How do I evaluate a PE offer?
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.
Quick answer
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.
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
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.
How much will a DSO pay for my dental practice?
DSOs typically pay 5x to 8x EBITDA for single-location and add-on dental acquisitions, and 8x to 11x EBITDA for multi-location platforms with $1M+ in EBITDA, with consideration split between cash, rollover equity, and earnouts.
What are EBITDA add-backs in practice valuation?
EBITDA add-backs are non-recurring or owner-related expenses added back to reported EBITDA to show normalized earnings, typically increasing reported EBITDA by 10 to 30 percent in owner-operated practices.
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.
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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