The market for dermatology practices in Phoenix is more active than ever, driven by private equity interest and local consolidation. For practice owners, this presents a significant opportunity, but navigating the complex landscape to achieve a premium valuation requires careful preparation and strategy. This guide provides a clear overview of the current environment, what buyers are looking for, and how you can position your practice for a successful sale.
Curious about what your practice might be worth in today’s market?
Phoenix Dermatology Market Overview
The decision to sell your practice is personal. The market dynamics, however, are driven by powerful financial trends. Right now, the Phoenix area is a focal point for acquisitions in the dermatology space, influenced by two key factors.
National Interest Meets Local Demand
Private equity groups are actively acquiring dermatology practices across the country, attracted to the specialty’s consistent cash flow and growth potential. This national trend is evident right here in Phoenix, with major platforms making significant acquisitions. At the same time, established local groups like Affiliated Dermatology are also expanding, creating a competitive environment. They aim to offer a physician-led, local alternative to out-of-state corporate buyers. This means sellers in Phoenix have multiple types of potential partners to consider.
A Growing Market
This activity is happening within a thriving sector. The U.S. dermatology market is projected to grow at a rate of 7.3% annually over the next decade. This growth reassures buyers that they are investing in a stable and expanding field, making well-run Phoenix practices highly attractive assets.
Key Considerations for a Successful Sale
Selling a practice is more than a financial transaction. Its about your future, your staff, and the patients you have served. Before diving into the process, it is important to reflect on what a successful outcome looks like for you. Answering these questions early will provide clarity and guide your entire strategy.
- What is your post-sale vision? Are you looking for a path to retirement with a guaranteed salary for a few years, or do you want to shed administrative burdens to focus purely on clinical work? Some deals offer a clean break, while others involve ongoing roles or even the opportunity to reinvest in the larger company. Defining your ideal next chapter is the first step.
- Who is the right partner for your practice? The highest offer is not always the best offer. The right partner is one whose values align with yours. You should consider their reputation for patient care, their financial stability, and how they treat their physicians and staff. A strategic fit ensures your legacy is protected.
- How will you approach the process? A sale requires preparing detailed financial and operational records that can withstand intense buyer scrutiny. Maintaining confidentiality to protect your reputation among staff and patients is also critical. A well-managed, competitive process with multiple interested parties will almost always yield a better result than reacting to a single, unsolicited offer.
Your specific goals and timeline should drive your practice transition strategy.
Phoenix Market Activity: Who Is Buying?
The market is not just theoretical. Real transactions are happening that demonstrate the interest from different types of buyers. In recent years, we have seen national private equity-backed groups acquire prominent Phoenix practices like Southwest Skin Specialists. We have also seen local players like Affiliated Dermatology acquire practices such as Arcadia Dermatology as part of their regional growth strategy.
This activity creates a diverse landscape of potential partners, each with different structures and goals.
| Buyer Type | Recent Phoenix Activity | What This Means for You |
|---|---|---|
| National PE Platforms | Acquiring multi-physician practices to build a national footprint. | They offer significant resources and high valuations but may bring a more corporate culture. |
| Local Consolidators | Physician-led groups acquiring practices to strengthen their regional presence. | They may offer a better cultural fit, local operational knowledge, and physician autonomy. |
| Independent Physicians | Smaller, single-physician practices are often listed for sale on platforms like BizQuest. | This can be a viable path for a straightforward transition to another individual provider. |
The Four Stages of a Practice Sale
A professional sale process is designed to protect you, maximize value, and ensure a smooth transition. It moves beyond just finding a buyer. It is about creating a market for your practice. Most successful transactions follow a structured path.
The process is a journey that requires careful navigation. Many deals encounter challenges during due diligence, which is why having experienced advisors to prepare you and manage the process is so important. It ensures you can focus on running your practice while the sale moves forward efficiently.
The due diligence process is where many practice sales encounter unexpected challenges.
