If you are a dermatology practice owner in San Jose, you are in a strong position. The market is experiencing significant growth with strong buyer demand from both private equity and strategic acquirers. However, turning this market opportunity into a successful sale is a complex process with unique challenges in California. This guide provides a clear overview of the market, key considerations for selling, and how to navigate the path toward a successful and rewarding exit.
Market Overview
The timing for considering a sale of your San Jose dermatology practice is excellent. The market is supported by strong fundamentals on both a national and local level. This creates a favorable environment for practice owners looking to transition.
National Growth
The U.S. dermatology market is not just stable; it is expanding at a significant rate. Projections show a 7.3% compound annual growth rate through 2034. This long-term expansion signals sustained interest and investment in the specialty, which buyers find very attractive.
High Revenue Potential
Dermatology remains one of the most profitable medical specialties. In recent years, median revenue per full-time physician was around $1.3 million for medical dermatology and rose to $1.8 million for cosmetic dermatology. Strong operating margins mean these high revenues translate directly into practice value.
Local San Jose Activity
This national trend is reflected locally. We see strategic buyers and larger groups actively expanding within San Jose, evidenced by significant real estate leases by dermatology groups in the area. This local activity shows that buyers are deploying capital in your specific market right now.
Key Considerations
While the market is strong, selling a medical practice in California presents unique hurdles. The state has strict regulations you must navigate correctly. The most significant is the Corporate Practice of Medicine (CPOM) doctrine. This rule means you generally cannot sell your practice directly to a non-physician or a standard corporation. Deals must be structured in a specific way to be compliant, often involving a medical corporation and a separate management services organization (MSO). Beyond CPOM, you must also plan for proper notification to the California Medical Board and the compliant transfer of patient records. Getting these details right is crucial for a smooth and legally sound transaction. These are not just administrative tasks; they are foundational to the deal’s success.
Market Activity
The high-level market trends translate directly into a busy M&A environment. The number of dermatology practice sales has been climbing steadily, which shows a growing appetite from buyers.
| Year | Dermatology M&A Transactions (Nationally) |
|---|---|
| 2021 | 54 |
| 2022 | 66 |
| 2023 | 77 |
This isn’t just a national story. We see this activity in California, with practices fetching significant valuations. For example, one Bay Area practice with around $85,000 in cash flow was listed for $425,000, while another with approximately $545,000 in cash flow was listed for $1,350,000. These figures show that even smaller, profitable practices are valuable assets in this market. The key is understanding your practice’s specific value and finding the right buyer to realize it.
Sale Process
A successful practice sale does not happen by chance. It follows a structured, confidential process designed to protect your interests and maximize value. While every deal is unique, the journey typically involves several key stages.
- Preparation and Valuation. This is the foundational step. We work with owners to analyze financials, clean up records, and establish a clear, defensible valuation. This is also when we frame the story of your practice, highlighting its strengths.
- Confidential Marketing. Your practice is presented to a curated list of qualified buyers without revealing its identity. This protects your staff, patients, and reputation while generating competitive interest.
- Negotiation and Offer Selection. We help you evaluate offers not just on price, but on structure, cultural fit, and post-sale terms. This ensures the deal aligns with your personal and financial goals.
- Due Diligence. The chosen buyer will conduct a deep dive into your practice’s financials, operations, and compliance. Proper preparation is key here, as this is where many deals encounter unexpected problems.
- Closing and Transition. The final phase involves legal documentation and planning for a smooth handover of operations, ensuring continuity of care for your patients and stability for your staff.
Valuation
One of the first questions every owner asks is, “What is my practice worth?” The answer is more complex than a simple rule of thumb. Sophisticated buyers today look beyond revenue to determine a practice’s true value.
The Key Metric: Adjusted EBITDA
The most important metric in a practice sale is Adjusted EBITDA. This stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. We start with your net income and then “adjust” it by adding back personal expenses run through the business (like a car lease) or normalizing an owners salary to market rates. This process reveals the true cash flow of the practice, which is what buyers are purchasing. Most owners are surprised to find their Adjusted EBITDA is significantly higher than their net income.
More Than a Formula: The Multiple
This Adjusted EBITDA figure is then multiplied by a number called a “multiple” to arrive at your practice’s valuation. This multiple is not fixed. It is influenced by many factors, including your location, provider mix, reliance on the owner, payer contracts, and the mix of cosmetic versus medical services. A practice with multiple providers and strong growth potential will command a much higher multiple than a solo practice. This is why a professional valuation is so important. We help you understand and present these factors to achieve the highest possible multiple.
Post-Sale Considerations
The day your sale closes is not the end of the journey. It is the beginning of a new chapter for you, your staff, and your patients. Planning for what comes next is a critical part of a successful transaction.
- Your Transition Role. Most buyers will want you to stay on for a period of time to ensure a smooth transition. Your role, compensation, and timeline should all be clearly defined in the sale agreement to manage expectations on both sides.
- Protecting Your Staff and Legacy. A major concern for owners is the future of their dedicated team and the practice’s reputation. The right buyer will be one who shares your values. We help you vet buyers on cultural fit to ensure your legacy and your team are in good hands.
- Structuring for the Future. A sale does not always mean walking away completely. Many deals today include options for the seller to retain equity in the new, larger company (an “equity rollover”). This gives you a “second bite at the apple,” allowing you to benefit from the future growth you help create.
Thinking through these elements beforehand ensures the transaction aligns with your personal values and long-term goals.
Frequently Asked Questions
What is the current market outlook for selling a dermatology practice in San Jose, CA?
The market outlook is excellent with strong buyer demand supported by both national growth and local activity. The U.S. dermatology market is expanding with a projected compound annual growth rate of 7.3% through 2034, and San Jose sees active strategic buyers and expansion efforts making it a favorable environment for sellers.
What are the key legal considerations when selling a dermatology practice in California?
California has strict regulations such as the Corporate Practice of Medicine (CPOM) doctrine, which generally prevents selling a practice directly to a non-physician or standard corporation. The sale must be structured typically involving a medical corporation and a management services organization (MSO). Proper notification to the California Medical Board and compliant patient records transfer are also essential legal requirements.
How is the value of a dermatology practice determined?
Practice value is primarily determined by the Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization), which reflects the true cash flow after adjusting for personal expenses and normalized owner salary. This figure is then multiplied by a factor called a “multiple,” influenced by factors like location, provider mix, payer contracts, and cosmetic vs. medical services mix.
What is the typical process for selling a dermatology practice in San Jose?
The sale process includes several stages: preparation and valuation, confidential marketing to qualified buyers, negotiation and selecting the best offer considering price and terms, due diligence by the buyer, and finally closing the deal with a smooth operational transition to protect staff and patient care continuity.
What should I consider for post-sale planning after selling my dermatology practice?
Post-sale planning involves defining your transition role, including duration and compensation, ensuring protection of your staff and practice legacy by choosing a buyer who aligns with your values, and potentially structuring the deal for future benefits such as equity rollover, allowing you to retain an interest and benefit from the new company’s growth.
