SPEAKER_00 0:00

You're listening to Confidence to Thrive, the podcast for ambitious healthcare practitioners and entrepreneurs, brought to you by Alicity Advisors. Welcome to Confidence to Thrive, the podcast helping growing practitioners and healthcare entrepreneurs navigate the challenges and risks of regulation while building brands that matter. Every episode we tackle a different issue facing healthcare practitioners or entrepreneurs, or we interview a guest who is working on the leading edge of private healthcare, building something that matters in their sector or profession. On today's episode, Adrian Richards, Medical Director at Iconic Aesthetics, is back for the second in this series in discussion with Christopher Cloak Brown and Roger Houston, directors at Our Licity. If you haven't listened to the previous episode, we recommend going back to episode 21 and catching part one. In this episode, Christopher Roger and Adrian discuss how to sell a private healthcare business, drawing on Adrian's experience buying and selling businesses and highlighting what factors support evaluation. Let's join them now.

SPEAKER_02 0:57

So this is the next episode. Adrian, thank you very much for coming back on the Confidence to Thrive podcast. Absolutely a pleasure. Previously we talked about how you were one of the pioneers in setting up private healthcare businesses.

SPEAKER_01 1:10

Yep.

SPEAKER_02 1:11

That maybe makes you not unique, but a rarer breed in that you have actually sold one of your businesses Aurora. Yes. You sold it to the private clinic where you then became involved in the private clinic buying more businesses. Yes. So you actually are probably one of the most experienced people in the UK in terms of buying and selling healthcare businesses. So maybe you can just run us through the process and what's important. I think a lot of people now are private healthcare is really taking off and becoming a really quite a big thing. And there's a number of people who are building businesses to sell, but what factors do they really need to think about in that?

SPEAKER_01 1:47

It's really fascinating. So you know there's a learning curve with everything. Initially, you think you know a lot, and then you learn you don't know very much at all. And then the more you know, you learn a bit more. So I thought I knew a lot and then didn't, and now know a little bit more, but not that much more. We've sold a number of businesses. So the main one was a Aurora surgical business group practice we sold to the private clinic in 2016. So if you haven't sold a business, it's really interesting, isn't it? Or the due dealers, yeah, the the the it's like a deal, isn't it? To the last minute brutemanship. Yes, yes, it's stressful, high octane, isn't it? Yeah, and then you sign that document, your bank manager's ringing you up going, what has happened to your bank account? It's not normally got the slight mistake in your bank account. It's it you can see why people uh find it interesting, yeah, and exciting. Yeah, it is, but getting it over the line, a lot of them fail for various reasons, due diligence doesn't pass, whatever.

SPEAKER_02 2:44

Yeah, and and just by due diligence, this is absolutely bonnet up. People going through the last numbers, they'll go through the patient records, everything. It's literally the everything, yeah. Everything is everything's okay.

SPEAKER_01 2:56

I didn't realise, yeah. It's it's like they go through your house looking in every drawer, looking at everything. And they find it, yeah, that's what you've got to explain. Yes. Yeah. So you've got to do that, and also there's a lot of negotiation. Remember, so private equity, they're smart. Yes. They do this for a living. Yeah. They negotiate, they buy businesses, they know much more about it than we do.

SPEAKER_02 3:20

And I think actually, having worked in that world myself, I think the thing that people really don't understand is the private equity guys know all the answers to all the questions anyway. They spend their life thinking about it. They get interested in the healthcare business, they don't just go and buy a few healthcare businesses, they research it, they find out what's going on, what the market size is, what the problems in the industry are. They actually call consultants and they'll have conversations with a number of plastic surgeons before they even speak to you about buying your business to say what are the problems in the surgeries and what are the problems that come out. So when they're going through all this minute stuff, they know they're looking for they know exactly what they're looking for. I know, yeah.

SPEAKER_01 3:58

I know, yeah. You've never underestimate anyone else, that's a problem. You insurance guards actually know everything about everyone as well. I don't think you know, they they know a lot everything about your claims histories. They know my claims history over 30 years, don't you? Yes, yeah, exactly. Yeah, yeah. So luckily I've been quite lucky, but fortunate. But I've been doing it 30 years. So selling a business, yeah. So number one, I think the first thing to do is mainly focus on growing the business and making it a great business. That's and treating patients well. That's the number one thing. I probably wouldn't grow a business to sell it, but grow it so it's good, but keep everything is intact, all everything, all the risk, all the in compliance, all the policy, everything really good. At the moment, UK is relatively cheap for Americans. Okay. UK healthcare. So there's a lot of American healthcare and a lot of money looking to buy UK UK assets. What are they looking for?

