A Private Equity Group Wants to Buy Your Practice: What the Numbers Actually Mean

Why PE Is Approaching Your Specialty in 2026

Private equity investment is a significant driver of physician practice consolidation. Over the past decade, private equity sponsors have increasingly targeted physician groups as platform investments capable of supporting specialty-focused growth strategies.

The PE consolidation thesis in healthcare is straightforward: acquire multiple independent practices in the same specialty, centralize back-office functions, negotiate better payer contracts through scale, standardize operations to improve margins, and eventually sell the consolidated platform — either to another PE firm, a strategic acquirer, or through an IPO — at a higher EBITDA multiple than what the individual practices were originally purchased for.

Investors anticipate synergy gains from shared back-office functions including revenue cycle, HR, supply purchasing, and IT, which can yield margin improvements of 200 to 300 basis points within the first two years post-acquisition.

The multiple arbitrage is the financial engine. A PE firm that acquires independent dermatology practices at 4 to 6 times EBITDA and then sells the consolidated $50 million EBITDA platform at 10 to 14 times EBITDA has created hundreds of millions in value — primarily from aggregation rather than from any improvement in clinical care.

The specialties most actively targeted in 2026: dermatology, gastroenterology, ophthalmology, orthopedics, urology, primary care, and behavioral health. These share common characteristics that make them attractive PE targets: high patient demand with limited supply, recurring patient relationships, significant procedural revenue, ancillary services that can be added to increase revenue per patient, and fragmented ownership that creates consolidation opportunity.

Private equity remains the dominant acquirer in physician practice M&A. Larger groups with professional management and scalable infrastructure consistently attract higher multiples. Scale translates directly into operational efficiency and reduced buyer risk.

If your practice is in one of these specialties, has clean financials, a strong patient panel, experienced support staff, and a physician group of 3 or more, you have already received a letter of interest — or you will in the next 12 to 18 months.

The Deal Structure: What You Are Actually Being Offered

Physician owners should recognize that private equity transactions rarely resemble a simple asset or equity sale. Most deals involve a combination of rollover equity participation allowing and often requiring physicians to retain a minority ownership stake, post-closing employment or professional services arrangements, and multi-year alignment incentives including earn-outs or equity appreciation opportunities tied to the platform's future exit.

Understanding each component is essential before evaluating any offer.

The Purchase Price and EBITDA Multiple

The headline number in any PE offer is the purchase price — expressed either as a total dollar amount or as a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

EBITDA for a physician practice is calculated from the financial statements: net revenue minus operating expenses, before adding back physician compensation and benefits. For a dermatology practice with $2,000,000 in net revenue, $800,000 in staff and overhead expenses, and $400,000 in physician compensation, the adjusted EBITDA is approximately $800,000.

Private equity firms employ a two-tiered valuation model, offering premium multiples for platforms and capturing arbitrage through add-on acquisitions.

The platform vs. add-on distinction is the most important multiple driver. A dermatology practice that PE identifies as the "platform" — the foundation for building a regional network — commands 8 to 12 times EBITDA. A smaller practice being added to an already-formed platform is an "add-on" and receives 4 to 7 times EBITDA.

The physician being told they are receiving a "platform" offer is in a meaningfully better position than one receiving an "add-on" offer. Ask explicitly which your practice represents in the buyer's strategy. If they hesitate, you are likely the add-on.

The actual dollar calculation:

For our $800,000 EBITDA dermatology practice at a 9x platform multiple:

• Total enterprise value: $800,000 × 9 = $7,200,000

That is the gross transaction value. What the physician actually receives is different.

Cash at Close: The Part That Is Yours Immediately

Not all of the $7,200,000 enterprise value arrives in your bank account on closing day. Rollover percentages typically range from 10 to 30 percent of practice value, creating potential for second bite of the apple returns upon eventual exit.

In a typical transaction:

• Cash at close: 70 to 80 percent of the purchase price
• Rollover equity retained: 20 to 30 percent of the purchase price

At $7,200,000 total with 25 percent rollover:

• Cash at close: $5,400,000
• Rollover equity: $1,800,000

The $5,400,000 cash at close is real, liquid, and taxed at capital gains rates when the deal is structured correctly as an asset sale. The cash and equity should be taxed at capital gains rates rather than as ordinary income. At a 20 percent federal long-term capital gains rate plus 3.8 percent net investment income tax, the after-tax cash proceeds on a $5,400,000 sale are approximately $4,095,000.

That is genuine wealth — more than most physicians accumulate in a career of clinical practice. The transaction delivers it in a single closing event.

Rollover Equity: The "Second Bite of the Apple"

The rollover equity is where the deal's upside promise lives — and where the most significant financial risk resides.

