A private equity healthcare deal typically starts with a valuation built off a multiple of EBITDA, adjusted earnings before interest, taxes, depreciation, and amortization, and the multiple applied is where most of the negotiating leverage actually lives. A small difference in the multiple translates into a large difference in the final number, more than most physicians negotiating their first deal expect.
The MSO, or friendly PC, structure exists because in most states a private equity firm can't directly own a medical practice. Instead, the firm owns a management services organization that contracts with a physician owned professional corporation, the "friendly PC," to handle everything except the clinical practice of medicine itself. Understanding where the line falls between what the MSO controls and what stays with the PC is central to understanding what you're actually agreeing to.
Written by John M. Abrahams, MD — board-certified neurosurgeon, founder of New York Brain & Spine Surgery.
Related: Risks & Benefits of Private Equity in Healthcare
More in Private equity: Should Physicians Sell Their Practice to Private Equity