SPEAKER_03 5:01

Yeah, they've got their expectations on return on capital.

SPEAKER_01 5:05

Yeah, PE.

SPEAKER_03 5:06

Yeah, and uh they will be looking at the plus side, the balance sheet, how it's grown, what the plans are, but they're also wanting to look at what's under the floorboards. Yeah, they never mind what's in the bottom drawer, what's under the floorboards. Yeah, and they will be very keen to try and quantify that. And as we were saying earlier, if they can't feel the edges, they will use that as a significant discount factor.

SPEAKER_01 5:32

So that's what you said. So when you say Roger, they can't feel the edges, means they don't they can't assess the risk.

SPEAKER_03 5:37

No, they can't assess the risk.

SPEAKER_01 5:38

It's a bit like if you go to a house, like a decorator or something, he doesn't quite know what he's gonna have to do, so he puts the price up, cover award eventualities. Yeah, yeah.

SPEAKER_03 5:48

Absolutely.

SPEAKER_01 5:49

Is that right? That's correct.

SPEAKER_03 5:50

Yeah.

SPEAKER_01 5:51

So tell us what reporting would you recommend?

SPEAKER_03 5:55

So we have a system where I attend your multidisciplinary team, yeah, and the agenda at these MDTs are cases that the clinical team are uncertain about.

SPEAKER_01 6:06

Yeah.

SPEAKER_03 6:07

So uncertainty equals risk.

SPEAKER_01 6:10

Yes.

SPEAKER_03 6:10

So they will end up with you and the other senior surgeons, they will devise a plan which will correct things in terms of for the clinical situation. Then we will be able to assess what residual clinical and therefore potential litigation claims risk exists. Yes. And then what we're going to do about that. If anything, so do we report circumstances to insurers? Do we think that this is a dissatisfaction case as opposed to negligence? So do we deal with it internally? Yeah. And we can still report it to insurers annually. It's not a question of keeping information away. Do we have to think about contingent liability on the balance sheet? Do we need to talk to the accountants about that because something's happened that's not insured, but nonetheless it's a live issue? Yeah. And we track things so things go onto the log and they come off the log.

SPEAKER_01 6:58

Yeah.

SPEAKER_03 6:59

So that at any point, accountants and lawyers who will come along and carry out due diligence will have a track as to problems.

SPEAKER_01 7:08

So issues with outcome.

SPEAKER_03 7:11

Yeah. Think of it like a photographic negative.

SPEAKER_01 7:14

Yeah.

SPEAKER_03 7:14

The growth, the profit, the raw, the go-ahead is the white bit. We're managing the dark bit of the negative. Oh, yeah. You know, to say actually and yang.

SPEAKER_01 7:25

Yeah. That's right. You need the white. You're absolutely right. Yeah. So I've actually enjoyed working with you quite a lot, Rog. Dealing with because Roger, you were the you have the NHS, yeah.

SPEAKER_03 7:38

Yeah, and we did a whole load of risk management there. And we worked with brokers at the time to have a risk management scale, and we had trusts which are gold, silver, and bronze, whatever. And that was about improving documentation to feed information back to the centre, which did influence clinical decisions. Because for uniquely, we could put a price on something. That's interesting. And that's what the investors want to know. The price. Because they'll know the upside, they'll know what the income is, they'll know what the optics are exactly. But what's the price of what's the price of the black around the negative?

SPEAKER_02 8:12

And they'll just they'll decide what they think the price is, and they'll just assume that's happened and then say, I want to make a 15% per annum return on this. So what price do I need given that loss? Yeah.

SPEAKER_01 8:23

And that can make quite a big difference to the multiple of your e-bit dat. Yes. So when they when you buy a company, essentially what you're negotiating is the multiple of eBit Dart that you will get for the company. And when you get that money, what you need to do then.

SPEAKER_03 8:38

Yeah.

SPEAKER_01 8:39

So eBit DAR is essentially the amount of money you make after all payments, including what you pay yourself. Yeah. Yes. Yeah. And people will offer you a multiple of your e-bit dat. So Chris, do you know about that? You know about that. So yes.

