Mergers & Acquisitions

Physician Practice Consolidator Gets Owned

February 24, 2020

It’s not quite rest in peace for physician practice consolidator Hygea Holdings Corp. It’s more like rest in pieces.

Back in the salad days of June 2016, Hygea, described itself as:

“ . . . a diversified healthcare holding company led by a team of nationally recognized industry leaders with backgrounds in insurance, finance, medicine, law and technology. The company owns physician practices, ancillary medical services, such as pharmacy, physical therapy, and diagnostics, as well as a 2,500-doctor independent physician association (IPA). Hygea prides itself as ‘the physician’s choice’ in group healthcare, as evidenced by the number of acquired physicians who then choose to invest in the firm.”

But today, well, on February 19, 2020, to be exact, it’s pretty clear that the meal’s now over.

That’s the date that Hygea put itself and more than 30 affiliates into bankruptcy.

Bleeding out at the rate of around $327,000 a week, with assets of less than $10,000,000 and liabilities of, according to press reports, approximately $200,000,000, its Chapter 11 filing indicates that the company’s plan is to turn over all of the equity to its major secured lender.

Yes, in bankruptcy, other investors, such as the “number of acquired physicians who then [chose] to invest in the firm” can get wiped out. If all goes according to plan, the secured lender will simply take the “keys” to Hygea, much like some “We Finance Anyone!” auto lender repossesses a 2016 Hyundai.

Sure, hindsight is always 20/20 but sometimes the “smartest people in the room” can’t manage their way out of a paper bag. For example, here are some of the stupid business mistakes revealed in the declaration of Hygea’s President and CEO:

  • They purchased physician practices that had minimal net profit.
  • They failed to integrate underperforming practices into their operation so as to make them profitable.
  • As a result, they became burdened with supporting a number of losing operations, that even with performance improvements will never be profitable.

The Lessons For You

The takeaways in the Hygea debacle lie on two sides of the same coin.

If you’re a buyer of medical practices, or of any other business, don’t overpay. “Everyone else” may be paying 20 billion times EBITDA, but you don’t need to be that stupid. Buying lots of businesses with no profit just creates a big business with no profit that can’t pay it’s debts and that goes into bankruptcy.

If you’re the seller, understand that your practice or business probably isn’t worth anywhere close to what you think it is. Pull out cash along the life of your operation and seek ways to profit from multiple transactions so that you’re not dependent on one sale to make a killing.

Sure, someone may come along (the so-called “greater fool”) and actually pay you 20 billion times EBITDA. If that’s the case, take cash or at least as much of it as you can get, even if it’s over time. It might be exciting to fancy yourself a “player” holding a big chunk of stock in a company with plans to go national . . . no, go global . . . no, go galactic, that is, until your shares are wiped out in a debt for equity swap restructure.

Perhaps, in Hygea’s case, the “smartest guys in the room” weren’t so smart.

Or perhaps there was just no room, for error, that is.

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