Selling your dermatology practice is one of the most significant financial and personal decisions you will ever make. The Texas market is dynamic, filled with both opportunity and complexity. For practice owners, understanding the current trends, valuation methods, and unique state regulations is the first step toward a successful transition. This guide provides a clear overview to help you navigate the path ahead and prepare for what’s to come.
Market Overview
The market for dermatology practices in Texas is robust, shaped by powerful national trends. Your practice operates within a specialty projected to grow at over 7% annually, making it highly attractive to buyers seeking stable, profitable investments. This is not a theoretical trend. It is happening right now.
The Influence of Private Equity
Private equity (PE) firms and their platform companies are actively consolidating the dermatology space. They see the value in practices with strong revenue and high margins. This investor interest provides a significant opportunity for practice owners. However, selling to a PE-backed group is a different process than a traditional physician-to-physician sale. They are sophisticated buyers who look for specific operational and financial metrics.
A Generational Shift
Compounding this trend is a simple demographic fact. Nearly half of all practicing dermatologists are over the age of 55. This creates a natural wave of practice transitions, fueling a competitive acquisition environment. For owners considering their next chapter, this means there is an active and well-funded pool of potential buyers.
Key Considerations for a Texas Sale
Beyond national market trends, selling a practice in Texas involves unique legal hurdles. The state’s Corporate Practice of Medicine (CPOM) doctrine is a primary example. This law generally prevents corporations or non-physicians from owning a medical practice outright. While this may sound like a barrier to selling to a larger group, it is not. It simply means the transaction must be structured correctly with clear legal boundaries, often using a Management Services Organization (MSO) model. Misunderstanding these rules can create significant deal roadblocks. Proper handling of patient notifications and medical records is also legally mandated and requires careful planning to ensure compliance and a smooth transition for your patients.
What Buyers Are Looking For
In today’s competitive market, buyers have their choice of practices. To attract the best offers and command a premium valuation, your practice needs to demonstrate more than just profitability. We see that the most sought-after practices share several key traits. They are not just selling a patient list; they are selling a well-run business.
Here is what sophisticated buyers prioritize:
- A Diverse Revenue Mix. Practices that balance medical and cosmetic dermatology are often viewed as more resilient. It shows an ability to capture different patient needs and revenue streams, with top practices earning between $1.3 and $1.8 million in revenue per physician.
- Associate-Driven Models. A practice that is not dependent on the owner alone for production is much more valuable. Having associate physicians or physician extenders who can maintain patient volume post-sale demonstrates stability.
- Clean Financials. Buyers need to clearly see your practice’s true profitability. This means having organized financial statements where personal expenses are separated from business costs, leading to a clean, “adjusted” EBITDA.
- Trained and Stable Staff. An experienced team that is likely to stay through the transition is a major asset. It reduces the operational risk for the new owner and ensures continuity of care.
The Path to a Successful Sale
Selling your practice is a journey, not a single event. From the initial decision to the final closing, the process typically takes between six months and a year. It begins with a confidential consultation to understand your goals, followed by a comprehensive practice valuation to establish a credible asking price. Once your practice is prepared for market, we identify and vet potential buyers, manage negotiations, and move toward a letter of intent. The most intensive phase is often due diligence, where the buyer scrutinizes every aspect of your financial, operational, and legal records. Many deals encounter unexpected challenges here. Proper preparation and expert guidance during this stage are critical to keeping the process on track and reaching a successful close.
Understanding Your Practice’s True Value
How is a dermatology practice actually valued? While you may have heard rules of thumb based on revenue, sophisticated buyers focus on a more precise metric: Adjusted EBITDA. This figure represents your practice’s true, normalized cash flow. It is calculated by taking your net income and adding back interest, taxes, depreciation, amortization, and any owner-related expenses not essential to operations. This Adjusted EBITDA is then multiplied by a specific number, the “multiple,” to determine the enterprise value.
The valuation process is part science, part art. Here’s how the pieces fit together:
| Valuation Component | What It Means for You |
|---|---|
| Adjusted EBITDA | This is your practice’s real profitability. We help identify all appropriate “add-backs” to maximize this number. |
| Valuation Multiple | This multiplier reflects the market’s perception of your practice’s risk and growth potential. Multiples can range from 3x to well over 7x. |
| Key Value Drivers | Factors like your payer mix, location, staff quality, and service lines directly influence which multiple a buyer will apply. |
| Final Enterprise Value | This is the result of your Adjusted EBITDA multiplied by your specific valuation multiple. It’s the headline price for your practice. |
Relying on a simple formula can leave significant money on the table. A professional valuation tells the full story of your practice, justifying the highest possible price.
Life After the Sale
The day you close the deal is a beginning, not an end. Planning for what comes next is a critical part of a successful sale. You will need to decide on your own future role. Will you retire immediately, stay on as an employed physician for a few years, or take on a leadership position within the new organization? These arrangements are defined in employment or consulting agreements negotiated as part of the deal. Furthermore, ensuring a smooth transition for your loyal staff and patients is key to protecting the legacy you have built. The structure of the sale, including any potential for an earnout or rollover equity, will also shape your financial future for years to come. Thinking through these post-sale considerations early in the process ensures your personal and professional goals are met long after the papers are signed.
Frequently Asked Questions
What are the current market trends for selling a dermatology practice in Texas?
The Texas dermatology market is robust and growing, with the specialty projected to grow over 7% annually. There is strong buyer interest, especially from private equity firms consolidating the space and from a demographic wave of dermatologists over 55 looking to sell. This creates a competitive acquisition environment and multiple opportunities for sellers.
How does the Corporate Practice of Medicine (CPOM) doctrine affect the sale of a dermatology practice in Texas?
The CPOM doctrine in Texas generally prohibits corporations or non-physicians from owning a medical practice outright. This means any sale must be structured carefully, often using a Management Services Organization (MSO) model, to comply with state laws. Missteps in understanding CPOM can cause major deal delays or failures, so expert legal guidance is essential.
What financial metrics do buyers look for when purchasing a dermatology practice?
Sophisticated buyers prioritize practices with clean financial statements showing true profitability, especially the Adjusted EBITDA, which normalizes cash flow by adding back non-operational expenses. They also value a diverse revenue mix, associate-driven models that reduce owner dependency, and stable, trained staff to ensure business continuity after sale.
How is the valuation of a dermatology practice determined in Texas?
The valuation is primarily based on the practice’s Adjusted EBITDA multiplied by a market-specific valuation multiple that reflects risk and growth potential. The Adjusted EBITDA is your normalized net income, and multiples can range from 3x to over 7x depending on factors like payer mix, location, staff quality, and service lines. A professional valuation is crucial to maximizing sale price.
What should owners consider for life after selling their dermatology practice?
After closing, owners must plan their future role—retirement, employed physician, or leadership within the new organization—defined via employment or consulting agreements. They should also focus on staff and patient transition to protect their legacy. Additionally, deal structures like earnouts or rollover equity affect long-term financial outcomes, so early planning of these aspects is vital.