How Your Dermatology Practice is Valued
Understanding your practice’s value is the foundation of a successful sale. Buyers do not value a practice based on revenue alone. The key metric is Adjusted EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization.
Beyond Revenue: The Power of Adjusted EBITDA
Think of Adjusted EBITDA as your practice’s true cash flow. We start with your reported net income and add back non-cash expenses like depreciation and interest. Then, we “normalize” the financials by adding back owner-specific perks (like a car lease) and adjusting the owner’s salary to a fair market rate. For a practice with $500,000 in net income, these adjustments can often increase the Adjusted EBITDA to $700,000 or more, significantly increasing its value.
What Drives Your Multiple?
This Adjusted EBITDA figure is then multiplied by a number called a “multiple” to arrive at your practice’s total value. That multiple is not random. It is determined by several factors:
* Scale: Larger practices with higher EBITDA command higher multiples.
* Provider Mix: A practice with multiple associate providers is less risky and more valuable than a practice dependent on a single owner.
* Growth: A history of consistent revenue growth will earn a premium valuation.
* Ancillaries: A strong mix of medical, surgical, and cosmetic services demonstrates diverse revenue streams.
A solo practice might see a multiple of 3-5x EBITDA, while a multi-provider group could achieve 6-8x or higher in today’s market.
A comprehensive valuation is the foundation of a successful practice transition strategy.
Life After the Sale: Planning Your Transition
The day you sign the closing documents is a beginning, not just an end. The structure of your deal and the plan for your transition are critical components of a successful exit. It is important to think about these elements early in the process.
Your Evolving Role
Your role after the sale is negotiable. You might work for a defined period, transition to a part-time schedule, or stay on as a leader in the new organization. Securing a clear employment agreement that outlines your salary, responsibilities, and schedule provides security and a smooth runway into the next phase of your career or retirement.
Deal Structure and Your Wealth
Not all offers are all-cash. Many deals include an “earn-out,” where you receive additional payments for hitting performance targets, or an “equity rollover,” where you reinvest a portion of your proceeds into the new, larger company. An equity rollover allows you to benefit from the platform’s future growth, offering a potential “second bite at the apple” when the larger entity is sold again years later.
Protecting Your Team and Legacy
A successful transition depends on the continued success of your team. Finding a partner who respects your staff, honors existing contracts, and is committed to maintaining the quality of patient care you established is key to protecting your legacy.
Your legacy and staff deserve protection during the transition to new ownership.
Frequently Asked Questions
What is driving the current market for dermatology practice sales in Phoenix, AZ?
The market is driven by strong private equity interest and local consolidation efforts. National private equity platforms are attracted by the specialty’s consistent cash flow and growth potential, while local groups like Affiliated Dermatology are expanding regionally, creating a competitive market for sellers.
How can I position my dermatology practice to achieve a premium valuation in Phoenix?
To achieve a premium valuation, focus on maximizing your Adjusted EBITDA, demonstrating consistent revenue growth, maintaining a diverse mix of medical, surgical, and cosmetic services, and having multiple associate providers. Preparing detailed financial records and ensuring a strategic fit with potential buyers also help.
Who are the typical buyers for dermatology practices in Phoenix?
Buyers generally fall into three categories: national private equity-backed platforms seeking multi-physician practices for national expansion; local consolidators offering a physician-led, culturally aligned option; and independent physicians looking for straightforward practice transitions. Each has different implications for valuation and practice culture.
What should I consider about my future role after selling my dermatology practice?
Post-sale roles vary widely. You may negotiate to work for a defined period, transition to part-time, or take a leadership role in the acquiring organization. Securing a clear employment agreement that details salary, responsibilities, and schedule is important for a smooth transition.
How is the value of my dermatology practice determined in Phoenix?
Practice value is based primarily on Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), which represents the true cash flow after adjusting for non-cash expenses and owner-specific perks. This figure is multiplied by a market-driven multiple influenced by practice size, provider mix, growth history, and revenue diversification. Typical multiples range from 3-5x EBITDA for solo practices to 6-8x or higher for multi-provider groups.