The purchase price in these deals is generally paid with a combination of cash and rollover equity in the newly recapitalized practice structured through the use of a management services organization. This rollover equity is generally held by the rollover investors so long as the private equity sponsor maintains its investment in the recapitalized practice. The equity, or at least a majority of it, is sold by the rollover investors when the private equity fund owner exits its investment. The hope is that the equity in the recapitalized practice ends up being worth substantially more than when it was issued.

The pitch: the $1,800,000 in rollover equity will grow as the PE firm consolidates more practices, improves margins, and eventually sells the platform at a higher multiple. If the platform sells at 12x EBITDA and the consolidated EBITDA has grown from $800,000 to $5,000,000 through add-on acquisitions, your $1,800,000 rollover stake could be worth $4,000,000 to $6,000,000 at the exit event. The "second bite" is worth more than the first.

This is the scenario that PE firms show in their pitch books. It is real — for the physicians whose transactions work out as projected.

The risks of rollover equity that the pitch book minimizes:

• Risk 1 — Illiquidity. Your $1,800,000 in rollover equity is not liquid. You cannot sell it, trade it, or access it until the PE firm exits — which typically happens in 4 to 7 years after your transaction. You are a minority equity holder in a company controlled by the PE firm. You have no mechanism to force a sale or access your capital before the PE firm decides to exit.
• Risk 2 — Valuation uncertainty. The "projected" platform value at exit is a financial model, not a guarantee. PE exits can produce multiples of the rollover equity value — or they can produce much less if the platform's financial performance disappoints, if market conditions deteriorate, or if the consolidation thesis does not execute as projected. Physicians who rolled equity into PE platforms that underperformed have received significantly less than their original rollover value at exit — meaning they effectively received less than 100 percent of their practice's value in the initial transaction.
• Risk 3 — Dilution. As the PE platform acquires additional practices and potentially raises additional capital, the ownership percentage your rollover equity represents can be diluted. Your $1,800,000 at 2.5 percent ownership may become 1.8 percent ownership after subsequent acquisitions without your consent, depending on the equity structure's anti-dilution provisions.
• Risk 4 — Waterfall structure. PE fund equity is typically structured with a preferred return for the PE fund before rollover equity holders participate in gains. If the platform exits at a modest premium to the original transaction value, the PE fund's preferred return may consume most or all of the appreciation before physician rollover equity receives any upside.
• Risk 5 — Key man provisions and vesting. Buyers need the selling physicians to remain invested in the practices post-sale or otherwise risk having them leave or retire. Most rollover equity agreements include vesting schedules tied to continued employment. A physician who leaves the platform before the vesting schedule completes — whether voluntarily or involuntarily — may forfeit unvested rollover equity, effectively receiving less than the full transaction value.

The MSO Structure: What It Means for Physician Ownership

Most physicians receive PE offers without understanding the legal architecture through which the transaction is executed. MSO structures separate clinical operations owned by physicians from business operations owned by PE firms to comply with laws prohibiting non-physician ownership of medical practices.

The mechanism: the Corporate Practice of Medicine doctrine — enforced in most states — prohibits non-physician entities from owning medical practices or directing clinical care. PE firms cannot directly own your practice or your professional corporation.

The solution: the Management Services Organization. The PE firm acquires a management company that provides administrative services — billing, HR, IT, facilities, supply chain, marketing — to your physician professional corporation. You continue to own the professional corporation and employ yourself as a physician. The MSO owns everything else.

The economic arrangement: the MSO charges your professional corporation a management fee for these services — typically structured to extract most of the practice's profit margin above your guaranteed physician compensation. The management fee is the mechanism through which the PE firm captures its return on investment from your practice's revenue.

What this means practically:

After the transaction closes, you own your professional medical corporation on paper. But the MSO — owned by the PE firm — extracts a management fee that, combined with your guaranteed physician salary, leaves the professional corporation with minimal retained earnings. The PE firm's return is captured through the management fee, not through direct clinical revenues. Your nominal ownership of the professional corporation is preserved for regulatory compliance, not for economic participation.

The management fee structure is one of the least-discussed financial mechanisms in physician PE transactions and one of the most significant determinants of your post-transaction income. Understand the fee amount, the calculation method, and whether it is subject to renegotiation before signing anything.

The Employment Agreement: The Document Nobody Reads Carefully Enough

The day your practice transaction closes, you sign a new employment agreement with the PE-backed platform entity. This agreement governs your day-to-day professional life from that point forward — and it typically contains provisions that are materially more restrictive than anything you signed in your previous career.

Compensation Post-Transaction

Your guaranteed physician salary under the new employment agreement is typically lower than your pre-transaction total compensation. The PE firm's financial model assumes you accept a lower guaranteed salary in exchange for the transaction proceeds and rollover upside. A physician earning $800,000 total as a practice owner may be offered $400,000 to $550,000 in guaranteed base salary post-transaction.

