Selling your medical practice to private equity (PE) can be a game-changer, but understanding how they value your business is key to maximizing your payout. As of April 2025, PE buyers focus on two critical steps: calculating your adjusted EBITDA by stripping out personal and discretionary expenses, and applying a multiple to determine your practice’s worth. At Healthcare Transaction Professionals we decode this process to ensure you get top dollar—here’s how it works and why you should consult us.
Step 1: Calculating Adjusted EBITDA
EBITDA—earnings before interest, taxes, depreciation, and amortization—is the starting point, but buyers don’t stop there. They adjust it to reflect your practice’s true profitability, removing personal and discretionary expenses that inflate costs but don’t persist post-sale. Think excessive owner salaries, lake house renovations, or family on payroll—these get scrubbed. For example, if you pay yourself $500,000 annually but a market-rate physician salary is $300,000, buyers might add back $200,000 to EBITDA. Travel, for instance, or one-time expenses like a personal vacation billed as “conferences” are also typically added back, increasing your EBITDA.
Why? Buyers wants a clean picture of cash flow under their management. In 2025, with healthcare deal activity steady, buyers are laser-focused on specialty physician practices, primary & urgent care platforms, and telehealth/healthtech businesses. They’ll dig into your financials—revenue cycles, payer mix, patient volume—to ensure adjustments align with market norms. Missteps here can undervalue your practice, which is where Healthcare Transaction Professionals steps in to prep your books.
Step 2: Applying the Multiple
Once adjusted EBITDA is set—say, $1 million—buyers will apply a multiple to estimate your practice’s value. Multiples vary by specialty, size, and market trends, typically ranging from 5x to 12x in healthcare, depending on the breadth and scope of your practice. In April 2025, high-demand specialty physicians like gastroenterology or plastic surgery might fetch 6-10x, while primary care hovers at 5x to 7x. A $1 million EBITDA at a 8x multiple means a $8 million valuation—simple, but not static.
Multiples reflect growth potential, competition, and economic conditions. With interest rates at 4.25% to 4.5% (Federal Reserve data), borrowing costs temper offers, but anticipated 2025 rate cuts could lift multiples. Buyers also weighs your practice’s scalability—think tech adoption or regional dominance. A rural solo practice might see 5x, while a multi-site specialty group with strong margins could hit 10x. Misjudge your multiple, and you’re leaving millions on the table.
Why Consult Healthcare Transaction Professionals?
This valuation dance is complex. Private equity buyers use forensic accounting to justify adjustments and multiples, often to their advantage. Without expertise, you might overstate discretionary costs (lowering EBITDA) or settle for a below-market multiple. We’ve seen it happen—doctors underselling by 20% or more. In 2025, with over $3T of dry powder, private equity activity is poised for a rebound. Timing and presentation are everything.
Exit Tip of the Day: Hire an advisor for the sale of your largest asset. As a former buyer myself, all data suggests that an unrepresented doctor ultimately transacted at lower multiple of EBITDA. Don’t sell for a discount!
Cheers!
Jordan Barrett
Founder | Healthcare Transaction Professionals
Healthcare & Real Estate Transaction Services
(214) 888-6560 | jordan@healthcaretxprofessionals.com
www.healthcaretxprofessionals.com
