Ophthalmology Partner Buyout: How to Finance It
An ophthalmology partner buyout happens when one or more physicians purchase the ownership interest of a partner who is retiring, relocating, reducing clinical time or leaving the group. It is different from an associate buying into a practice for the first time: the remaining owners are taking on a larger share of a business they already help run, and they usually need to finance it.
Handled well, a buyout can keep the practice independent, protect patient relationships and give the departing partner a fair return. Handled poorly, it can strain cash flow and relationships at the same time. This guide covers valuation, structure and financing options. Partnership agreements, tax treatment and ownership rules vary by state and by practice, and nothing here is legal, tax or accounting advice.
Start With the Partnership Agreement
Most buyouts begin with the operating or partnership agreement. Many agreements include buy-sell provisions that address retirement, disability, death and voluntary departure. These provisions may specify:
- How the departing partner’s interest will be valued
- Whether the remaining partners must buy the interest or simply have the right to do so
- How and when the purchase price is paid
- Restrictive covenants and notice requirements
- How accounts receivable, surgery center interests and real estate are handled
Older agreements sometimes use formulas that no longer reflect how the practice earns money today. If the agreement is outdated, the partners may want to work with healthcare counsel and a valuation professional before the buyout begins. Our article on ophthalmology practice partnership covers the broader issues partners should address in their agreement.
How an Ophthalmology Partner Buyout Is Valued
Valuation is often the most sensitive part of the process. The departing partner wants recognition for years of building the practice, while the remaining partners need a price the practice can support after the partner leaves.
Elements of value may include the partner’s share of practice goodwill, equipment and other hard assets, accounts receivable and any separate interests in a surgery center, optical shop or real estate entity. Our guide on how to value an ophthalmology practice explains the methods valuators typically use.
One important question is how much of the departing partner’s production will stay with the practice. If the retiring surgeon personally drives cataract volume or referral relationships, the remaining partners should plan for how those patients will be cared for after the transition.
Separate the Practice, the ASC and the Real Estate
Many ophthalmology groups hold their surgery center and building in separate entities. In a buyout, each interest may have a different value, a different set of owners and a different financing solution.
- Practice interest: often financed with an acquisition or practice loan
- Surgery center interest: may be governed by its own operating agreement and repurchase terms
- Real estate interest: may be bought by the remaining partners, an outside investor, or retained by the departing partner as a landlord
Separating these pieces can make the transaction easier to understand and easier for lenders to underwrite.
Financing Options for a Partner Buyout
Remaining partners can finance a buyout in several ways, and many transactions combine more than one source.
SBA 7(a) loans may be used for partner buyouts in some situations, subject to program rules on changes of ownership, the structure of the transaction and lender review. Eligibility and terms depend on the business, the buyers and the use of proceeds, and every loan is subject to approval.
Conventional practice loans follow each lender’s own underwriting standards and may suit established groups with strong cash flow and experienced owners. They may also offer more flexibility in how the buyout is structured.
Some departing partners agree to receive part of the price over time through a seller note. Lenders and programs may limit how seller notes are used, and any seller note is typically subordinate to the senior lender. Performance-based payments may also be limited by lenders.
What Lenders Look for in a Buyout
When reviewing an ophthalmology partner buyout, lenders generally focus on whether the practice can continue to cover its debt payments after the departing partner leaves. They may review:
- Historical practice cash flow and each partner’s production
- How the departing partner’s patients and surgical volume will be covered
- Existing practice debt, equipment loans and leases
- The credit history, liquidity and experience of the buying partners
- The partnership agreement and how the price was determined
A clear transition plan, including recruitment of a replacement surgeon if needed, can strengthen the financing request.
Protect Cash Flow During the Transition
Even when the price is fair, a buyout can create pressure. The remaining partners may take on new debt payments at the same time revenue dips while patients adjust to new physicians. Planning for working capital, reviewing compensation formulas and timing equipment purchases carefully can help.
It is also worth thinking about the next transition. If a younger associate is expected to buy in later, the structure of this buyout can make that future step easier or harder. Our guide to the ophthalmology practice buy-in explains how associates typically become owners.
Common Mistakes to Avoid
- Relying on an outdated valuation formula without review
- Overlooking the surgery center or real estate interests
- Assuming the departing partner’s patients will automatically stay
- Taking on new debt without leaving enough cash for operations
- Waiting until a partner announces retirement to discuss terms
Final Thoughts
An ophthalmology partner buyout can preserve an independent practice and reward a partner’s career, but it requires careful attention to valuation, structure and cash flow. Starting the conversation early and separating the practice, surgery center and real estate interests can make the process smoother for everyone involved.
US Medical Funding helps ophthalmologists finance partner buyouts and practice transitions. Learn more about our ophthalmology practice acquisition financing and our full range of ophthalmology practice financing options.
