Why funding structure shapes the deal, not just the price
In a GP practice acquisition, how you fund the deal is often as important as what you pay. Two buyers can bid the same headline price and end up with very different returns depending on their capital structure, their lender and the covenants they sign up to. This is doubly true in primary care, where the cashflows are relatively predictable but the regulatory, workforce and contract risks are real.
The building blocks of a GP acquisition capital stack
Most GP practice acquisitions are financed through some combination of the following:
- Senior debt — term loan, typically 10–15 years, secured against the practice interest and any owned premises
- Premises finance — separate freehold facility where the building is acquired, often on a longer amortisation than the goodwill piece
- Mezzanine or stretch senior — used on platform deals to bridge between traditional senior debt and equity
- Vendor loan / deferred consideration — part of the price paid over 1–5 years, often interest-bearing
- Equity — the buyer's own contribution, plus any third-party equity partner
How lenders underwrite GP practice cashflows
Healthcare-specialist lenders will look hard at three things:
- Capitation stability — is list size stable, is the active list regularly cleansed, and is the contract mix (GMS/PMS/APMS) settled?
- QOF and Enhanced Services — is achievement consistent year-on-year, and how much of Enhanced Services is contractually recurring?
- Workforce and cover — is there enough salaried or partner coverage that the practice is not dependent on a single clinician?
On the back of that, they will size debt based on a Debt Service Coverage Ratio (DSCR) against adjusted EBITDA, not net profit. Most lenders in the UK and Ireland want to see DSCR of at least 1.4–1.5x at drawdown, with headroom to stay above 1.25x through realistic downside cases.
Key ratios — LTV and DSCR
Two ratios do most of the work in sizing a GP acquisition facility:
- Loan-to-value (LTV) — the debt amount as a percentage of the enterprise value. Healthcare lenders in primary care often stretch to 65–75% LTV on stable single-practice deals with good visibility. On larger platform deals LTVs can be higher where additional equity and vendor loans sit in the structure.
- Debt Service Coverage Ratio (DSCR) — adjusted EBITDA divided by annual debt service (principal + interest). 1.4–1.5x is a typical opening ask; 1.25x tends to be the covenant floor.
If you are planning a bolt-on onto a bigger group, you also need to watch group-level leverage (Net Debt / EBITDA), often capped at 4.5–5.5x on well-run healthcare platforms.
The right LTV is rarely the maximum LTV. A structure that clears 75% LTV with DSCR of 1.25x looks fine on day one, but leaves you vulnerable to a QOF under-achievement year, a senior partner leaving, or a premises rent review. Leave yourself headroom.
Covenants that matter
Expect to see some combination of:
- Minimum DSCR (tested quarterly or annually on a rolling basis)
- Maximum Net Debt / EBITDA ratio on platform deals
- Minimum active list size or list retention covenant
- CQC or HIQA rating maintenance clauses
- Restrictions on distributions, dividends or partner drawings if financial covenants are tight
- Information covenants — monthly management accounts and quarterly compliance certificates
Negotiate these carefully. Covenants that look fine at close but that assume everything goes right are a common source of post-completion friction.
Ireland and the UK — practical differences
Irish primary care lenders are relatively comfortable with HSE GMS capitation as a credit proxy, and with the structural tailwind of the 1,750-GP shortfall. UK lenders differentiate heavily between GMS, PMS and APMS, and between PCNs that are functioning vs those that are fragmented. In both markets, the freehold vs leasehold split and the handling of Notional Rent / CMR materially affects the final structure.
Vendor loans and earn-outs — the underrated tool
Used well, vendor loans and earn-outs can bridge a funding gap, reduce drawn senior debt, and align incentives for the outgoing partners through transition. Used badly, they create post-completion disputes and distract from clinical delivery. The useful principle: make earn-out metrics simple, objective and controllable by the buyer, and cap the downside for both sides.
Getting to credit-ready
Before you approach lenders, make sure you have:
- Three years of management accounts with adjustments clearly articulated
- A clean summary of GMS/PMS/APMS income, QOF achievement and Enhanced Services income
- A bank-ready debt-service model and a sensible downside case
- A short investment memorandum describing the thesis, the team and the integration plan
Lenders form a view in the first meeting. A tight, institutional-grade pack gets a better price, more flexibility on covenants, and a faster decision than a disorganised one.
For the valuation side of the equation, see our guide to GP practice valuations explained. If you are still at the stage of weighing up whether to buy, our guide to buying your first GP practice covers the wider picture.