How do I evaluate a PE offer?
Evaluate a PE offer on six dimensions: enterprise value multiple, cash at close percentage, rollover equity terms, post-close compensation structure, earnout conditions, and platform exit timing assumptions.
Definition
Evaluating a PE offer means analyzing total economic value across cash, equity, and post-close compensation over the full hold period, not just the headline price.
The detail
Six dimensions matter. Enterprise value multiple: compare against current market multiples for your size and specialty; the headline number should be in market range. Cash at close: typically 60 to 80 percent; lower than 60 percent is a yellow flag. Rollover equity: structure (preferred or common), participation in next exit, anti-dilution protection, governance rights. Post-close compensation: typical reduction is 20 to 40 percent of pre-close take-home; model this carefully. Earnout: tied to retained EBITDA, what trigger thresholds apply, what is the cure period for missed years. Platform exit timing: most PE platforms target 4 to 7 year hold periods; ask the buyer where they are in the cycle. The single most important question to ask: what is the PE firm's track record of second-exit returns to physician sellers in their prior platforms? That answer predicts your outcome better than any other data point. Always run a competitive process with at least three buyers; first offers are almost never best offers.
Running a competitive process with 3+ buyers typically lifts final price by 15 to 30 percent.
Source: AICPA M&A practice guidance
Quality of Earnings (QofE) reports cost $25K to $80K but typically pay for themselves several times over in negotiation.
Bain Healthcare PE Report documents typical PE platform hold periods of 4 to 7 years.
Source: Bain Healthcare PE Report
What this means for clinic owners
From Sorso
The headline multiple is the easy part to evaluate. The hard part is modeling 7 years of compensation, equity outcomes, and lifestyle changes. If you cannot do that model yourself, hire someone who can before you sign anything.
Related questions
What is a dermatology practice worth?
Dermatology practices typically sell for 7x to 10x EBITDA for single-location and add-on acquisitions, and 12x to 15x EBITDA for multi-location platforms, with cosmetic-heavy practices commanding the highest multiples.
How do PE firms value medical practices?
Private equity firms value medical practices primarily on a multiple of trailing twelve-month adjusted EBITDA, typically 5x to 12x, with the multiple driven by scale, growth, payer mix, and provider retention.
Should I sell my practice to private equity?
Selling to private equity makes sense if you want partial liquidity, want to grow with capital and infrastructure, and are willing to operate as a partner rather than sole owner; it is wrong if you want full retirement or full operational autonomy.
What is the 8-minute rule in physical therapy billing?
The 8-minute rule is a Medicare billing rule that determines how many timed CPT units (97110, 97140, etc.) a PT can bill based on total minutes spent on direct one-on-one timed services, with a single unit billable at 8 minutes minimum.
What is a MEIP in a healthcare PE deal?
A management equity incentive plan (MEIP) is a pool of equity, typically 8 to 15 percent of the post-close cap table, reserved for executives and key providers who stay with the platform, paying out at the next liquidity event.
What is an IOI in healthcare M&A?
An indication of interest (IOI) is a non-binding preliminary bid, usually providing a price range rather than a specific number, submitted after a buyer reviews the confidential information memorandum but before full diligence or LOI.
Founder of Sorso. 19 years in corporate finance. Managed a $450M loan portfolio before building a fractional CFO firm exclusively for healthcare clinics.
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