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Chip Fichtner
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Chip Fichtner

The Haves and the Have Nots For Practice Values

by | Jul 11, 2024 | Insights

LPS client values in some cases set new records in the first half of 2024, but not all. How did LPS get 10x EBITDA for one GP practice but only 7.5x for another? Or what about the pedo/ortho practice that achieved 11x EBITDA, but another practice in a better geography was only valued at 8x?

The answer is that all practices are different, and values are driven by multiple factors, many out of a doctor’s control, but not all. With over $5.0 billion of new capital and financing invested in IDSOs so far in 2024, there is no shortage of eager bidders for LPS clients. Here is what is driving practice values UP today due to more eager bidders:

  • 2024 vs. 2023 growth rate in collections and EBITDA. The faster the growth, the higher the value.
  • Size: Practices with $500,000 in EBITDA achieve lower multiples than those with $5.0 million
  • Doctor’s age: Younger is better. A 35-year-old doctor will get a higher value than one 60+
  • Location: A practice in FL will achieve a higher value than one in IL. (Population growth)
  • Doctor’s personality: A doctor with a personality and a growth plan gets a higher value.
  • Team turnover: Practices with low turnover are more attractive than those with high turnover
  • Responsive doctors. Time kills all deals. Doctors who respond quickly achieve higher values.
  • Doctors who value Earn Outs more than initial values due to their growth rate*

Value is a function of multiple factors including a combination of the above. As an example, a young doctor with a rapidly growing practice in IL will achieve a higher value than an older doctor with a static practice in FL. An older doctor with a rapidly growing practice in IL might get a higher value than a younger doctor with a static practice in FL.

The doctor with a detailed plan of how they will utilize their IDSO partner’s resources to rapidly accelerate practice growth always achieves a higher value than any doctor, no matter how old they are or where they are located. LPS helps doctors create growth plans which create more qualified bidders resulting in the highest values.

*Earn Outs pay a doctor for their performance typically for the two years after completing an initial partnership. For growing doctors who can benefit from their partner’s resources, the Earn Outs can result in massive value increases, in some cases over 40% more than the initial value. Earn Outs give a doctor the opportunity to lock in today’s record multiples on FUTURE earnings in the two years after a transaction. If multiples/values go down in the future, as I expect they may, this is a great strategy for doctors today.

Chip Fichtner
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