Situation
A medical professional was planning his exit strategy and developed a business model to offer support of both front- and back-end operations for other medical professionals in his same line of work. The business offered each medical professional the opportunity to become a partner in the business and the business would manage all scheduling, HR-related functions and handle all the billing and time-consuming work between insurance companies to submit and negotiate claims.
To enable rapid growth, the founder hired a CFO and COO for the company. As is common with start-ups, the business lacked cash but attracting senior talent to build the business and scale operations demanded that compensation packages included stock. For the CFO and COO, restricted stock was offered.
To calculate the value of the restricted stock as part of each C-level employee’s compensation, a 409A business valuation was required by the Department of Labor. The founder was referred to Lou Pereira at Merrimack Business Appraisers to prepare the 409A valuations.
Merrimack Business Appraisers’ Approach
Pereira enjoys preparing 409A business valuations as the underlying need for the valuation is fueled by high growth companies who are incorporating stock options or in this case, restricted stock, into compensation packages to attract, incentivize, and maintain top talent who are integral to the business’ success.
Initially, Pereira developed the 409A business valuation to determine the value of the restricted stock being offered to the COO and CFO. As more ‘partners’ joined the company to have their medical practice’s front and back end managed by this business, their fractional ownership as a new partner was calculated via a 409A valuation at the time of their joining.
Valuation Outcome
Over the years, Pereira prepared many 409A business valuations as required to properly value the restricted stock granted to leadership and new owners in the business as the medical practice consolidator model rapidly grew on both coasts.
Learn more about 409A valuations.
When Values Matter.
