Buying a Locum Tenens Company: Financing Guide
Buying a locum tenens company gives an acquirer access to an established network of physicians and advanced practice providers, client relationships with hospitals and medical groups, and the credentialing systems needed to place clinicians on short notice. For many buyers, it is a way into a specialized corner of healthcare staffing without building a recruiting operation from scratch.
Locum tenens businesses differ from nurse staffing in important ways, and lenders review them with those differences in mind. This guide covers what to evaluate and how an acquisition may be financed. Deal terms and state rules vary, and nothing here is legal, tax, insurance or compliance advice.
How Locum Tenens Companies Differ From Other Staffing Agencies
A locum tenens company places physicians, nurse anesthetists, nurse practitioners and physician assistants in temporary assignments. Compared with nurse or allied staffing, these businesses often have:
- Fewer placements, each with a higher bill rate and larger gross profit
- Longer sales and credentialing cycles before a provider can start
- Significant hospital privileging and payer enrollment work for each assignment
- Malpractice coverage arranged for providers, which adds cost and complexity
- Recruiters who specialize in particular specialties and know those provider communities well
Specialty focus can matter a great deal. A company with deep relationships in hard-to-fill specialties may be viewed differently from a generalist business, depending on its earnings history and client mix.
What to Evaluate When Buying a Locum Tenens Company
Before buying a locum tenens company, a buyer should understand where its earnings come from and how durable they are. Key areas include:
- Specialty mix: revenue and gross profit by specialty, and how demand for each has trended
- Provider network: how many active providers work repeat assignments and how they are recruited
- Client base: concentration among hospitals, medical groups and government facilities
- Recruiter retention: whether key recruiters and account managers will stay after the sale
- Owner involvement: how many relationships depend on the seller personally
- Contracts: client agreements, provider agreements and any non-solicitation terms
A thorough review of these points supports a realistic healthcare staffing agency valuation and helps the buyer explain the deal to a lender.
Malpractice, Credentialing and Classification
Several risk areas are specific to locum tenens and deserve close attention:
- Malpractice coverage: buyers should understand the type of policy in place, whether tail coverage is needed and how past claims are handled after the sale
- Credentialing files: the quality and completeness of provider files can affect client relationships and risk
- Worker classification: how providers are engaged, whether as employees or independent contractors, should be reviewed by qualified professionals
- Licensure: providers working across states must hold appropriate licenses where care is delivered
Insurance policies, client contracts, hospital approvals and vendor program memberships should not be assumed to transfer to a new owner. Our healthcare staffing acquisition due diligence checklist covers these items in more detail.
Financing Options for Buying a Locum Tenens Company
Because locum tenens companies are asset-light, lenders focus on cash flow, the buyer’s experience and the stability of the business rather than hard collateral.
An SBA 7(a) loan may be used to help finance the purchase of an existing staffing business and, in some cases, working capital, subject to program rules and lender approval. Eligibility and terms depend on the business, the buyer, use of proceeds, program rules and lender review. Buyers can estimate potential payments with our SBA loan calculator. Estimates are for planning purposes only and do not represent an offer or approval.
Conventional acquisition loans may also be available for experienced buyers with strong credit and liquidity. Some transactions include seller financing, and seller notes are typically subordinate to senior debt.
Lenders generally review:
- Several years of financial statements and tax returns
- Gross profit by specialty and by client
- The buyer’s experience in staffing or healthcare management
- Credit history, liquidity and the equity being contributed
- The plan for keeping recruiters, providers and clients through the transition
Every loan is subject to approval, and nothing here is a commitment to lend.
Bridging Valuation Differences
Sellers of specialty locum businesses may expect a price that reflects strong recent performance. Buyers may worry that results depend on a few providers or a few clients. Contingent payments can help bridge that gap, though lenders and loan programs may limit how they are used. Our article on earnouts in healthcare staffing acquisitions explains the trade-offs.
Plan for Working Capital After Closing
Locum assignments can involve travel, lodging and malpractice costs paid before the client pays. After closing, the buyer will need a working capital line or other funding to cover provider pay and those costs while receivables are collected. Building this into the acquisition plan can help avoid a cash squeeze during the transition.
Buyers who are also weighing nurse or allied staffing targets can compare the broader process in our guide on how to buy a healthcare staffing agency.
Final Thoughts
Buying a locum tenens company can give an acquirer a specialized provider network and valuable client relationships. It also brings malpractice, credentialing and classification questions that deserve careful review, along with working capital needs that start on day one. Buyers who understand the specialty mix, keep key recruiters in place and structure financing around realistic cash flow may be better positioned for a successful transition.
US Medical Funding helps buyers finance healthcare staffing and locum tenens acquisitions. Learn more about our healthcare staffing agency acquisition financing.
