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.
Definition
Private equity (PE) is investment capital from funds that buy controlling stakes in companies, hold them 3 to 7 years, and sell to the next buyer at a higher value.
The detail
PE valuation of a medical practice happens in three steps. First, normalize EBITDA by adding back owner above-market compensation, personal expenses, one-time items, and pro forma adjustments for new providers and locations. Second, apply a multiple based on practice size: under $1M EBITDA trades at 4x to 6x, $1M to $3M EBITDA trades at 6x to 9x, $3M to $10M trades at 8x to 12x, and platform-scale assets ($10M+) trade at 10x to 16x. Third, structure consideration: typical PE deals pay 60 to 80 percent in cash at close, 10 to 20 percent in rollover equity, and 5 to 20 percent in earnouts contingent on retained EBITDA over 12 to 36 months. Rollover equity is the most important provision to negotiate because it determines your second bite at the next exit, which is typically 2 to 4x the value of the first.
Pitchbook Healthcare Services Reports document PE deal volume and multiples by subsector.
Source: Pitchbook
Bain Healthcare PE Report tracks median EBITDA multiples and deal structure trends annually.
Rollover equity typically represents 10 to 30 percent of total consideration in physician practice transactions.
Source: AHLA Healthcare M&A resources
What this means for clinic owners
From Sorso
The first PE offer you receive is rarely the best one. Multiples vary by 30 to 50 percent across competing buyers for the same practice. If you take an unsolicited offer without running a process, you almost certainly leave money on the table.
Related questions
What is the average EBITDA multiple for dental practices?
Dental practices sell for 5x to 8x EBITDA for single-location and add-on acquisitions, 9x to 11x for multi-location regional groups, and up to 12x for $5M+ EBITDA platform deals. The single biggest driver is scale: scale tier matters more than specialty.
What is the average EBITDA multiple for PT clinics?
Physical therapy clinics typically sell for 5x to 7x EBITDA for single-location and add-on acquisitions, and 7x to 9x EBITDA for multi-location platforms with $1M+ in EBITDA.
What is the difference between platform and add-on multiples?
Platform acquisitions trade at 8x to 14x EBITDA — the buyer pays for scale, infrastructure, and management. Add-on acquisitions trade at 4x to 7x EBITDA because they bolt onto an existing platform. The same practice can be worth 2× more depending on which the buyer needs.
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.
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.
Founder of Sorso. 19 years in corporate finance. Managed a $450M loan portfolio before building a fractional CFO firm exclusively for healthcare clinics.
Want to see how your practice measures up?
Take the 4-minute financial assessment. It is free, and it will show you where your practice is leaking money.