The productivity bonus provisions in PE employment agreements are frequently structured with thresholds that are achievable under normal clinical operations. In practice, post-acquisition production pressure — more patients per day, reduced administrative time, standardized protocols — changes the clinical environment in ways that affect both production and satisfaction.

The Triple Non-Compete Problem

Physicians participating in a platform exit are often subject to restrictive covenants in three separate agreements simultaneously: the purchase agreement, the operating agreement governing rollover equity, and the employment agreement with the practice. Each serves a different commercial purpose, is typically negotiated at a different stage of the transaction, and may be triggered by different events: the purchase agreement non-compete running from closing, the operating agreement non-compete triggered by departure from the platform, and the employment agreement non-compete triggered by termination of employment.

This is the aspect of PE transactions that surprises physicians most severely — and it often comes as a surprise because the three non-competes appear in three separate documents, each reviewed at a different time in the transaction process.

The practical consequence: a physician who sells their practice, retains rollover equity, and then decides two years later that the PE environment is not the practice they want to be in faces non-compete restrictions in three simultaneously operative agreements. Depending on how these are structured, the physician may be effectively prevented from practicing in their specialty in their existing geographic market for 1 to 5 years after departing — even if the employment agreement's non-compete would otherwise be 12 months.

The purchase agreement non-compete is the most significant and the most difficult to negotiate — it protects the buyer's investment in the goodwill they just purchased. Anything shorter than 12 to 18 months in the purchase agreement non-compete is uncommon for PE transactions. For a physician in a market where their practice is the dominant provider of their specialty, a 3-year purchase agreement non-compete effectively forces geographic relocation if the relationship deteriorates.

What to negotiate on non-competes before closing:

• Request the shortest possible duration on the purchase agreement non-compete — 12 months is the floor to fight for
• Ensure the without-cause termination carveout is present in the employment agreement non-compete
• Verify that the three non-compete agreements do not pile on to create an aggregate restriction longer than any single agreement contemplates
• Confirm that the rollover equity non-compete does not extend beyond the employment agreement non-compete in geographic scope

The Financial Model: What You Actually Keep

Let us model a complete physician PE transaction from offer to 10-year outcome — with realistic assumptions, not best-case pitch book projections.

The tax calculation on cash at close:

• Long-term capital gains at 20%: $600,000
• Net Investment Income Tax at 3.8%: $114,000
• State tax (varies — assuming 5% for illustration): $150,000
• Total taxes: $864,000
• After-tax cash per physician: $2,136,000

The post-transaction employment income:

• Guaranteed salary under new employment agreement: $380,000 per physician (versus $400,000 prior distributions)
• Change in annual physician income: −$20,000 per physician per year

The rollover equity scenario modeling:

The comparison: sell to PE versus stay independent

If these three gastroenterologists do not sell and continue as independent owners:

• Annual total compensation per physician: $400,000
• Annual endoscopy center distributions (estimated at 20% of ASC net income on $2,000,000 ASC EBITDA): $133,333 per physician
• Total annual income per physician: $533,333

Over 10 years at 3 percent annual growth: cumulative physician income per physician: approximately $6,100,000 in gross income.

In the PE transaction with moderate rollover outcome:

• After-tax cash at close: $2,136,000
• Post-transaction employment income over 10 years at $380,000: $3,800,000 gross (approximately $2,600,000 after tax)
• Rollover equity moderate outcome: $1,750,000 (approximately $1,312,000 after capital gains tax)
• Total 10-year economic value: approximately $6,048,000

The strong PE outcome clearly beats staying independent. The weak PE outcome clearly does not. The honest financial advice is to model all three scenarios before signing — and to understand that the "expected" PE outcome shown in the pitch book is the strong scenario.

What You Give Up That Does Not Appear in the Term Sheet

Every PE transaction involves a set of non-financial concessions that are real and often underappreciated until the physician is living inside the post-acquisition environment.

Clinical Autonomy: The Gap Between Promise and Reality

PE partnerships generally preserve physician control over clinical decisions while providing management support and capital for growth.

This is PE's standard language about clinical autonomy — and it is technically accurate about individual patient care decisions. PE firms do not direct which treatments you recommend to specific patients. They do direct how many patients you see per day, which procedures are prioritized in the scheduling templates, how your clinical documentation is structured for maximum billing efficiency, and which ancillary services the platform expects you to incorporate into your clinical workflow.

The distinction: autonomy over individual clinical decisions is preserved. Autonomy over how you practice — your schedule structure, your patient volume targets, your ancillary service participation — is constrained by the employment agreement and the platform's operational standards.

A gastroenterologist who previously blocked out 90-minute procedure slots to accommodate complex colonoscopies discovers that the platform's scheduling template assumes 45-minute slots to maximize daily case volume. The clinical decision-making in the procedure room has not changed. The operational environment in which it occurs has.

