Forty questions physicians ask about selling to private equity

Only if you would be content with the cash at closing, a pay cut of roughly 20 to 30 percent, a five-year employment agreement with a non-compete, and a rollover that may pay off in eight years or may not. If the answer depends on the rollover paying off, the deal is riskier than it looks. Should I sell to private equity goes through the decision.

Deal counts fell by roughly half in the first half of 2026 and buyers are putting more of the price into rollover, earnouts, and notes. Specialties with active strategic buyers (gastroenterology, urology, retina) still see strong exits. Saturated specialties (dermatology, dental, anesthesiology) have fewer and choosier buyers. See the specialty pages.

Compare the multiple with reported ranges for your specialty and size, and remember platforms clear three to five turns above add-ons. Then look past the multiple to the allocation, the rollover terms, the scrape, and the employment agreement. A high multiple with a large non-compete allocation and a 35 percent scrape can be worse than a lower multiple with clean terms.

Usually your operating or shareholder agreement decides. Many require a supermajority for a sale; some let a majority drag the rest along. Read the agreement before the first meeting with a buyer. Younger partners often have the most to lose because they give up the most future income for the smallest share of the price.

For a group large enough to be a platform or a sizable add-on, a banker who runs a process with several buyers usually raises the price by more than the fee. For a small single-buyer add-on, the fee may not pay for itself, and a transaction attorney plus a tax review matters more.

Staying independent, merging with another physician-owned group, selling to a hospital system, or an employee stock ownership plan. Each has its own tax and control profile. Hospital deals rarely include equity; ESOPs keep control but move slowly and require the practice to carry debt.

The platform is the first large practice a sponsor buys in a specialty; add-ons are smaller practices bought and attached to it. Platforms are priced higher because the buyer is paying for the management team and the growth story. Add-ons are priced closer to the value of the practice alone.

In states with corporate practice of medicine laws, only physicians can own a medical practice. The sponsor owns a management services organization that buys the practice's non-clinical assets and charges a management fee, while a physician-owned professional entity keeps the clinical side. See what is an MSO.

An accountant hired by the buyer checks whether your profit is real and repeatable, and recalculates it after the scrape and other adjustments. Your EBITDA usually comes out lower than the number you started with. Doing your own review first, before the buyer's, avoids surprises.

The share of your current pay the buyer removes to create the profit it is buying, typically 20 to 30 percent of practice profits according to Commonwealth Fund interviews published in April 2026. Your purchase price is a multiple of that scraped amount. See what happens to your salary.

Commonly 60 to 70 percent, with 30 to 40 percent as rollover equity and 5 to 10 percent of the cash held back in escrow for a year or two. In 2025 and 2026 buyers have pushed more into rollover, earnouts, and seller notes. The calculator shows the effect.

Behind the lenders, behind any preferred equity and its accrued return, and alongside the sponsor's common equity if your rollover is the same class. Ask which class you hold and whether anything accrues ahead of you. See rollover equity.

Goodwill is long-term capital gain at 20 percent federal. Payments allocated to a non-compete, transition or consulting work, accounts receivable, and equipment depreciation recapture are ordinary income at up to 37 percent. The allocation in the contract decides the split. See how a practice sale is taxed.

Value tied to you personally, your reputation and patient relationships, rather than to the practice entity. Sold directly by you, it is capital gain to you and avoids a second layer of tax in a C corporation. It requires that you not already be bound by an employment agreement and non-compete with your own practice. See personal goodwill.

Buyers want an asset sale or its equivalent for the basis step-up. Sellers want one layer of tax and a deferred rollover. For an S corporation, the F-reorganization gives both sides what they want and is the standard structure. See asset sale, stock sale, or F-reorganization.

Usually not, if it is structured under Section 721 or 351. Your basis carries over, so the whole gain comes due when the rollover equity is sold. Deferred is not the same as tax-free.

Generally the same character as the rest of the price, reported as received under the installment method, with imputed interest that is ordinary income. If the earnout depends on your continued employment, the IRS can treat it as compensation. See earnouts and installment sales.

Yes. Gain on equipment up to the depreciation you took is ordinary income under Section 1245, recognized in the year of sale even if the rest of the price is paid over time.

In most states, yes, and it is mostly non-deductible federally in a sale year because the SALT cap phases down to $10,000. California takes up to 13.3 percent and New York up to 10.9 percent (14.776 percent in New York City). Texas and Florida take nothing. See the state pages.

