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.
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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.
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What is a dermatology practice worth?
Dermatology practices typically sell for 4x to 7x EBITDA for single-location and add-on acquisitions, 7x to 10x for established multi-site groups, 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.
What is a non-compete in a healthcare practice sale?
A non-compete in a healthcare practice sale restricts the selling physician from opening or joining a competing practice within a defined geography and time period, typically 15 to 50 miles and 3 to 5 years, though state law enforceability varies widely.
How much does a quality of earnings report cost for a medical practice?
A sell-side quality of earnings (QoE) report for a medical practice typically costs roughly $35,000 to $100,000+, depending on practice size, complexity, and the depth of analysis. Smaller single-location practices fall at the lower end; multi-location groups and platforms with rollup activity push toward and beyond the upper end. The fee is almost always recovered in higher purchase price or smoother diligence.
Founder of Sorso and a CFA charterholder. Before Sorso, Stan spent 19 years in corporate finance at institutions including UniCredit and Société Générale — managing a $450M loan portfolio and making senior partner at a major mezzanine lender by 29 — then built a fractional CFO firm exclusively for outpatient healthcare clinics.
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