How do PE firms value medical practices?

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. No index publishes a cross-specialty ladder, so the bands come from the advisory firms that work each segment. FOCUS Investment Banking puts dental practices at 5–7× under $1M of adjusted EBITDA, rising to 9–11× at $3M to $5M. Breakwater M&A puts physical therapy at 2.5–4x for a single location with $150K to $500K of EBITDA, rising to 6–8x+ at $3M and up. Scope Research, which segments by revenue rather than EBITDA, puts primary care at 3x to 6x under $5M of revenue, 5x to 10x at $5M to $50M and 10x to 20x for large platforms (May 2025). Each segment's full ladder is on its own page: urgent care, dental, physical therapy and dermatology. Third, structure consideration. Foley & Lardner notes that the price is usually split between cash and rollover equity in the recapitalized practice, and puts rollover at generally 10 to 40 percent of the practice's total enterprise value. Some of the price may also be deferred. Foley reports that traditional earnouts have proved difficult to use in physician deals because of regulatory concerns, and sponsors have turned to set deferred payments, which a physician forfeits by leaving before they are paid. Rollover equity is the provision to negotiate hardest, because it is your second bite at the next exit. Foley notes that this second bite is sold to physicians "with the hope that it is a significant multiple of the original investment," so model what it is worth if that hope does not pan out.