Sometimes, for part of the price. The move must be real and complete before the sale. California still taxes installment payments received after you leave if you were a resident at the time of sale, and New York treats a 338(h)(10) or asset sale of a New York practice as New York income regardless of residence. Moving in the year of the sale is the highest-audit-risk pattern.

No. Section 1202 excludes health services businesses. Whether an MSO holding company's stock could qualify is unsettled and should not be counted on. California does not conform in any case. See QSBS and Opportunity Zones.

Yes, if the gift is completed before the sale becomes practically certain, generally before the letter of intent hardens, and if you get a qualified appraisal. The Tax Court denied a donor's entire deduction in 2023 for gifting two days before closing. See charitable strategies.

As ordinary income to you, at up to 37 percent federal plus state, but not subject to self-employment tax. The buyer deducts it over 15 years regardless, so buyers are often indifferent to how much goes here.

Usually not on the sale of a practice you work in full time; gain from a business in which you materially participate is excluded. Usually yes on the later sale of rollover equity, because by then you are an employee rather than an active owner of the entity being sold.

It drops by the scrape, typically 20 to 30 percent, and shifts toward a base of 40 to 50 percent of pay plus production bonuses. Ancillary income (surgery center, imaging, pathology, therapy) usually moves to the platform. Income repair is promised, not guaranteed. See the scrape and income repair.

You lose the practice's retirement plan (often a cash balance plan) for the platform's 401(k), lose owner deductions for health insurance and continuing education, and may need to buy tail malpractice coverage if you leave. See life as a W-2 employee.

Clinical decisions legally stay with the physician-owned entity, and California's SB 351 (in force since January 2026) bars private equity from interfering with them. Staffing, scheduling, purchasing, and payer contracting are usually the MSO's. Read the management services agreement to see where the line actually falls.

Most employment agreements have a three-year minimum with a clawback of part of the upfront payment if you leave early, and the rollover often has good-leaver and bad-leaver terms. Negotiate a glide path before signing if you want one.

It was for the 2016 to 2020 cohort: about half of acquired dermatology, ophthalmology, and GI practices were resold within three years. It has been slow for the 2021 to 2022 cohort: recapitalizations fell to 13 in 2024 and hold periods stretched to 8 to 10 years. See is the second bite real.

You are paid according to the waterfall, in cash, in the next buyer's equity (a re-roll), or a mix, and the drag-along clause usually means you have no say. The gain is long-term capital gain plus, in most cases, the 3.8 percent net investment income tax.

The sponsor sells the platform to a new fund it also manages. Institutional investors get liquidity; physicians are often asked to roll again rather than cash out. Ask before closing what your rights are in that scenario.

The operating agreement's leaver provisions decide. A good leaver (retirement after the term, death, disability) is usually repurchased at fair market value; a bad leaver (quitting early, termination for cause) may be repurchased at cost or forfeited. Read these clauses before signing.

Treat the rollover as worth zero for planning, build the rest of the plan to work without it, and keep the liquid portfolio diversified rather than trying to hedge a private position you cannot sell. Gifting some of the rollover to a trust while its value is low can also make sense. See gifting rollover equity.

Yes, if you have held the equity more than a year, at 20 percent federal plus the 3.8 percent net investment income tax in most cases, plus state tax. If the holding company is a partnership, part of the gain may be ordinary under Section 751.

Read your documents first: the employment term, the leaver provisions, the clawback, the non-compete, and your information rights. Then plan around what is fixed: gift rollover units while their value is low, use lower-income years for Roth conversions, and diversify everything you can. See I already sold, now what.

Rarely, and usually only from a distressed or lender-controlled platform that wants to shed assets. It has happened. It requires capital and a management agreement that does not prohibit it.

Your rollover equity is usually wiped out; equity is last in line. Your employment usually continues under new owners, often the lenders. Envision's 2023 bankruptcy is the largest example. Your upfront cash is yours; a seller note or earnout is an unsecured claim.

Most agreements let you leave with notice but claw back a share of the upfront payment, forfeit unvested equity, and enforce the non-compete. Texas now caps physician non-competes at one year and five miles with a buyout no larger than a year's pay; other states vary. See the state pages.

Probably. Most purchase and employment agreements include one. In California, SB 351 voids non-disparagement clauses in management contracts for physician practices as of January 2026, though it does not reach every agreement in a deal.

The 25 questions in our LOI checklist: what the allocation is, which class of equity you hold, what accrues ahead of you, what happens if you leave, who pays for tail coverage, and when the deal closes relative to the tax year. Most of them can still be asked at the first renewal.