Dealmakers are flocking to the health care sector, eager to tap into the next great idea in medical innovation. When physicians see colleagues closing deals to monetize their practices, their minds quickly form an exciting vision, says Thomas Ferkovic, CEO of Medic Management Group.

“They think, ‘Hey, maybe I could get that too,’” Ferkovic says. “But they haven’t thought it through. You plan your exit if you own your business, you plan your succession and you plan what you really want at the end. They haven’t done that. They start with, ‘Give me an offer. Come buy me.’”

Ferkovic has spent his career identifying opportunities for growth in health care. While there are millions, and in some cases, billions of dollars to be made, there are also a lot of regulatory steps that must be addressed.

“Health care is right up there with banks with all the rules you have to go through on how to do things,” Ferkovic says. “That’s why good health care lawyers are in such demand.”

Smart Business Dealmakers spoke with Ferkovic about dealmaking in health care, both from the perspective of the physician and the potential investor.

Be a problem solver

I was always very entrepreneurial, even way back when I was a pharmacist at the Cleveland Clinic. I saw things and helped start up services like home IV therapy when nobody was thinking about freezing drugs. I always thought, ‘Why not, that sounds like a good idea. Let’s try it.’ Even as a pharmacist, I started companies. I saw an opportunity where you could go to a nursing home because they needed pharmacists to review notes and charts way back in the ’80s. I knew hospital pharmacists had days off during the week because they had to work weekends. So we put together a little company where we would get paid for the number of beds we would go and see on a monthly basis. 

How do you get someone to join you in a fair way, help them out and fulfill their needs, but don’t bankrupt yourself? It’s not that we were so smart. We didn’t have a lot of money to invest, so how do you do a deal? You try to find out what people really want. What is their goal? What are they looking for? It’s not always money. Sometimes it’s lifestyle, sometimes it’s security and sometimes it’s legacy. Sometimes it’s money. None of them are wrong. Someone who builds a business and decides to cash out for a big number has that right. A similar person who builds that business and doesn’t ever want to cash it out, who wants a legacy, is not wrong either. You have to find out what is it they really want. Then you get to that answer. If it’s sincere, then you figure out how to get there.

Be cautious

If you’re an investor, you need to be able to quickly read a situation to see if there is really a transaction there to be had. You want to find out if the parties you’re talking to really have an interest in doing a deal or are they just testing an idea because their colleagues are being offered this money or this opportunity and they just want to see if that’s true.

In health care, physicians don’t prepare their practices to be ready to be acquired. Some of the companies that deal with health care on the periphery, you look at them and they’re not ready. They haven’t done what they need to do. They always thought their practice had no value other than a few charts and a future salary with a hospital. They didn’t realize that anybody who got those large numbers in a deal, they had some value that was built like any other company outside of health care. There is a process and a procedure that is repeatable and a reason they are doing better than others.

Be methodical

If you’re a physician, you need to get your A-team together before you go out talking to anybody. I worked with a health care professional who did an assessment of his practice and I said, ‘OK, if you do nothing, here’s what it’s going to look like and here’s what we have to do. We have to get you more doctors and continue the growth’. His practice does better in his specialty than his peers, because it’s well run.

He interviewed five investment banks and he hired one. We talked to his staff, we prepped all the data based on what the investment bank asked us. We put all the stuff together so that it was solid and when it was under due diligence, it would pass all those questions. He had an accountant do all the financials in the format that someone acquiring his practice would want, not in the traditional format that a practice does. We had him interview three health care law firms that specialize in his space and got a law firm on board. Even when he got the non-disclosure agreements from people looking at his stuff, they were already prepped in a format that’s a benefit to him. You can’t imagine how many doctors or health care businesses would just get something and sign it. He is in the final stages of closing a transaction.

Related story: Kelsheimer, Ferkovic Join Forces At Medic Management