As an established practice owner, you’ve likely heard about the significant opportunities available through private equity transactions. While the potential returns can be compelling, it’s important to understand the different sale structures available and how they align with your goals.
Traditional 100% sale
In this straightforward model, you receive most or all cash at closing. Some deals include an earnout portion – typically 20-25% – paid over 3-5 years, contingent on maintained practice performance. This structure works well for owners planning near-term retirement, preferring immediate liquidity, or seeking a clean transition with minimal ongoing involvement.
DSO/MSO equity partnership
This structure combines upfront cash (typically 75-80%) with retained equity in the parent organization (20-25%). Your equity stake provides an opportunity for additional returns through future recapitalization events. It’s particularly attractive for owners who want to participate in broader organization growth while maintaining some practice involvement.
Joint venture model
You receive 60-70% cash at closing while maintaining 30-40% equity in your specific practice. This model offers direct distributions from practice profits and participation in recapitalization events. The joint venture approach suits entrepreneurial owners with strong growth plans who want to maintain significant operational influence. Watch our take on the joint venture model.
Hybrid structure
This balanced approach provides approximately 70% cash at closing, with the remaining equity split between your practice (15%) and the parent organization (15%). Some deals include revenue-based earn-up provisions. The hybrid model offers diversification while allowing participation in both practice-level and organization-wide growth.
Choosing the right structure for your situation
When evaluating these structures, consider:
- Your desired timeline for practice involvement
- Preferred level of operational control
- Risk tolerance for delayed compensation
- Practice growth objectives
- Personal wealth management goals
The right structure depends on your specific circumstances. Working with an experienced M&A advisor can help you evaluate potential buyers’ track records, navigate complex deal terms, and maximize your transaction value.
Talk to PTG about which sale structure fits your goals and your practice.
Frequently asked questions
What are the main types of healthcare practice sale structures?
The four most common are a traditional 100% sale, a DSO/MSO equity partnership, a joint venture model, and a hybrid structure. Each differs in how much cash you receive at closing versus how much equity you retain in the acquiring organization.
Which sale structure gives me the highest total payout?
Equity-based structures can produce higher total returns if the parent organization recapitalizes at a favorable multiple. The trade-off is that a portion of your proceeds is deferred and tied to future performance. A traditional 100% sale delivers certainty at closing but typically a lower total number.
Do I have to stay involved in my practice after selling?
It depends on the structure and buyer. Traditional sales to individual buyers can accommodate shorter transitions. PE and DSO deals typically require a multi-year commitment as part of the deal terms, especially when equity is involved.
How do I know which structure is right for me?
Start with your goals – timeline, liquidity needs, appetite for ongoing involvement, and interest in upside participation. An advisor who knows your specialty and the current buyer market can help you match those goals to the right structure and buyer type.
