Industry Focus

How can you overcome these transactional challenges? Unless these three issues are addressed by a well-considered and proactive plan, they will inevitably be scrutinised by investors at the time of a transaction and could result in sub-optimal pricing or onerous deal terms or, in a worst-case scenario, become deal-breakers altogether. KPMG Corporate Finance recommends you consider these three strategies at least a few years in advance of a transaction: Talent sourcing and retention A medical practice needs to be able to demonstrate a continued doctor cohort following the retirement of existing practitioners. It also needs to be able to incentivise existing doctors to remain with the practice for a meaningful period of time through, for example, equity incentives, shared ownership arrangements and bonus structures. It is important for these types of arrangements to be well planned at the onset to ensure the strategy results in aligned behaviours. Corporatisation This refers to the deliberate transition of the medical practice from an owner- operator to corporate function. Elements of this may include: independent governance (for example, an independent board member or advisory board that is separate from the doctors/owners); the source of revenue and profit (the doctors) will depart the business post-transaction. Focus on clinical excellence at the expense of business administration efficiency Because medical groups have a primary focus on patient treatment and clinical excellence, there is potential for the business administration element of the practice to be overlooked. The size of many medical practices also contributes to the evolution of this mindset. For example, a practice that represents a collection of fewer than 10 specialists may struggle to justify investment in back office functions, especially when balanced against investment in clinical items (equipment and training), which is personally funded. Future growth of the business While many medical groups own and operate their practices at stable, profitable levels for many years, once they reach a certain size threshold many become 'comfortable' and do not prioritise the pursuit of further financial growth. In contrast, financial sponsors have a completely different mindset to many existing doctors/owners. A financial sponsor is more likely to aggressively pursue financial growth to deliver maximum return. implementation of regular and timely financial reporting, as well as financial and clinical KPIs; and the implementation of an independent management solution for the business (independent of the owner/ doctor cohort). At its most extreme, corporatisation can result in the restructure of a medical business into a company or similar structure, which in some cases may facilitate positive behavioural change across the organisation. Articulation of the business' growth plan To ensure maximum pricing is achieved, any transaction process should include a growth plan for the business. This document should address: the business' growth strategies (that is, future growth for potential investors); realistic but ambitious forecasts incorporating financial returns from these growth strategies; and how your business plans to mitigate any risks associated with these growth strategies. Ultimately, this plan will emphasise the future earnings potential of your business, with the intention of articulating future value to entice investors to pay more. In part two, KPMG will discuss the different transaction options available to medical groups. KPMG Corporate Finance's Mergers and Acquisitions (M&A) team advises businesses on preparing for and pursuing transactions, with deal size commonly in the $20 million to $500 million range; sale processes (often as business owners' succession planning); capital raisings; and mergers and acquisitions. The M&A team has one of the largest completed deal lists in the country and a strategic focus on the healthcare sector. Brendan Larsen, Director bplarsen@kpmg.com.au 07 3233 9373, 0410 677 233 Nick Heggie, Executive nheggie@kpmg.com.au 07 3225 6801, 0421 816 963 Nick Young, Analyst nyoung2@kpmg.com.au 07 3233 3243, 0424 414 572 KPMG Corporate Finance is a division of KPMG Financial Advisory Services (Australia) Pty Ltd ABN 43 007 363 215, Australian Financial Services Licence No.246901. The information contained in this document is of a general nature. It has been prepared to provide you with information only and does not take into account your objectives, financial situation or needs. 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