URGENT CARE SELLERS BEWARE: That amazing offer to buy your practice is probably not what it seems

I’ve recently become aware of “dealmakers” pitching large future payouts for urgent care practices, but only if you agree to sell your practice now. If you’ve received one of these solicitations, it’s important to understand the implications:

• No Cash Up Front: The biggest red flag is when the urgent care seller does not receive cash in a transaction. Instead, you exchange your practice for a stake in a portfolio of other practices. You’re paid only when this portfolio sells in the future, meaning they’re not buying your practice–they’re only buying a right to sell your practice.

A stake in a future portfolio sale is illiquid and speculative because there’s no guarantee that sale will occur. As you wait for your “ship to come in,” the dealmaker may be able to sink your practice from the portfolio. Yet you cannot sell your practice to anyone else for years while the contract is in effect.

• Extraordinary Valuation: Just as the occurrence of a future portfolio sale is speculative, so is the valuation. When the portfolio sells, it’s the dealmaker (not you) who negotiates the price and terms with the portfolio buyer. The contract binds you to whatever price the dealmaker can get. Today, the dealmaker may describe a future in which the portfolio sells for an irresistibly high multiple of revenue. To support this, they may point to Amazon’s 2023 purchase of One Medical for $3.9 billion or Walgreens’ 2020-2022 $9.7 billion in VillageMD (including Summit Health-CityMD). Such “moment in time” valuations are not repeatable today’s market.

Urgent care chains have never been valued as a multiple of revenue but rather, as a multiple of EBITDA. The types of companies that trade on a multiple of revenue—think early Uber, Amazon and Tesla—are capital intensive, focused on quickly proving demand, with a plan to become profitable once operations scale. These can be described as “frothy” businesses, characterized by speculative fervor, investor overconfidence, and a general disregard for traditional valuation metrics.

These “frothy” characteristics do not describe established local businesses like urgent care. Referencing a track record of hundreds of urgent care transactions, multiples of revenue are almost never the way urgent care practices are valued.

• Keeping All Risk: A dealmaker may claim there’s “no risk” to the urgent care seller who “maintains control of the operation” until the portfolio sells. Yet should your revenue fall, such would affect your share of proceeds from the portfolio sale. While waiting, you’ll keep covering your debt and cash shortfalls. You could be left with little to nothing after all your debts are paid. Yet, the dealmaker will profit by taking a significant share of the proceeds if the portfolio sells.

In practical terms, the dealmaker is unable to provide any details as to what a speculative buyer will do with your operation—who will lead it, which staff will be retained, and what services will be implemented. Even your own employment may be terminated and restricted from competition.

When in doubt, remember the adage “if a deal sounds too good to be true, it probably is.” Because the deal terms presented to a practice may differ, it’s always prudent to seek the advice of an experienced healthcare transaction attorney before engaging in any transaction.