Guide to Selling a Dermatology Practice in San Francisco, CA

Navigating a Strong Market for Maximum Value

Executive Summary

The San Francisco dermatology market is experiencing a period of high demand and valuation, driven by national trends and strong local demographics. For practice owners, this presents a significant opportunity. Patient demand in the city has seen a 42% increase, and buyers are actively seeking established practices. But turning this market strength into a successful sale requires a clear strategy and careful preparation. This guide outlines the key dynamics and steps for navigating the sale of your dermatology practice in today’s favorable climate.

Market Overview

The current market for dermatology practices is one of the strongest in healthcare. This is not a coincidence. It is the result of powerful demographic and economic forces creating a tailwind for practice owners.

National Tailwinds

Nationally, the demand for dermatology is growing. The market is projected to grow at a 7.3% CAGR, fueled by an aging population, since 69% of patients are over 40. A growing shortage of dermatologists also means that established practices like yours are becoming more valuable assets. Buyers need a foothold in the market, and acquiring a well-run practice is the most efficient way to achieve it. Furthermore, the high-margin, private-pay cosmetic dermatology sector continues to expand, adding another layer of value.

The San Francisco Advantage

These national trends are amplified in San Francisco. The city saw a 42% jump in patient demand, far outpacing many other regions. This intense local demand makes Bay Area practices particularly attractive to both regional and national buyers looking to enter or expand in a lucrative, high-barrier-to-entry market. They are not just buying a practice. They are buying access to the unique San Francisco patient base.

Key Considerations

A strong market is a great start, but a premium valuation comes from preparation. Many owners wait until they are ready to sell to begin this process, but the highest values are achieved when preparation starts 2-3 years in advance. Before you engage with any potential buyers, consider these three areas:

1. Look Beyond Net Income. Sophisticated buyers value your practice based on Adjusted EBITDA, not just the profit on your tax return. This involves “normalizing” your financials by adding back personal expenses run through the business, any above-market owner salary, and other one-time costs. This single step can dramatically increase your practice’s perceived value.
2. Systematize Your Operations. A practice that runs smoothly without your constant oversight is more valuable. Documenting your processes for patient intake, billing, follow-ups, and marketing demonstrates a stable, transferable business. It shows a buyer they are acquiring a well-oiled machine, not just a job.
3. Define Your “Why”. Are you looking for a clean, 100% exit, or would you prefer a strategic partnership where you sell a majority stake but continue to practice with less administrative burden? Answering this question is important. It determines the type of buyer you look for and how the deal is structured to protect your legacy and future.

Market Activity

The theory is compelling, but what is actually happening on the ground in San Francisco? The answer is simple: consolidation is active, and well-prepared practices are in a position of strength.

Who Is Buying in the Bay Area?

You are no longer just selling to another doctor looking to take over. The market is dominated by sophisticated buyers. These include private equity (PE) firms building regional or national dermatology platforms and large, established dermatology groups looking to expand their footprint. These buyers have capital and are moving quickly to acquire practices that fit their strategic goals. We have seen this firsthand, with a “SOLD! Dermatology Practice” in San Francisco recently noted as a “well-established busy dermatology practice with prestigious locations.”

What Are Practices Selling For?

Valuations are driven by size, profitability, and provider structure. While every practice is unique, buyers generally think in terms of a multiple of Adjusted EBITDA. Current market ranges often look like this:
* Solo Practices: 3x to 5x Adjusted EBITDA
* Small Groups ($1M+ EBITDA): 5x to 7.5x Adjusted EBITDA
* Large, Multi-Site Groups: 8x to 13x Adjusted EBITDA

Achieving the higher end of these ranges depends on running a competitive process that creates demand from multiple qualified buyers.

Sale Process

Selling a practice is not a single event. It is a structured process with distinct phases. One-off offers rarely result in the best deal. A professionally managed process is designed to protect you, create competition, and maximize your outcome. It generally follows four key stages.

Valuation

Many owners mistakenly believe their practice is worth a simple fraction of its annual revenue. In today’s M&A market, sophisticated buyers look much deeper. They value your practice based on its cash flow, or Adjusted EBITDA.

The Key Metric: Adjusted EBITDA

EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. More importantly, “Adjusted” EBITDA is your practice’s underlying profitability after we add back owner-related and one-time expenses. For example, a practice might show $500,000 in net income. But after we add back $150,000 in above-market owner compensation and $50,000 in personal expenses run through the business, the Adjusted EBITDA becomes $700,000. For a buyer, this is the true measure of the practice’s earning power. Most owners are surprised to learn how much hidden value can be unlocked here.

What Influences Your Multiple?

The multiple applied to your Adjusted EBITDA depends on several factors:
* Scale: Practices with higher EBITDA are less risky and receive higher multiples.
* Provider Mix: A practice with multiple associate providers is more valuable than one dependent on a single owner.
* Service Mix: A healthy balance of medical and cosmetic dermatology is attractive.
* Growth: A track record of increasing revenue and profitability commands a premium.

Post-Sale Considerations

The day you close the deal is a beginning, not just an end. The best transactions are structured with a clear vision for what comes next. A successful sale should align with your personal and financial goals long after the papers are signed. Thinking through these issues ahead of time is key to shaping a deal you will be happy with for years to come.

• Your Future Role. Do you want to continue practicing? If so, for how long and in what capacity? Your employment agreement, compensation, and level of clinical autonomy are all critical terms that must be negotiated as part of the main deal, not as an afterthought.
• Your Team and Legacy. You have likely spent years building a talented team and a culture of excellent patient care. A well-structured sale includes provisions to protect your key staff and ensure the practice’s legacy of quality continues under new ownership. This is a key point of negotiation with the right partner.
• The “Second Bite of the Apple.” Many deals with private equity include “rollover equity,” where you reinvest a portion of your sale proceeds into the new, larger company. This allows you to take cash off the table today while participating in the future growth of the larger platform, often leading to a second, significant payday when the entire platform is sold again 3-7 years later.