Preparing Your Practice for Private Equity: A Physician's Guide

Preparing Your Practice for Private Equity: A Physician's Guide

Private equity firms invested over $200 billion in healthcare in recent years, with physician practices remaining a top target. Here's what the process looks like from the physician's perspective.

Why PE Is Interested in Your Practice

What Makes Practices Attractive

• Recurring revenue Patients keep coming back
• Fragmented market Opportunity to consolidate
• Efficiency gains Room to improve operations
• Multiple arbitrage Small practice multiples → platform multiples
• Cash flow stability Healthcare is recession-resistant

What PE Is Really Buying

• Your patient relationships
• Your referral network
• Your clinical reputation
• Operational improvement potential
• Add-on acquisition opportunities

The Preparation Checklist

Financial Readiness (12-24 months before)

• Clean, accurate financial statements (ideally reviewed or audited)
• Normalized EBITDA calculation
• Documented physician compensation
• Clear understanding of owner benefits and add-backs
• Separated personal and practice expenses

Operational Readiness

• Documented workflows and SOPs
• Strong management team (or clear plan)
• Clean compliance record
• Updated payer contracts
• Modern technology infrastructure

Legal Readiness

• Clean corporate structure
• Updated employment agreements
• Resolved litigation
• Proper licensing and credentialing
• Real estate ownership clarity

Understanding Valuation

The EBITDA Multiple Game

Practice valuations are typically expressed as multiples of EBITDA:

• Small practices (1-3 docs): 3-5x
• Mid-size (4-10 docs): 5-8x
• Large/specialty: 8-12x+

Calculating Your EBITDA

Start with net income, then add back:

• Owner compensation above market replacement
• Non-recurring expenses
• Personal expenses run through practice
• Depreciation and amortization
• Interest expense

The Earnout Reality

Most deals include earnouts or rollover equity:

• 20-40% of value may be contingent
• Rollover equity typically 20-30%
• Second bite often more valuable than first

The Process Timeline

Phase 1: Preparation (6-12 months)

• Assemble advisory team (investment banker, attorney, accountant)
• Prepare marketing materials (CIM)
• Identify and address weaknesses
• Begin management presentations

Phase 2: Marketing (2-4 months)

• Confidential outreach to potential buyers
• Management presentations
• Site visits
• Initial indications of interest (IOIs)

Phase 3: Due Diligence (2-3 months)

• Extensive document requests
• Financial and operational deep-dive
• Legal review
• Quality of earnings analysis

Phase 4: Closing (1-2 months)

• Final negotiations
• Legal documentation
• Employment agreements
• Integration planning

Life After the Deal

What Changes

• Governance and decision-making
• Reporting requirements
• Growth expectations
• Potential for add-on acquisitions

What Shouldn't Change

• Patient care quality
• Clinical autonomy (negotiate this carefully)
• Staff treatment
• Community relationships

Physician Retention

Most deals include:

• Employment agreements (3-5 years typical)
• Non-compete provisions
• Performance expectations
• Continued clinical practice requirements

Key Questions to Ask PE Firms

• What's your investment thesis for our specialty?
• What happened to the last platform you sold?
• How do you approach physician governance?
• What's your typical hold period?
• Can we speak to physicians from other portfolio companies?

Red Flags to Watch

• Pressure to close quickly
• Vague answers about physician autonomy
• No references from physician partners
• Unrealistic growth projections
• Unclear plans for clinical leadership

Understanding your valuation range before a buyer sets one for you changes the conversation. Schedule a confidential discovery call or review our M&A advisory.