Kate Richardson, specialist sonographer and managing director of The Birth Company, performs an ultrasound scan
Dr Donald Gibb
Preparing a practice for commercial sale requires a lot of reviewing of its structures and systems. In the sale process, there is a requirement for professional advice on several levels: commercial, legal, finance and particularly accounting.
Dr Donald Gibb tells Independent Practitioner Today of his long-term project to diversify his business and develop it for a commercial sale.
To capitalise a practice, it is important to diversify and depersonalise it. In our case, this was done in the first instance in 2000 by registering it as a limited company with a catchy name as a vehicle for my personal practice.
The entrance to The Birth Company in Harley Street, London
In addition to the tax advantages, it had already occurred to me that this could make the company saleable at an exit. The Birth Company was to become a brand. This was a key move for future success.
It is better to have a commercially descriptive name rather than, say, James Smith Ltd. This was the era of the start of the internet and we embraced this enthusiastically.
It is also important for a website to have an identity other than by personal name. You want to attract clients who do not already know your name. It should describe your activity.
I became clinically busy personally with a peak in 2010. I was already 60 years old and my thinking turned to my exit and legacy. Being quieter freed up space in my clinic for sonographer activity: we made some structural changes to accommodate this.
We recruited high-quality sonographers who were well led and trained in all aspects of obstetric and gynaecology ultrasound. This was crucial.
One of the ultrasound rooms at the Birth Company’s Harley Street clinic
Activity was generated on the internet by investment in seach-engine optimisation (SEO): the vast majority of our cases were and are self-referral and self-pay.
There was an investment in equipment, staff training and recruitment. We focused on early pregnancy ultrasound scans and fertility scans. The early pregnancy scans generated ongoing scans and sometimes births from happy clients.
We linked with reputable overseas fertility clinics providing scans and blood tests. Our sonographers were all qualified and experienced in 12-week pregnancy scans and, in late 2012, the era of non-invasive prenatal testing began. We were the second clinic in Britain to offer NIPTs: a great opportunity. We have now performed more than 10,000 of them.
We also adopted innovative technology. The Viewpoint 6 ultrasound software from Health Net Connections, which we adopted early, was of enormous benefit and an important investment.
The ability to immediately record and transmit images electronically by Tricefy – a cloud-based communication platform – to the patient, relatives and other professionals has been a hugely important innovation.
While still in the ultrasound room, the patient receives a ping of receipt of the images/video on their phone. The grandparents in Australia or elsewhere receive them at the same time!
This is often cited in our Google reviews, now more than 200, as a unique selling proposition of our service. This is also immensely helpful for IVF clinics or consultants waiting to make decisions on results.
I recognised the value and potential of the business in expanding outside London. In 2017, I had more time after ceasing inpatient clinical work and we opened a new clinic in Alderley Edge, Cheshire. This was a strategic location having considered population density, transport links, affluent communities and a known name.
This has proved to be a good choice and demonstrated to buyers the opportunity to expand outside London. We have been able to integrate the support systems for both clinics. The database and diaries can be accessed from either clinic and the phone lines are integrated. Staff are in constant communication.
At this time, we developed an online booking system, which we encourage clients to use. We are confident that our website is educational and they can find answers to their questions there.
We find that clients appreciate the convenience of online booking, 24 hours a day. They pay online when booking and beneficial consequences are that we rarely have a non-attender and we have no bad debts. This is great business.
Of course, some may want to cancel if they miscarry before an early pregnancy scan, but we have a very efficient cancellation and re-imbursement system though email.
What is a practice worth?
The answer to this is whatever someone is prepared to pay for it.
It is not just based on previous performance but more on future potential. The accounts for the years before need to be scrutinised and therefore need to be complete, tidy and understandable. A good accounting software package and a diligent accountant are important.
Net profit is more important than turnover. A calculation of EDITDA (Earnings before Interest, Taxes, Depreciation and Amortisation) should be made.
The advisers of the seller and the buyer will both consider this in determining the worth of the business by using a multiple, which is usually x 4-6 in small medical businesses. It should also be remembered that the value is greater with more potential buyers.
