The market for dermatology practices in Washington is dynamic and full of opportunity. With national market growth projected at over 7% annually and active buyers in the state, now is a compelling time to explore your options. However, a successful sale is a complex journey, involving much more than just finding a buyer. It requires careful planning around valuation, negotiations, and taxes to protect the value you have built over years of hard work.
Curious about what your practice might be worth in today’s market?
Market Overview: The Current Landscape for Dermatology in Washington
Washington’s healthcare landscape reflects strong national trends. The demand for dermatology services is rising, and with it, the interest from buyers. For practice owners, this creates significant opportunity, but it also changes the nature of the game. The days of a simple handshake deal with a local colleague are fading. Today s market is defined by larger, more sophisticated buyers who analyze practices with a financial lens.
The Rise of Consolidation
The trend is clear. Fewer dermatologists are in solo practice, and more are joining larger groups. This shift is driven by the operational and financial advantages of scale. For independent owners, this means the competitive environment is changing. Aligning with a larger partner can provide resources to compete and grow in ways that might be difficult alone.
Private Equity’s Role
Private equity firms and large strategic groups are now the most active buyers of dermatology practices. They are drawn to the specialty’s strong revenue and growth potential. These buyers bring a new level of financial rigor to the process. They analyze cash flow, growth metrics, and operational efficiency in meticulous detail. Understanding how to position your practice for this type of buyer is critical.
Key Considerations for Washington Practice Owners
Selling a practice in Washington is not just a business transaction. It is a healthcare transaction. State regulators are paying closer attention to healthcare mergers, which adds a layer of complexity to the process. Buyers will perform deep due diligence on your financials, compliance history, and billing practices, especially given recent federal scrutiny in the state. They will want to see clean books and a clear compliance record. This is not something to fear. It is something to prepare for. Proper preparation demonstrates strength and professionalism, which ultimately puts you in a better negotiating position and protects your legacy.
What We’re Seeing: Recent Market Activity
The M&A market in Washington isn’t just a concept. It is active right now. We are seeing deals get done that confirm the strength of the dermatology sector. For example, Frontier Dermatology continues its expansion, recently acquiring practices like Doherty Dermatology in Bellingham, and now has 26 locations across the state. This shows that large, well-capitalized groups are actively looking to partner with established local practices.
Here are three truths this activity reveals for practice owners:
- Size Isn’t Everything. We recently saw a solo dermatology practice in Washington sell successfully. It generated over $1.9 million in collections working just four days a week. Profitability and efficiency matter more than the number of doctors on staff.
- Location is Key. Buyers like Frontier are building regional density. If your practice is in a desirable location, even if it’s outside of the major metro areas, you could be a strategic target for a larger group looking to expand its footprint.
- Timing is an Advantage. The current level of buyer interest won’t last forever. Market conditions can shift. Owners who explore their options now are in a position to capitalize on high demand.
The Path to a Sale: What to Expect
A successful practice sale does not happen overnight. From the initial decision to the final transfer of funds, you should plan for a process that typically takes six to twelve months. It starts long before your practice is shown to a single buyer. The first phase involves organizing your financial and operational documents to tell a clear story of value. Next comes a professional valuation, which forms the bedrock of your negotiating strategy. Only then does the confidential marketing and buyer negotiation begin. Managing this process while still running your practice is a major challenge. This is where many deals encounter problems. Having a structured process and a team to manage it ensures you stay in control and can focus on patient care.
Understanding Your Practice’s True Value
One of the first questions every owner asks is, “What is my practice worth?” The answer is more complex than a simple percentage of revenue. Sophisticated buyers value your practice based on a metric called Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This reflects your true cash flow after normalizing for owner-specific expenses. That number is then multiplied by a “multiple” to determine the total enterprise value. The multiple is not a fixed number. It changes based on risk and growth potential. We find that many practices are undervalued until their financials are properly adjusted and their growth story is clearly told.
| Factor That Influences Your Multiple | What Buyers Look For |
|---|---|
| Provider Model | Practices not solely dependent on the owner command higher values. |
| Service Mix | A healthy blend of medical and cosmetic services shows diverse revenue. |
| Payer Mix | Strong commercial insurance contracts are seen as more stable and valuable. |
| Growth | A track record of consistent year-over-year growth earns a premium. |
| Scale & Profitability | Higher EBITDA generally receives a higher multiple due to perceived stability. |
Life After the Sale: Planning Your Transition
The day you sign the closing documents is not the end of the story. It is the beginning of a new chapter for you, your staff, and your patients. Planning for this transition is one of the most important parts of the entire sale process. The structure of your exit has major implications for your tax burden, your future role, and your final financial outcome. Thinking about these issues early gives you more control over your legacy.
Your Post-Sale Role
Most buyers will want you to stay on for a transition period, typically one to three years. This ensures continuity of care for patients and a smooth transfer of leadership. Your role, compensation, and clinical autonomy during this period are all key points to be negotiated upfront.
Structuring the Payout
Not all of the proceeds may come as cash at closing. Buyers often use structures like earnouts (additional payments tied to future performance) or equity rollovers (where you retain a stake in the new, larger company). A rollover can provide a “second bite at the apple,” giving you a chance for another significant payday when the larger group sells in the future. These structures require careful analysis to understand the risks and potential rewards.
Your legacy and staff deserve protection during the transition to new ownership.
Frequently Asked Questions
What is the current market trend for dermatology practices in Washington?
The dermatology market in Washington is dynamic with strong national growth projections of over 7% annually. There is rising demand for dermatology services, increasing buyer interest, and a trend towards consolidation with fewer solo practitioners and more joining larger groups.
Who are the main buyers for dermatology practices in Washington?
The most active buyers are private equity firms and large strategic groups. They focus on strong revenue potential and analyze practices with detailed financial metrics including cash flow, growth, and operational efficiency.
What factors influence the valuation of a dermatology practice in Washington?
Valuation is based on Adjusted EBITDA and a multiple that reflects risk and growth potential. Key factors affecting the multiple include provider model, service mix (medical and cosmetic), payer mix (commercial insurance contracts), consistent growth, and overall scale and profitability.
How long does the sale process typically take and what should sellers expect?
The sale process typically takes 6 to 12 months. It involves organizing financial and operational documents, professional valuation, confidential marketing, and buyer negotiations. Sellers need a structured process and support team to manage this while continuing patient care.
What happens after the sale and how can sellers plan their transition?
Post-sale planning is critical. Most buyers want sellers to stay for 1 to 3 years to ensure continuity of care. Sellers should negotiate their role, compensation, and autonomy. Payout structures can include cash at closing, earnouts, or equity rollovers, which affect tax and future financial outcomes.
