For practice owners and buyers alike, there are several options and safeguards that can be arranged to protect interests post-closing. One of those interests is ensuring the proper staff is in place to keep the business running smoothly after the transfer of ownership.
The employment terms listed here are a part of the wider trends we observe in structuring transactions, specifically as it relates to supporting the team as ongoing employees of the buyer. The recent shortage of staff continues to have a sizable impact on these terms, with 2021 seeing significantly more attention paid to Associate DVMs and key staff than any other year. Let’s get started.
DVM and Staff Bonus
Today, more transactions are allocating material retention incentives for Associate DVMs and staff. With recruiting and staffing challenges becoming more acute, retention incentives are crucial to secure a return on the buyer’s investment, especially given the high price tags they’re paying for practices. Buyers typically expect sellers to offer retention bonuses to Associate DVMs, and occasionally some staff. DVM bonuses are paid in the form of cash, TopCo equity, or sometimes both. If cash is offered, it’s generally paid out over time to provide incentive for the staff to stay. TopCo equity offers usually include vesting schedules and are not realized in cash for some period (until a recapitalization event). The funding of these bonuses varies: buyer, seller, or shared funding, depending on the negotiations.
Associate DVM Contracts
Buyers will expect your Associate DVMs to enter new employment contracts by the closing date. In limited situations, your existing contracts might be assigned to the buyer. The employment contracts with your DVMs need to have reasonable non-compete clauses (if legal in your state) to provide the buyer with protection that Associates won’t leave and take clients. The non-competes must have ‘tail’ provisions for a period post-employment, as well as a reasonable non-compete radius around the hospital. Many practices have these agreements in place already, but if not, it’s something to be discussed early on in the transaction process.
Many buyers want a DVM for medical leadership at the hospital in exchange for an annual payment (or production pay at a higher percentage). The seller often serves as the Medical Director, but sometimes an Associate DVM that is a big producer is given the opportunity for growth and leadership in the role. We recommend considering your practice dynamics first before deciding, as each hospital has its own unique situation.
Employment Agreements: Additional Terms
Most buyers will include key terms of the employment agreement in their Letters of Engagement (LOIs), including: number of years they expect you to stay, CE allowance, covered professional dues, vacation and personal time, and other important items around your employment. Please note: If you plan to deviate from your pre-closing work schedule, you should discuss the potential changes upfront with your buyer. It’s best practice to ensure there are no surprises to anyone; any revenue production that is ‘lost’ by you working less can be made up by another DVM.
As a seller, you should always ask buyers for information about the benefits your staff will receive under new ownership. Buyers usually offer a range of benefits, including health (employer contributes), dental (typically employee paid), 401k (employer match), vacation time, holiday pay, and more. This is often a positive for your staff if the benefit plans are better than what you currently offer. On the flipside, if the buyer’s benefits are not as good as what you provide, they will want to keep staff ‘whole’ and would likely offer pay increases instead.
By and large, most sellers tend to deprioritize these employment-related terms in favor of items like valuation, TopCo equity, and other valuation-related factors. Regardless, these employment terms are fundamental to post-closing satisfaction and need attention. Getting things ‘right’ for yourself and your team is critical to setting up your hospital for a successful transition. At Ackerman Group, we know the key terms where buyers have some flexibility, and our team can customize deal terms to meet your goals while satisfying a buyer’s concerns.