If you own a dermatology practice in Pittsburgh, you know the landscape is changing. The decision to sell is a major one, involving more than just a transaction. It’s about your legacy, your staff, and your financial future. This guide will walk you through the current market in Pittsburgh, what buyers are looking for, and how to position your practice for a successful transition. We will cover the key questions and trends you need to understand.
Curious about what your practice might be worth in today’s market?
Pittsburgh’s Dermatology Market: A Seller’s Opportunity
The market for selling a dermatology practice has rarely been more active, and Pittsburgh is no exception. A unique set of factors has created a ripe environment for practice owners considering an exit. A generation of physicians is nearing retirement, creating a natural supply of high-quality practices. At the same time, demand for both medical and cosmetic dermatology services is climbing.
This activity is supercharged by private equity (PE) investors. PE firms see the value in building larger dermatology groups to create efficiencies. They have been active in this space for years, and with only 10-15% of the market consolidated, they are still looking for great practices to partner with. For a seller, this means more potential buyers, creating a competitive environment that can drive up value and lead to more favorable deal terms.
Finding the Right Partner, Not Just a Buyer
The highest offer isn’t always the best one. Your legacy and peace of mind depend on finding a partner who aligns with your goals. As you evaluate potential buyers, especially private equity groups, you need to look beyond the numbers.
Here are a few things we tell our clients to focus on:
- Future-Proof Your Economics. A great deal looks at more than the initial check. It includes the timing of payments, your potential to share in future growth (the “second bite of the apple”), and credit for any growth initiatives you’ve already started.
- Define Your Clinical Autonomy. This is a major concern for physicians. You need to clarify what control you will maintain over your schedule, patient care, and staffing decisions. A good partner respects your clinical leadership.
- Assess Their Resources. A strong partner brings more than just capital. Do they have proven expertise in billing, IT, marketing, and HR that can actually reduce your administrative burden and help the practice grow?
- Check Their Track Record. Have they successfully partnered with other dermatology practices? Don’t be afraid to ask for references. You want a partner with a history of creating value, not just cutting costs.
The right exit approach depends on your personal and financial objectives.
Transactions Show a Clear Upward Trend
Talk is one thing, but the data shows a real and growing momentum in dermatology M&A. While specific Pittsburgh data is private, national trends tell a clear story. The number of dermatology practice acquisitions has been climbing steadily, from 54 deals in 2021 to 85 in 2023. This happened even while the broader healthcare M&A market slowed down, showing the unique appeal of dermatology. This upward trend indicates a robust and competitive market for sellers. PE-backed groups are the main drivers, and they have a specific playbook. They partner with a strong practice, provide resources for growth, and then sell the larger platform down the road. For physician-owners who roll over some of their equity, this can lead to a “second bite of the apple”–another significant payday when the larger entity is sold.
What Does the Sale Process Actually Involve?
Selling a practice isn’t an event. It’s a structured process that, when done correctly, protects you and maximizes your outcome. Trying to manage this while running a busy practice is nearly impossible. A well-run process generally follows a few key phases.
Phase 1: Preparation is Everything
This is the most important phase and should start 1-2 years before you want to sell. It involves getting your financials in order, understanding your practice’s true profitability (more on that below), and identifying any operational issues a buyer might question. Proper preparation can significantly increase your final practice value.
Phase 2: Confidential Marketing
You don’t put a “For Sale” sign on the door. A proper process involves confidentially approaching a curated list of the right potential buyers. This creates competitive tension, which is key to getting the best offers and terms.
Phase 3: Navigating Due Diligence
Once you accept an offer, the buyer will begin a deep dive into your practice. This is where deals often get stuck or fall apart if you aren’t prepared. They will scrutinize your financial records, billing compliance, and contracts. Having an advisor guide you through this is critical.
The due diligence process is where many practice sales encounter unexpected challenges.
How Your Practice is Valued: It’s More Than You Think
Many owners undervalue their own practices because they look at their tax returns. Sophisticated buyers, however, use a different metric: Adjusted EBITDA. This stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. More importantly, the “Adjusted” part is where the real value is often found.
We start with your reported profit and then add back expenses that won’t continue under a new owner. For example, say your practice has a net income of $500,000. But you pay yourself a $300,000 salary (when the market rate is $150,000) and run $50,000 in personal travel through the business. A buyer sees this differently. Your Adjusted EBITDA would be $700,000 ($500k profit + $150k in excess salary + $50k in travel).
The final valuation is reached by applying a Valuation Multiple to that adjusted profit number. This multiple isn’t random. it depends on your specialty, size, location, and growth potential. A multi-provider practice in a great market like Pittsburgh will command a higher multiple than a solo practice. This is why a professional valuation, not a simple rule of thumb, is the only way to know your true market worth.
A comprehensive valuation is the foundation of a successful practice transition strategy.
Planning for Life After the Sale
A successful transition is defined by what happens in the months and years after the deal is signed. Planning for this new reality is a critical part of the negotiation process. Your role will change, and understanding how is key to a smooth and rewarding partnership. While you will likely maintain control over clinical decisions, you should be prepared for integration in other areas.
Here is a look at what to typically expect:
| Area of Focus | What to Expect |
|---|---|
| Your Role | A shift from owner-operator to clinical leader. This often means less time on administrative headaches and more time with patients. |
| Administrative Tasks | Back-office functions like billing, HR, and IT will likely be integrated into the partner’s larger, more efficient systems. |
| Clinical Autonomy | Your control over patient care, diagnoses, and treatment plans is typically protected in the agreement. |
| Financial Upside | If you retain equity in the new, larger company, you have the potential for a significant second payday down the road. |
Thinking through these points and building them into your deal structure is the best way to protect your legacy and ensure a successful future.
Your legacy and staff deserve protection during the transition to new ownership.
Frequently Asked Questions
What is the current market outlook for selling a dermatology practice in Pittsburgh, PA?
The Pittsburgh dermatology market is very active due to a generation of retiring physicians and increasing demand for both medical and cosmetic dermatology. Private equity investors are actively seeking high-quality practices to consolidate and grow, creating a competitive environment that can raise practice values.
What are the key factors to consider when selecting a buyer for my dermatology practice?
Beyond the highest offer, consider future economic benefits like payment timing and equity participation, your clinical autonomy over patient care and staffing, the buyer’s resources in billing and marketing to reduce your administrative tasks, and their track record with other dermatology practices to ensure a value-creating partnership.
How is the value of a dermatology practice in Pittsburgh typically determined?
Practice valuation is based on Adjusted EBITDA, which adjusts net income to reflect sustainable profitability by adding back non-recurring or excessive expenses like above-market owner salary or personal travel. This figure is then multiplied by a valuation multiple influenced by practice size, location, specialty, and growth prospects.
What are the essential phases of the practice sale process?
The sale process includes:
- Preparation (1-2 years before selling): Organize financials and address operational issues.
- Confidential Marketing: Approach select buyers discreetly to create competitive offers.
- Due Diligence: Buyers thoroughly review financials and compliance, often requiring expert guidance to navigate successfully.
What changes can I expect after selling my Pittsburgh dermatology practice?
Typically, you transition from owner-operator to clinical leader, focusing more on patient care while the partner manages administrative tasks like billing and HR. Clinical autonomy over care remains protected, and you might retain equity in the larger merged entity, offering potential financial upside in future sales.