The Hidden Risks of Unsolicited Offers For Dermatology Practice Owners
In recent years, unsolicited offers from MSOs (Management Services Organizations) and private equity (PE) firms have become increasingly common in the dermatology industry. These groups are eager to acquire thriving practices to grow their platforms and increase profitability, often presenting offers that seem too good to pass up. However, as many dermatology practice owners have learned, these offers can be fraught with complexities that may jeopardize not only the value of the transaction but also the legacy you’ve spent years creating in your business.
We’ve seen firsthand how these offers can look enticing at first glance but fall short of delivering on their promises once the finer details are revealed. By understanding the nuances of these offers and having the right representation, you can protect your practice’s legacy, your staff, and your patients while securing the best possible outcome for your family’s future.
The Allure and Risks of Unsolicited Offers
The Headline Number vs. Reality
When a private equity group or MSO approaches you with an unsolicited offer, the first thing they’ll highlight is the “headline number” or enterprise value—often a multiple of your practice’s EBITDA. For instance, a dermatology practice generating $1M in EBITDA might receive an offer boasting a 12x multiple, equating to a $12M enterprise value. On the surface, this might seem like a career-defining moment, but it’s crucial to understand that the structure of the deal determines how much of that value you’ll actually realize.
Many offers are structured in ways that place a significant portion of the deal’s value at risk, whether through performance-based earn-outs, equity rollovers, or escrow agreements. Without proper guidance, you could find yourself with far less value than initially promised.
Key Deal Terms to Watch Out For
- Earn-Outs: Unrealized Potential
Earn-outs tie a portion of the transaction value to your practice’s future performance, such as revenue or EBITDA growth. While this might sound reasonable, the reality is that once you sell, you lose control over key factors like staffing decisions, expense management, and operational priorities. The buyer determines the metrics, and if these targets aren’t met, you could forfeit a substantial portion of the deal.Many dermatology practice owners have found themselves frustrated by overly aggressive earn-out targets—such as requiring 20% annual growth over three years—designed to boost the offer on paper while remaining practically unattainable. Through a represented process, your advisor can ascertain what is a realistic and achievable metric to negotiate for on your behalf.
- Equity Rollovers: Risks Beyond Your Practice
Private equity buyers often require you to roll a portion of your proceeds into equity, either in your practice (sub-MSO equity) or at the holding company (HoldCo) level. This can seem appealing, offering the potential for future growth and returns. However, it’s critical to understand the terms of this equity:
- Liquidity: How and when can you sell your shares?
- Management Fees: What portion of the earnings will be paid to the management company before paying owner distributions?
- Leadership Track Record: Does the PE group or MSO have a history of successful exits in the dermatology space?
Without clarity, equity rollovers can become a significant risk, especially if the organization struggles to grow or faces financial challenges.
- Post-Sale Compensation: Know the Details
After selling your dermatology practice, your role may transition to focus more on clinical work or advisory services within the new organization. To ensure a smooth financial transition, it’s important to work alongside your advisor and CPA/accounting team to determine a post-sale compensation package that aligns with your personal financial needs and lifestyle goals. By establishing clear and fair compensation terms during negotiations, you can maintain financial stability while continuing to contribute meaningfully to the practice.
Your advisor can help you evaluate key details, such as commission structures or base salary adjustments, to ensure the arrangement is both equitable and sustainable. With proper planning and representation, your post-sale compensation can be a source of confidence rather than concern.
The Impact on Your Legacy
Selling your dermatology practice is about more than just the financials—it’s about finding the right partner who shares your values and vision. The right partner will respect the culture you’ve built, support your staff and patients, and ensure the continued success of your practice.
Unsolicited offers often skip this critical step, focusing on speed and constructed Headline Deal Price rather than compatibility or maximizing value. Without representation, it’s challenging to differentiate reputable, aligned buyers from those who might not prioritize your legacy. At TUSK, we ensure your practice transitions to the right partner at the best price by fostering a competitive process and connecting you with established, trustworthy buyers.
Why Representation Matters
Selling a dermatology practice is complex, and having an experienced advisor ensures your interests are protected. They help you evaluate offers, uncover hidden risks, and navigate negotiations with confidence. With their guidance, you gain access to reputable buyers and a competitive process, ensuring the best outcome while preserving your practice’s legacy and values.
Your Next Steps
If you’ve received an unsolicited offer or are considering selling your dermatology practice in the next 24 months, now is the time to act. Reach out to TUSK for a free consultation to discuss your goals and explore your options. Together, we’ll ensure your life’s work is valued and protected, both financially and emotionally.
Your practice is more than a business—it’s your legacy. Let’s make sure it’s handled with the care it deserves.