Selling your dermatology practice is one of the most significant financial decisions of your career. In Tennessee, the process comes with unique opportunities driven by a strong market, but also specific challenges, particularly concerning state regulations. This guide will walk you through the key factors to consider, from understanding your practice’s true value to navigating the legal landscape, so you can prepare for a successful and profitable transition.
Every practice owner deserves to understand their options before making any decisions.
Market Overview
The market for dermatology practices in Tennessee is currently very active. We see strong interest from a variety of buyers, from private equity-backed groups to expanding regional practices. This is driven by several factors that make your practice an attractive asset in today’s M&A landscape.
High Demand for Services
Dermatology remains a high-growth specialty. Your practice’s mix of medical, surgical, and cosmetic services creates diverse and resilient revenue streams that are highly attractive to investors. Practices with a healthy balance are often seen as lower risk and possessing greater potential for growth.
Strong Investor Appetite
Buyers are actively seeking to enter or expand within Tennessee. They are looking for well-managed practices with a strong reputation and a stable team. This demand creates a competitive environment, which can lead to premium valuations for sellers who are properly prepared for a sale.
Key Considerations
While the market is strong, selling your practice in Tennessee requires navigating a critical state-specific regulation: the Corporate Practice of Medicine (CPOM). Tennessee law is very clear. It prohibits non-physician entities, like a typical private equity fund or corporation, from owning a medical practice or employing physicians. This means you cannot simply sell your practice directly to most corporate buyers.
So how are deals getting done? The most common solution is a Management Services Organization (MSO) model. In this structure, the buyer acquires the non-clinical assets of your practice and signs a long-term agreement to provide management services (like billing, HR, and marketing) to your clinical practice, which you continue to own. This structure requires careful legal and financial planning to ensure compliance while still achieving your financial goals.
Market Activity
Given the CPOM rules, buyers have become very sophisticated in their approach to the Tennessee market. We see a flight to quality. Buyers are willing to navigate the MSO structure for the right kind of practice. Here is what they are actively looking for:
- A Strong Provider Team. Practices that are not solely dependent on the owner-physician are much more valuable. A practice with associate physicians or well-integrated nurse practitioners demonstrates a stable, transferable business.
- A Balanced Service Mix. While a strong cosmetic revenue stream is attractive for its high margins, a foundation of medical and surgical dermatology shows stability and a broad patient base that is appealing to risk-averse buyers.
- Efficient Operations. A practice with clean financial records, efficient billing and collection processes, and optimized scheduling is seen as a “plug-and-play” opportunity. This signals to a buyer that they can achieve growth without having to fix foundational problems.
Sale Process
Selling your practice is not a single event. It is a multi-stage process that requires careful management from start to finish. It begins long before you ever speak to a potential buyer, with deep preparation of your financial and operational documents. From there, a confidential marketing process is run to identify and engage a curated list of qualified buyers. This creates a competitive dynamic that strengthens your negotiating position. After selecting a preferred partner, you move into the due diligence phase, where the buyer verifies all the information about your practice. This is often the most challenging stage. With successful diligence, the final legal documents are drafted, leading to a closing. Managing this entire process protects your confidentiality and ensures you are negotiating from a position of strength.
Valuation
One of the first questions owners ask is, “What is my practice worth?” The answer is more complex than a simple multiple of revenue. Sophisticated buyers value your practice based on a metric called Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This starts with your net profit and adds back non-operational or owner-specific costs to show the true cash flow of the business. That Adjusted EBITDA figure is then multiplied by a number (the “multiple”) to determine the enterprise value. That multiple is not fixed; it is influenced by dozens of factors related to risk and growth potential.
| Factors That Increase Your Multiple | Factors That Decrease Your Multiple |
|---|---|
| Multiple associate providers | High dependence on the owner |
| Modern facilities and equipment | Outdated practice or technology |
| Diversified, high-margin service mix | Concentrated patient or payor base |
| Documented, efficient operations | Messy financial records |
A proper valuation tells a story about your practice’s stability and future potential.
Post-Sale Considerations
The day you close the sale is a beginning, not an end. A successful transaction is one where you have a clear plan for what comes next, both for you and for the practice you built. Thinking through these elements ahead of time is critical.
Defining Your Next Chapter
Do you want to continue practicing clinically for a few more years? Are you looking for a clean break to retire or pursue other interests? Your desired role after the sale will influence the type of buyer you partner with and the structure of the deal, including potential earnouts or rollover equity.
Ensuring a Smooth Transition
Your staff and patients are a core part of your legacy. A key part of any negotiation is ensuring there is a clear communication and transition plan. This protects your team’s morale and ensures continuity of care for your patients, preserving the reputation you worked so hard to build.
Planning Your Financial Future
The structure of your sale has massive tax implications. Planning ahead with tax professionals can significantly impact your final net proceeds. A successful exit is not just about the sale price. It’s about what you keep after taxes and fees.
Every practice sale has unique considerations that require personalized guidance.
Frequently Asked Questions
What makes Tennessee an active market for selling dermatology practices?
The dermatology practice market in Tennessee is active due to a strong interest from various buyers including private equity-backed groups and regional practices. This is driven by dermatology being a high-growth specialty with diverse medical, surgical, and cosmetic services that create resilient revenue streams highly attractive to investors.
How does Tennessee’s Corporate Practice of Medicine (CPOM) law affect the sale of dermatology practices?
Tennessee’s CPOM law prohibits non-physician entities such as private equity funds or corporations from owning medical practices or employing physicians directly. This means practices cannot be sold directly to most corporate buyers. Instead, buyers commonly use a Management Services Organization (MSO) model where the non-clinical assets are sold, and the clinical practice remains physician-owned with long-term management service agreements.
What factors increase the valuation multiple of a dermatology practice in Tennessee?
Factors that increase the valuation multiple include having multiple associate providers, modern facilities and equipment, a diversified high-margin service mix, and documented efficient operations. These elements indicate stability and growth potential, making the practice more valuable to buyers.
What is the typical process for selling a dermatology practice in Tennessee?
Selling involves several stages starting with thorough preparation of financial and operational documents, confidentially marketing the practice to qualified buyers to create competitive bids, conducting due diligence where the buyer verifies all information, and finally drafting legal documents leading to the closing. Managing confidentiality and negotiation strength throughout is critical.
What should practice owners consider about their role after selling the practice in Tennessee?
Owners should consider if they want to continue practicing clinically after the sale, retire, or pursue other interests. Their post-sale role affects the deal structure, including possibilities like earnouts or rollover equity. Clear transition plans for staff and patients are also important to protect morale and ensure continuity of care.