Selling a smaller personal practice is more of a challenge. The benefit for the buyer may be room rental security and a digressive profit share of 30%, 20% and 10% over a few years. This may be a personal arrangement between a senior consultant retiring and a junior consultant stepping up to private practice.
There is only a limited legal framework for such a sale. This may be fraught with difficulties and damaging to personal relationships unless done correctly. Patients cannot be sold as an asset because, if they do not like a successor, they will go elsewhere.
The process of selling
Our company had become very visible. I received occasional emails from businesses involved in the process of buying and selling businesses.
I responded to one based in Oxford who hosted a ‘How it is done’ session at Blenheim Palace: a nice day out. For a small but significant payment, I registered with it and signed a contract.
Inside The Birth Company’s Harley Street clinic
It is important to realise that selling a business costs money, some of it up front in instalments linked to progress. Specialist advisers, lawyers in the later stages and a good accountant may remove 10% of the share of the final cake: the consideration. It sounds a lot, but it is worth it, assuming a good consideration.
The advisers usually have a minimum fee. They advise on the structures of the business and go out electronically to seek possible buyers. I did not have to do any of this myself.
They drew up lists, discussing with me inclusion and exclusion. It is important to have more than one buyer to stimulate interest and push the price up through competition. One advantage was that there were only two shareholders: myself and a member of my family. This simplified discussion and negotiations.
We reviewed all our systems led by our managing director Kate Richardson, who was also director of ultrasound. This was a matter of trying to get our house in order and this provided an important foundation for what was to become due diligence during the sale process.
We focused on quality care and reduced costs when possible. We did not carry any debt, which was an advantage. We made sure our Companies House registration, insurance policies and other paperwork were up to date.
It was the autumn of 2020 when the advisers had produced a short list of eight possible buyers. We also had interest from two private equity companies, but opted not to continue with them. Non-disclosure agreements were signed with the interested parties, as we had supplied them with commercially sensitive information.
The Covid crisis presented a serious challenge. The sale process had to proceed on a remote basis on Zoom. Meetings were conducted with the eight possible buyers. We made a 12-minute PowerPoint presentation promoting The Birth Company.
Four of the possible buyers already had a significant presence in the private medical sector in the UK.
By the end of the year, we were able to agree exclusivity with one strong buyer and granted them exclusivity, discontinuing contact with other interested parties. At this stage, the lawyers became involved and in February 2021 we signed the heads of terms agreement to proceed to the next stage of due diligence and negotiation.
We opted for a share sale rather than a trade and assets sale which might have been simpler. During this time, confidentiality had to be observed. Only myself and my managing director were privy to the evolving situation on our side.
This was very important in our approach because of the need not to have public discussions of what was going on. This was hard but necessary.
In the final two months, we started to have operational meetings with The Portland Hospital, which was very encouraging. The due diligence was long and detailed, but resulted in the share and purchase agreement, shareholders’ agreement, articles of association, management agreement and my own employment contract.
We realised that we had outgrown our management systems, such as human resources, accounting, marketing, governance and Care Quality Commission preparation. We think it will benefit our business to be part of the management systems of The Portland Hospital.
I have become a part-time employee, but am able to advise and consult in the business. I have a minority shareholding which will end after three years. I look forward to helping The Birth Company move forward with HCA Healthcare UK and The Portland Hospital
Ultimately, the sale has guaranteed the future of The Birth Company. Having nurtured it for 20 years, this is very satisfying.
I am also pleased we have secured the jobs of the staff after my retiral in three years’ time.
Acknowledgements and thanks
None of this would have been possible without the help of:
Kate Richardson and team at The Birth Company Ltd;
Lawrence Price and team at Rockworth Ltd, www.rockworth.co.uk;
Will Axtell and team at Penningtons, Manches, Cooper LLP;
Lee Manning, Mehul Thaker and team at Raffingers LLP;
Selvavinayagam Vireswer and team at HCA Healthcare UK.