SPEAKER_02 8:58

Educator. Okay. Oh, yes, yeah. So earnings, earnings performance, taxation, depreciation, yes, yeah. Just to put it in there, not everybody believes in it. In fact, Charlie Munger of Berkshire Hathaway was not keen on it. Yeah, he was a huge uh detractor over the whole thing. But it is how business is important, so that is absolutely true. So it really is how much free cash the business generates, and then you could be back paid a multiple of that on the basis of we're going to make that much money for three years, five years, whatever your multiplier is.

SPEAKER_01 9:29

So what's all the multiples of people offering in different industries, Chris? At the moment.

SPEAKER_02 9:44

Yes, we're looking to get it higher. Yes.

SPEAKER_01 9:47

Okay. So what if you have a business, what you need to do is keep it clean, show increase in turnover, costs under control, increased profitability, clean risk. Any subscriptions or anything you've got. Your current income's great. Then the company look at it and if they can buy it at an e-bitar and then incorporate it, perhaps and make it higher e-bit daar, that's what they're looking to do.

SPEAKER_02 10:13

And I think that's the interesting is that sustainability. And in the previous episode, you were talking about the quality of the team and so on, right? And I think it's all that is really important to that sustainability. It's again with a healthcare business, it's probably quite easy to make the business an adjunct to yourself, basically. In which case you can't sell it and retiring to the sunset. No, you can't really. So it's very important to make the business a separate entity from you and have all those surgeons and systems and processes and happy customers. Yes. That's what the investors are. That's right. It's not buying you, you're not offering slavery or anything. No.

SPEAKER_01 10:53

No, exactly. And yeah, exactly. And so with Aurora, I chose actually to stay for three years. Yeah. I actually ended up staying at this private clinic for 10 years. Yeah. And I became part of their management team, the clinical director, love working with them. They were bigger. So we were maybe five, six million turnover, something like that. They were 40 million turnover, bigger organization. So it was good, it was great. And then iconic, again, we're trying to build it in a very structured way. Yeah. But it a lot of people have done very well from selling companies. We bought a lot of the private clinic, and I know a lot of the people we bought the clinics from. Are we allowed to say names of people? Lee Garrett, Allison Telfer, the guys down at the River Clinic, all these guys were bought, Tracy Giles, a lot of clinics, Tracy Mountford, these big acquisitions, probably the biggest acquisitions of the private clinics in the UK were done by the private clinic. And now they're all together. So it is a good option. Often you've worked all your life, it's hard. Physically doing it every day is hard. If you do want to be an entrepreneur and business, you need to not be doing so much of the treatments. Working on the business, getting really good advice from guys like you, you are going to have cases. You know, if you treat patients, we're not made of graph paper, things happen. Yes.

SPEAKER_03 12:19

Yeah, yeah.

SPEAKER_01 12:20

We can always improve our process, can't we?

SPEAKER_03 12:22

Yeah.

SPEAKER_01 12:23

So really, what I would say, if you've got a practice, it needs to be all insured. There's all sorts of issues. So on the medical side, yeah. Yeah.

SPEAKER_02 12:33

I think even what we've found is, and we do support clients and things that you aren't and can't be insured for. There's also what Chris. Oh god, Roger will be the champion on one classic of an estranged father who was clearly a complete bully and objected to his former wife taking their eight-year-old daughter to the dentist without his permission. Yes. But that's uninsurable. But he wrote a letter about his privacy had been breached, his human rights had been breached. Those are like six different things that just landed in the letter on the practice.

SPEAKER_01 13:02

We've got to be really careful. In this industry, things happen. Yeah. It's Wild West. There was that case where there was someone in the clinic, potential fraud, they recorded it. Yes. Yes. You remember that? Yeah. And actually, wasn't the person perhaps who did the those all cases of photos, people not having good security onto it's being released, take unauthorised photos. That's a massive issue.

SPEAKER_02 13:24

Yeah. But all of these things, when you talk about it and think about it and think about selling the business, these are all potential liabilities. So you're due diligence room. They've only got to find a letter about breach of privacy for somebody recording people in the millions, obviously. Yes.

SPEAKER_03 13:41

So the difference between a multiplier of three or five for a profitable, well-run. You're comfortably into seven figures, and that's potentially the prejudice for not sweeping up as you go along. That's what it amounts to. And also, yeah, you're right, Richard, but just for patients, you need to treat them.

SPEAKER_01 13:57

Things do go wrong. Yeah. If something has legitimately gone wrong, we need to react to it appropriately.

