Selling Your Practice to Private Equity: What Physicians Should Expect
Originally published on January 31, 2025
Updated on February 3rd, 2025
As the healthcare industry evolves, many physicians are beginning to weigh the prospect of selling their medical practices to private equity (PE) firms. These transactions can be appealing, offering financial security and the promise of operational efficiencies that can improve the profitability of your practice.
However, understanding the nuances of this process is essential to making an informed decision. There’s no escaping the fact that a decision to sell your practice is among the most consequential of your career. Of course, the financial implications are huge. But there’s also the question of what a transaction would mean for patient care, your staff and your working life after the deal closes.
Whether you’ve already been approached by PE, have heard rumblings that they’re entering your market, or are just curious about the latest trends in the healthcare industry, we’ll shine a light on the process of selling your practice to a private equity firm. Here are the qualities potential investors are looking for, a breakdown of the sales process, and key factors you must consider before selling your practice.
What Qualities Are Private Equity Buyers Looking For in a Physician’s Practice?
Private equity buyers are typically drawn to medical practices with strong financial performance, consistent patient volumes and opportunities for growth. Practices with effective billing systems, favorable payer contracts and a loyal patient base are particularly attractive.
Additionally, PE firms often seek specialty practices with high reimbursement potential. Reports have found that specialties including dermatology, urology, gastroenterology and cardiology are particularly appealing investment targets for PE funds. That’s a change from recent years, when many investors shied away from single specialty practices due to regulatory concerns.
While PE firms look to invest in successful businesses in strong markets, they’re also seeking businesses with clear upside. Practices that operate in a fragmented market ripe for consolidation are a good fit, as are practices that can integrate smoothly into a larger organization and benefit from back-office efficiencies such as centralized billing or group purchasing.
The Sale Process: Timeline and Key Steps
If you’re leaning toward pursuing a transaction with a PE investor, it’s important to understand what the sale process looks like. This is a months-long process made up of several distinct steps, each of which can take a significant period of time and resources.
During this period, you must balance keeping your practice running smoothly, hitting your financial targets and navigating the negotiation and due diligence process. Broadly, the sale process can be organized into four steps:
- Initial evaluation: Potential acquirers will first assess whether your practice meets the criteria they’re looking for. Consider hiring a consultant to help evaluate your practice’s value and understand your opportunities for growth. This article is a good starting point: How Much is Your Medical Practice Worth? A Comprehensive Guide to Valuation Methods
- Due diligence: Prepare for an intensive review of your financial records, contracts, operational workflows and compliance practices. Transparency during this phase is crucial, and it’s important you have well-prepared financial statements. Consider working with a healthcare CPA to help you collate everything you need and answer any questions potential acquirers have.
- Negotiations: Expect negotiations to center around valuation, deal structure and your post-transaction role. As you structure the sale, it’s important to keep the tax considerations in mind. Physicians typically expect to receive a significant one-time payout. However, many acquirers expect you to roll some equity into the deal and retain some level of ownership interest after the transaction.
- Closing the deal: Once terms are agreed upon, the legal and financial arrangements necessary to complete the sale will be completed.
Of course, no two transactions are the same. Every PE fund approaches these transactions in a slightly different way, and it’s important you understand their perspective early in the process. After all, your practice is your life’s work. Its sale is likely the single biggest transaction you’ll make in your life––far bigger than any home or vehicle. Take a considered approach and make sure your new partner is the right fit for your long-term goals.
What to Expect After the Deal Closes
After the deal closes, it won’t be business as usual. Physicians should anticipate significant changes in their daily operations and financial arrangements. While (as we’ve noted) every transaction is different, key areas to consider include:
Compensation Adjustments
PE deals often involve reducing physician salaries to allocate profits for investors. For example, if you currently earn $800,000 annually, your salary might be adjusted to $600,000, with the $200,000 difference contributing to the practice’s EBITDA. This delta between your current compensation and your compensation under the new ownership structure is typically a key driver of the PE’s valuation of your practice.
Operational Changes
PE firms tend to seek operational efficiencies by centralizing administrative functions, streamlining processes and renegotiating payer contracts. Let’s say you own a cardiology practice. If you join a PE group that owns a dozen cardiology practices in your local market, you can expect that group will be able to negotiate significantly better fee schedules than you would alone, boosting your profits. However, joining forces like this does affect your autonomy and existing staff, whose jobs may be at risk.
Equity Rollovers
Many transactions include provisions for physicians to reinvest a portion of the sale proceeds back into the practice, otherwise known as rolling over equity. This “second bite at the apple” can yield significant returns if the practice grows and is sold again at a higher valuation. In the short term, however, you might not walk away from the sale of your business with as big a check as you first expected.
Cultural Shifts
Adjusting to new management styles and priorities can be challenging. It’s vital to ensure the PE firm’s vision aligns with your values and the needs of your patients.
In some ways, it can feel like business as usual after selling your practice. You’re still seeing your patients and working in the same office. However, you’re now under pressure to grow your business and have a boss to answer to. That makes it important to carefully consider whether private equity is the right fit for you.
Key Considerations Before Selling Your Practice
Before entering into a private equity transaction, physicians should evaluate the long-term implications for their practice and career:
- Partner fit: Selecting the right PE firm is crucial. Look for a partner with a proven track record in healthcare and a reputation for ethical practices.
- Future earnings vs. up-front payment: Consider whether the immediate financial benefit outweighs the potential for higher long-term earnings by remaining independent.
- Practice direction: Reflect on your goals for the next 5-10 years. Does private equity align with your vision for the practice and patient care?
The decision to sell is one thing; finding the right partner is another entirely. Your choice of partner is crucial. Both parties must be aligned on what success looks like and how you plan to get there.
Staying Independent: An Alternative Path
For some physicians, the challenges of private equity partnerships outweigh the benefits. Remaining an independently owned physician’s practice allows for greater control over practice operations, patient care and financial decisions. Plus, there’s nothing to say you can’t implement some of the same growth-driving, profit-boosting strategies that a new PE owner may have pursued.
Some strategies to pursue to grow the value of your practice include:
- Implementing revenue cycle enhancement projects
- Optimizing staffing in your practice to boost profitability and enhance patient experience
- Investing in sophisticated accounting and financial management systems that give you improved financial clarity
- Exploring strategic partnerships with other independent practices
Looking for a deeper dive on how you can grow and thrive as an independently owned practice? Check out this article next: Growing EBITDA as an Independently-Owned Physician and Dental Practice
James Moore: Accounting & Finance Partners to Physician’s Practices
Selling your medical practice to private equity is a huge decision that requires careful consideration. By understanding the process, evaluating potential partners and weighing the pros and cons, physicians can make choices that align with their professional and personal goals.
Whether opting for a PE partnership or committing to independence, the key is to approach the decision with careful consideration. If you need a sounding board, the healthcare accounting team at James Moore is here to help.
Our experienced professionals have worked with countless physicians and serve as strategic advisors to the healthcare community in Florida and the Southeast. From custom consulting engagements to outsourced accounting and bookkeeping solutions that get your financial statements in shape, our team is here to help your practice succeed — no matter what route you pursue.
Contact us today to learn more about how we can support your business.
All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.
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