What to consider before selling your practice to a private-equity-backed group

You’ve owned your dermatology practice for decades. You’ve treated hundreds of patients. You love your work and your ability to help people.

But you are ready for a change, and want to shift more of your administrative and management duties to another source.

If your practice is still a private, independent practice, you might be considering selling it to a corporate-backed dermatology practice management company. These companies raise money from individual and corporate investors (i.e., venture capital or private equity groups), which in turn is used to deploy highly skilled management teams to enhance practice operations and efficiency. 

These firms can afford to pay bonuses to attract younger dermatologists, which they can recoup later by capping their incomes. By enhancing the company's profitability, and by combining many small practices into a larger whole, the private equity group or venture capital firm may then sell the company to a larger venture capital group for a greater amount, thus resulting in more financial risk for the physician employee.

Learn more: Five questions to ask before selling your practice to a private-equity-backed company

There are currently at least 17 different private equity firms generally focused on buying dermatology practices. It’s only recently that many PE and VC companies have entered the health care space. They find dermatology attractive because it is fragmented, with many potential income streams.

View a standard Letter of Intent (document download) from a venture capital firm.

Why are these firms interested in dermatology practices?

There are several reasons for the increased interest:

• Room for growth: Between an aging population that’s looking for cosmetic surgery and an increasing incidence of skin cancer, dermatology is a rapidly expanding segment of the health care industry. 

• A shortage of dermatologists means the demand likely will be sustained for many years to come. 

• Retiring physicians are expressing increased interest in selling to private equity or venture capital firms.

• Dermatology is especially fragmented, with the majority of practices having fewer than six providers. Payers prefer dealing with larger groups, which may be able to obtain more favorable insurance contracts. 

The question remains: How do you get the best possible offer from selling your practice to private equity? 

Charts updated May 2021.

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This content is only for informational purposes and is not intended to substitute for the guidance of an attorney, professional business consultant, or financial adviser. Always seek professional guidance before agreeing to an employment contract, selling a business, retiring, or making any other type of career decision.