SPEAKER_02 14:02

Uh more in terms of this whole reputational thing. So I think the fact from an investor's perspective, if they can see this long, it's as we say insurance, the underwriters all know that you get problems, it's how you deal with them that matters. And it's the same for the investors. The investors and the underwriters have the almost the same view. They've got the pessimistic view, haven't they? And so if you've got that track record, say, yeah, look, in our five years, we've had 500 complaints, but they've all been closed within three months.

SPEAKER_03 14:31

Yeah, yeah, exactly. And it's the legacy medical issues, it's the stuff that will produce claims once they've got the keys to the kingdom. That's all you need to worry about.

SPEAKER_01 14:40

This is, I think we're gonna talk about the next podcast.

SPEAKER_03 14:42

Yeah, that will segue into the whole products legacy thing.

SPEAKER_01 14:45

Yeah, I because I've had personal experience of products, he's got to help me. If you are a practitioner, even after you retire and stop practicing, there is risk. But you have to set money aside for that.

SPEAKER_03 14:56

You're gonna have to, and well, we can get into that because there's ways of managing that. Yes, but it's making this connection between managing, if you like, legacy liabilities and ultimately what you can cash out for. People just it must come as a real horrible shock when you've got someone interested in your business, you're probably flattered. Yeah, it's it might be some rapacious American or not, yeah. Say, actually, we think it's this, but we're really not sure about that. So we're gonna pay, you know, two million less.

SPEAKER_01 15:23

That's right.

SPEAKER_03 15:24

And don't think it won't happen.

SPEAKER_01 15:26

Oh, well, no, no, it will happen. Yeah, yeah. You wanna have when they come do the due diligence, you want everything so good you can't find any fraud in it. Yeah, so as we coined this phrase, data room ready. Yeah, yeah, and you can do that with good AI, good processes that they say with AI, you're not gonna lose your job to AI, you're gonna lose your job to someone who knows about AI. Yes. So it's we have great people, but you really need the great backup and yeah, you know, things rapidly moving.

SPEAKER_03 15:53

Yeah, and there's all sorts of things you can do with the market. We have very good discussions with underwriters. Yeah, one this afternoon being an example.

SPEAKER_01 16:02

So if you understand the shape of the legacy of the risk, you don't necessarily hear that term, but the shape of the legacy of the risk. I don't get out the stage.

SPEAKER_02 16:14

I really don't imagine why think about that one. We we joke and turn the edge into if you remember the young ones where Rick was the people's poets, but Roger's the insurance's poet.

SPEAKER_03 16:25

The legacy the shape the shape of the legacy. So the point is that you can then have a conversation and underwriter, and you can decide whether an underwriter will say how much you want to take that, and then you can decide whether that's what you want to do or not. Yes, it's just another way of determining price.

SPEAKER_01 16:41

Yeah, it's one of those things. If you've got a star and you've got all the things you've got to get right for business, this is an important bit you've got, and these guys are the best people I've ever met to help with.

SPEAKER_03 16:53

Oh, thank you. What do you want to be? I don't know. I want the magic sponge. I wouldn't be on the I want to be on the on the bench and whenever whenever it's gonna be easy, yeah.

SPEAKER_02 17:05

What are you gonna do, Chris? I'll get back to you on that one.

SPEAKER_03 17:08

He'd be a transfer agent.

SPEAKER_02 17:10

Oh, yeah.

SPEAKER_03 17:13

But at the end of the day, it's hard cash when you're at your least able to defend against it. You know, because these guys they will know when you talk, you'll know this, when you talk as a deal figure to buy a business, these guys will know as much about, if not more, about the business than you do. No wings around you, yeah.

SPEAKER_02 17:33

That's uh yeah, yeah. I can't emphasize that enough from coming from that world, is people think because they're finance guys, they only know about finance, but when they get interested in the sector, they go out and find they talk to everybody, they find out everything there is to know.

SPEAKER_01 17:47

And they're good at negotiation, yes, yeah. They're good at psychology, yes, yeah. You know, they I we didn't sell Aurora for nearly enough. Yeah. So now, having then been on the other side buying clinics, I know. He made some good deals. But we didn't know what we were doing, really. Yeah, so if what I'd done it again, I would be a bit cleverer. So now you got round two. Yeah, yeah. That one was great. We had a great time, but round two, I think we'd be smarter. Yeah.

