. “You can't wait until 6 months before you start to sell to fix your business.” Get a valuation of your practice Before setting out to find a buyer, determine how much your practice is worth so when you get an offer, you'll know if it's one you should consider, advises AuDNet's Foltner. There are different formulas that can be used; one widely cited guideline for a price is one times annual revenues, but other formulas are employed as well.Figure: Kathy Foltner.Foltner also cautions owners to detach themselves emotionally from the calculations required to determine a realistic valuation of the practice. The bottom line is based on revenue and profit, she states. Prospective buyers don't care how much sweat and energy over how many years an owner poured into developing referral relationships and contacts in a community. She adds, “If you want to walk away from your business immediately [after selling], you will decrease the value of your practice. [Owners] need to consider staying for a while because that will add value to the sale. A one-person office that's generating half a million dollars a year runs a big risk when that person leaves.” Be prepared to accept change When hearing care professionals sell a practice they've spent many years, often decades, building into a successful business, it's important that they understand and feel comfortable with the new business model that the purchaser may pursue after a deal is signed, warns Browne. Having realistic expectations about how the practice's marketing strategy or mix of services may change is critical to a practitioner's ultimate satisfaction in any deal that is struck, she notes. Browne recommends that a seller specifically ask potential buyers how they plan on running the business if they acquire it. She speaks from personal experience. Though Browne believes she and Syfert were paid a fair price for their practice, she says she was disappointed with the dramatic shift in marketing tactics. She says that the company began emphasizing competitive prices for hearing aids in ads in the local newspapers, as opposed to the previous strategy of focusing on highly skilled service that appealed to a well-educated and affluent patient base. Because of the sharp turn in strategy, among other Browne says that she and the staff the practice the first year after the which the “We spent 20 years out how to make our practice work,” says Browne. a purchases your business, they often have a model that to isn't always a of Marshall Rosner cautions sellers to be prepared to much of the they have been to when they remain on the under new ownership. he says, a person who a practice and a salaried for a years to have in marketing and other However, he adds, owners have to give up in such as to the office and they are to hearing aids from a list of one that includes the For David Hill, the part of selling his practice was the that with ownership. who stay on after a sale to a national company should expect to make because most larger entities have of and about how to do things warns Hill, who doesn't like some of the he has to through to get from “I was a big he I what I in my and sales now my is and I is a based in and a to The Hearing

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