Governance Rights: From Owner to Employee

The most psychologically significant transition in a physician PE transaction is not financial — it is the shift from practice owner to practice employee. As an independent practice owner, your vote on clinical hiring, compensation structures, payer contract decisions, and strategic direction carries weight proportional to your ownership.

After the transaction, you are a minority equity holder in a company controlled by the PE fund. Major operational and strategic decisions — which practices to acquire, how to structure compensation, whether to renegotiate your employment contract terms, when to exit — are made by the PE board, not by the physician group.

There is the loss of ownership and control of the business aspects of the practice and fear of commercialization of healthcare.

This is not a PE-specific criticism. It is an honest description of what minority equity ownership in a professionally managed company looks like. Physicians who have spent 15 to 20 years as the senior decision-maker in their practice find this transition more disruptive than the financial modeling prepared them for.

ASC Ownership and Ancillary Revenue

If your practice includes an ambulatory surgery center ownership stake — as many gastroenterology, orthopedic, and ophthalmology practices do — evaluate explicitly how that ASC ownership is treated in the transaction.

ASC distributions are frequently the highest-margin income component for procedurally-oriented specialists. A gastroenterologist receiving $400,000 in clinical salary plus $133,000 in ASC distributions has a very different income calculation than one receiving $400,000 in clinical salary alone after the transaction.

PE transactions structured around the clinical practice may or may not include the ASC ownership interest. If the PE transaction separates the clinical practice acquisition from the ASC ownership, the physician may retain ASC distributions — but the employment agreement and non-compete provisions may create complications with continuing to work at the ASC as a non-partner employee of the platform.

Clarify explicitly in every term sheet negotiation: how is the ASC ownership interest treated, what happens to current ASC distributions post-transaction, and whether the PE employment agreement restricts ASC participation in any way.

The Due Diligence Process: What Physicians Must Do Before Signing

Good counsel will help with tax planning and strategy, identifying compliance issues before they are discovered by the acquiror, working through employment agreements and restrictive covenants, and advising selling owners in connection with their receipt and holding of rollover equity.

No physician should enter a PE transaction without three independent professional advisors working exclusively on their behalf — not the buyer's advisors, not the deal team's suggested resources, and not the attorney who drafted your original partnership agreement unless they have specific PE transaction experience.

The Questions to Ask Before the Letter of Intent Is Signed

Most physicians enter PE conversations without a prepared question framework. Here are the questions that reveal the most about whether a specific offer is fair and whether the specific PE firm is a good partner.

• 1. Are we a platform or an add-on acquisition?

  Platform acquisitions receive higher multiples and more favorable deal terms. If you are an add-on, understand what you are contributing to someone else's platform — and whether the multiple reflects that contribution appropriately.

• 2. What is the management fee structure, and how is it calculated?

  The management fee the MSO charges your professional corporation should be disclosed, documented, and capped. Ask for the formula, the current rate, and whether it is subject to unilateral change by the PE firm after closing.

• 3. What does the employment agreement say about patient volume targets and schedule structure?

  Request the draft employment agreement before the letter of intent is signed. Review the patient volume targets, scheduling template requirements, and any provisions that allow the platform to modify your clinical schedule without your consent.

• 4. What has happened to physician compensation at practices you previously acquired in our specialty?

  Ask for references — not just the practices they want to show you, but a complete list of all physician practices they have acquired in your specialty. Contact those physicians independently and ask about the post-transaction experience with compensation, clinical autonomy, and administrative support.

• 5. What is your target exit timeline and likely exit type?

  A PE fund that acquired its initial platform investments in 2020 to 2022 and targets a 5 to 7-year hold period is approaching its exit window in 2025 to 2029. If you join a late-cycle platform, your rollover equity may have less time to appreciate before the exit event. Ask specifically when the fund expects to exit and what form the exit is expected to take — secondary PE sale, strategic acquisition, or IPO.

• 6. What anti-dilution protection does my rollover equity have?

  If the platform raises additional capital after your transaction closes, your equity percentage will be diluted unless anti-dilution provisions protect you. Full ratchet anti-dilution is the strongest protection. Weighted average anti-dilution is more common. No anti-dilution is an unacceptable term for any physician considering rollover equity as a meaningful component of transaction value.

• 7. What happens to my rollover equity if I am terminated without cause?

  This is the question that reveals how aligned the PE firm's interests are with yours. If your rollover equity vests immediately upon the exit event regardless of your employment status, your equity interest is genuinely yours. If unvested rollover equity forfeits upon departure for any reason, your equity creates a financial hostage — an incentive to remain even when the employment relationship is no longer working.

When to Say No: The Transactions That Are Not Worth Taking

Not every PE offer is worth accepting — and knowing when to decline is as important as knowing how to negotiate.

Frequently Asked Questions