SPEAKER_02 18:15

So maybe just to wrap up, Adrian, yeah. So having bought and sold businesses, there's all these people with the great healthcare businesses. What would you say your advice to them is in terms of when they want to come to sell?

SPEAKER_01 18:28

Yeah, decide what you want to do. So basically, being in healthcare is hard. Dealing with patients is hard. Every day you are responsible for them, you're physically operating them if you're injecting, whatever it is, it's hard. I've worked with a lot of surgeons over the years, a number have been struck off or had to stop working for either an insurance issue or various issues. Most of which we didn't really do anything that wrong, they're just a bit of that lucky or made slightly wrong decision. So n we're all medical. So that's what we do. We look after people. We're not really used to taking money from people. But if you have developed a good business, think about what you're gonna do when you no longer can or want to do it anymore. Okay, are you gonna pass it over? Have you got the people to take over? Do you want to close it? What are you gonna do with the risk? What are you gonna do with your patients? If you can manage it right, grow it, sell it, pass it on either quickly or slowly, you can retain an interest in it. So some companies, I'm still a minority shareholder, so I still you can still keep interest if you want. But just talk to people, try and get every bit right, and these guys will help you with that. What would you help with? Really the it's the risk.

SPEAKER_03 19:52

Some insurance is part of that. Yeah, but it's really this idea of identifying the legacy risk, particularly in the sales situation, and in particular your process.

SPEAKER_01 20:02

We had that case, you know, you know, of our the people we trained, a practitioner, good nurse, treated someone, uh Christmas friend of theirs, who knows? No photos, big complications, indefensible, wasn't it? Yeah. So we just want to make sure that everything's done right. And yeah, you you spend your life trying to help them.

SPEAKER_03 20:23

Yeah, and it's really recognising if you have a case to defend or not, valuing it and bringing it to some sort of finality.

SPEAKER_01 20:32

You've got to finish it.

SPEAKER_03 20:33

Whether it be an underwriter or an investor, if you offer something for sale, they need to know what they're getting. So an underwriter needs to know that a case is going to close and it's going to close for a figure. Yes. They need to the investors are similar. Yes. They have a slightly broader question because they want to know about the case you know about, yeah, but they also want to know about the cases that might yet be made. And that's where this whole shape of the legacy comes in, as to it's not quite as mad as it sounds, as to what and that will segue into a future episode on products and legacy.

SPEAKER_01 21:09

And the last thing, just for you really want to make sure your claims are low. Yes. So I've been a plastic surgeon for 30 years. I had two or three claims in my life, most of them are actually for very small things. I I've operated on probably 20,000 people, and the things that I got couldn't really defend were very small things, but it was because of the consent process.

SPEAKER_02 21:29

So really, yeah, focus, really important area, focus on that. I think that's sorry, maybe just to finish off, and that is quite a wise words, and it it it is about making sure the quality in the process is right.

SPEAKER_01 21:42

Yeah.

SPEAKER_02 21:42

So you've got to grow the business, so to a degree you have to chase the money. But certainly working in the insurance industry, there are some high street plastic surgery businesses, and there's one insurer who have actually told me outright if they are asked to insure a surgeon who's ever worked in some of these high street clinics, yeah, the surgeon has to convince the underwriter that they're a decent surgeon.

SPEAKER_01 22:05

Yes. So a decent surgeon should have low and deal with anything immediately. Obviously. A few of my colleagues I mentioned have had had insurance issues where they didn't really do anything wrong. The process wasn't good. They had massive claims and their premiums go up so much they can't work anymore. So it has to happen to a number of my friends. So really important not to fall into that trap.

SPEAKER_03 22:32

Yeah, yeah, absolutely. Yeah.

SPEAKER_01 22:34

Thank you, Adrian. Thank you for you, Jay, guys. Absolute pleasure.

SPEAKER_02 22:37

Lovely, lovely talking to you as always. We talk forever.

SPEAKER_00 22:40

Thank you for listening to Confidence to Thrive. Before you go, please rate, review, and subscribe to Confidence to Thrive on your preferred podcast platform and help us spread our message to others who are making a difference in private healthcare. This podcast was brought to you by Alicity, insurance advisors who support your business ambitions. Ablicity advises practitioners, owners, and entrepreneurs of healthcare practices mitigating risks so your business can thrive. Learn more about how Alicity can support you by finding the link in the show notes or visiting olicity.co.uk