Case Study

California CEO Solves Doctor Integration Issue

Case Study Details

Financing Type:
California CEO Solves Doctor Integration Issue, Finds Common Ground Between New and Old Clinic Partners

Sierra Pacific Orthopedics Clinic (SPO) in Fresno, California faced a problem that was both ongoing and growing: how to find a practical and equitable method of integrating new practice partners into its real estate entity.  As the group continued to seek an answer acceptable to all members, the solution became more difficult due to three main issues:

  • Equity in the property continued to increase (through principal repayment and appreciation), making entry more costly.
  • New partners had been previously added to the practice, creating a further imbalance. Eventually, the lack of orthopedist ownership in the real estate constituted a majority which could impact the long-term stability of the leasing.
  • Several partners in the real estate were nearing retirement and looking to cash out of their investments without having a set source of funding.

It seemed that every potential resolution had a downside that was unacceptable or unfair to one segment of the partnership.  Finally, Joe Clark, Sierra Pacific's CEO, took the initiative and reached out to Somerset CPAs & Advisors for assistance.  Mike McCaslin, a Principal with Somerset, met with the partners to see if there was a way to reconcile the diverse interests of the various partner segments.  Any solution would have to accomplish the following:

  • Make buy-in affordable for new members.
  • Pay exiting members the full equity that was due.
  • Minimize tax consequences.
  • Create a model that could be repeated and was self-perpetuating to serve the members into the future.

Mike met again with the members and presented six different options.  After further consultation with its CPA, the SPO members settled on the option that created the best outcomes and moved to obtain the financing that would be needed to effectuate the model.  However, there was one more roadblock:  the financing proposals that SPO received from its banking sources would have resulted in cash out-of-pocket or negative cash flows to those partners buying in, which was unacceptable.  The option of stripping out equity was also off the table because SPO's CPA saw potential tax consequences. 


During this entire process, Joe had been having ongoing dialogue with principals of CMAC Partners and asked for their assistance.  Within a short time, CMAC redesigned the financing package and obtained improved loan terms that would fuel the preferred Somerset model without the cash-in or cash-flow downside.  With this financing solution, SPO aligned the interests of all its members and provided a method of integration and retirement funding that will work for the practice now and well into the future.

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