Selling your dermatology practice in South Dakota presents a unique opportunity. The state’s high demand for dermatological care creates a favorable seller’s market. However, national trends like private equity investment and industry consolidation are changing the landscape. This guide provides the insights you need to navigate this environment and prepare for a successful sale, ensuring you realize the full value of the practice you’ve built.
Market Overview
The market for dermatology practices in South Dakota is defined by two powerful, competing forces. Understanding both is the first step toward a successful sale.
High Local Demand
South Dakota has a well-documented shortage of dermatologists, with around 84 specialists serving the entire state. This creates significant unmet patient demand. For an established practice owner, this translates directly into a strong negotiating position. Potential buyers, whether they are individual doctors or larger groups, recognize the built-in patient base and growth potential inherent in a South Dakota practice. Your location is a strategic asset.
National Consolidation Trends
At the same time, the healthcare landscape is seeing a wave of consolidation. Private equity (PE) firms and Management Service Organizations (MSOs) are actively acquiring dermatology practices to build scale. This trend means you have more types of potential buyers than ever before, but each comes with different goals and valuation methods. The market is active, but navigating these new buyer types requires a different approach than a traditional doctor-to-doctor sale.
Key Considerations
As you begin to think about a sale, a few factors demand your immediate attention. Preparing for these now, even if you plan to sell in a few years, can dramatically impact your final outcome. Buyers pay for proven performance, not just potential.
Here are three key areas to consider:
- Optimizing Your Operations. Before a sale, you should review your practice’s financial health and efficiency. This includes everything from billing and collection processes to staffing models. A clean, profitable operation with strong financial records is far more attractive to any buyer.
- Choosing Your Buyer Type. Who is your ideal successor? A sale to a private equity group is very different from a sale to another physician. PE buyers often focus on a metric called Adjusted EBITDA, while an individual doctor may be more interested in patient relationships and community reputation. Your goals for your legacy and finances will determine the right path.
- Navigating State Regulations. South Dakota has Corporate Practice of Medicine (CPOM) laws that can dictate who is legally allowed to own a medical practice. This is a critical detail, especially when dealing with non-physician buyers like MSOs. Ensuring your sale is structured correctly is not just a good idea. It is a legal requirement.
Market Activity
The market for dermatology practices is currently very active, both nationally and in the region. We are seeing a clear shift away from the traditional solo practitioner model and toward larger, multi-provider groups. This consolidation is largely fueled by private equity funds and MSOs looking to build regional and national platforms. They are seeking well-run practices that can serve as a foundation for growth.
What does this mean for you? It means there are likely multiple buyers interested in your practice right now. This creates a competitive environment where strategic positioning can lead to premium valuations. However, it also means that a single, unsolicited offer is rarely the best offer you can get. A structured, confidential process designed to create competitive tension among qualified buyers is the key to discovering your practice’s true market value.
Sale Process
Selling a practice is a structured process, not a single event. Each stage builds on the last, and a misstep in an early phase can cause problems later on. We find that owners who understand the roadmap are better prepared to navigate it successfully. While every transaction is unique, the general path follows a clear sequence.
Here is a simplified overview of the typical stages:
| Stage | Key Objective |
|---|---|
| 1. Preparation | Optimize financials and operations. Gather all legal and financial documents. |
| 2. Valuation | Establish a defensible market value based on data, not guesswork. |
| 3. Marketing | Confidentially approach a curated list of qualified buyers to create interest. |
| 4. Negotiation | Field offers, negotiate key terms, and sign a Letter of Intent (LOI). |
| 5. Due Diligence | The buyer conducts a deep, formal review of your practice. This is where most deals fail. |
| 6. Closing | Finalize legal documents and transition ownership. |
The due diligence process is where many practice sales encounter unexpected challenges.
Valuation
Many practice owners undervalue their own business because they look at their tax returns. Sophisticated buyers, however, look at your practice’s true earning power. This is measured by a metric called Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).
We start by taking your net income and adding back things like your salary (if it’s above market rate), personal expenses run through the business, and other one-time costs. It is not uncommon for a practice with $500,000 in net income to have an Adjusted EBITDA of $700,000 or more.
This Adjusted EBITDA figure is then multiplied by a number (a multiple) that reflects your practice’s risk and growth potential. Factors like having multiple providers, offering cosmetic services, and having efficient systems all lead to a higher multiple. A comprehensive valuation is the foundation of a successful transition strategy.
Post-Sale Considerations
The day you sign the closing documents is not the end of the journey. A successful transition is defined by what happens next. Planning for the post-sale period is just as important as negotiating the price, as it protects your legacy, your team, and your financial future.
Here are a few things to consider:
- Your Transition Role. Will you stay on for six months? Two years? Will you be a clinical mentor or have administrative duties? Defining your role, compensation, and timeline in the sale agreement is critical for a smooth handover.
- Staff and Patient Security. Your staff and patients are the heart of your practice. A key concern for any buyer is retaining them. A well-communicated transition plan helps ensure stability and protects the goodwill you have built over many years.
- The “Second Bite.” Many modern deals, especially with PE, involve the seller “rolling over” a portion of their equity into the new, larger company. This allows you to benefit from the future growth of the platform, offering a potential second major payday down the road. This structure can align your interests with the new owner.
The right exit approach depends on your personal and financial objectives.
Frequently Asked Questions
What makes South Dakota a strong market for selling a dermatology practice?
South Dakota has a high demand for dermatological care with a shortage of dermatologists. There are only about 84 specialists statewide, creating significant unmet patient demand. This situation provides a strong negotiating position for sellers due to the built-in patient base and growth potential.
How do national trends affect the sale of dermatology practices in South Dakota?
National trends like private equity investments and industry consolidation are actively changing the landscape. Private equity firms and Management Service Organizations (MSOs) are acquiring dermatology practices to build scale, increasing the types of potential buyers and their varied goals and valuation methods.
What are key factors to prepare for before selling a dermatology practice in South Dakota?
Key considerations include optimizing your practice operations for financial health and efficiency, selecting the right type of buyer (private equity group vs. individual doctor) based on your legacy and financial goals, and complying with South Dakota’s Corporate Practice of Medicine (CPOM) laws that regulate practice ownership.
What is involved in valuing a dermatology practice for sale?
Valuation typically focuses on Adjusted EBITDA rather than just net income or tax returns. Adjusted EBITDA includes net income plus add-backs like above-market salaries and one-time costs. This number is multiplied by a multiple reflecting your practice’s risk and growth potential, influenced by factors like multiple providers, cosmetic services, and operational efficiency.
What should sellers plan for after closing the sale of their dermatology practice?
Post-sale planning is crucial and includes defining your ongoing role (clinical or administrative), ensuring staff and patient retention through a well-communicated transition plan, and considering equity rollover options with private equity buyers for potential future financial gains.