
We help physician practice owners maximize their practices’ value and find the best private equity (PE) partner by running competitive sale processes. We’ve successfully guided over 25 practices through this journey.
PE partnerships offer big upfront payments, support with tasks like billing and HR, and help with growth. But not all practices qualify. Here are five things you’ll need to attract PE firms:
- Earn at Least $500k in EBITDA
EBITDA is your practice’s profit or cash flow after paying partners a fair market salary. PE firms want to see at least $500,000 in EBITDA.
How to Estimate EBITDA
- Add all partner compensation (salary, bonuses, distributions, and benefits) for the past year.
- Estimate a market salary for an employed physician in your specialty. Multiply by the number of partner-physicians.
- Subtract total market salary from the partners’ actual pay.
Example
- Three partners, each earning $700k: 3 × $700k = $2.1M total
- Market salary (3× $400k): $1.2M
- EBITDA: $2.1M – $1.2M = $900k
- Partner Compensation Is Well Above Market
When you sell to a PE firm, they expect partners to take a standard doctor’s salary. This leaves extra profit (EBITDA) for the PE firm to invest. PE firms then pay a multiple of this EBITDA to buy your practice. This is how you get the big upfront payment. If your partners aren’t making at least 30% more than a standard salary now, you might not have enough EBITDA to interest investors, or the final sale price (based on a multiple of EBITDA) might be lower than you expect.
Example
- Current pay per partner: $700k
- Market salary: $400k
- EBITDA per partner: $700k – $400k = $300k
- Current partner pay is 75% above market, allowing for enough EBITDA to sell and continue to receive market compensation
- Show Steady or Growing EBITDA
PE firms invest in future earnings. If your EBITDA is dropping, that’s a red flag – investors will worry about ongoing profitability. A track record of stable or rising EBITDA gives them confidence that your practice will maintain or increase its value after the sale.
- Key Providers Commit to Staying
PE buyers need your team in place to keep the practice strong. Most deals require the selling partners to remain for at least 3 years—ideally 5—after the sale. Early departures often carry penalties and strict non-compete terms.
- Your “House” Must Be in Order
- Regulatory Compliance
Follow all federal and state healthcare rules (Anti-Kickback, Stark Law, HIPAA, etc.). PE firms have zero tolerance for compliance issues.
- Financial Records
Maintain accurate monthly financial records that are reviewed by a CPA at least once a year.
- Legal Standing
Resolve any major lawsuits, malpractice claims, or other legal concerns that might scare off buyers.
Why These Factors Matter
Focusing on these five areas—healthy EBITDA, stable growth, committed providers, and strong compliance—makes your practice far more attractive to PE investors. Even if you’re not looking to sell right now, getting “PE-ready” can increase your practice’s value and help you earn more in the meantime.
Let’s Talk Further
Have questions about PE or your practice’s value? Let’s talk.
Email: [email protected]
Call/Text: 734-224-4746