Private Equity Is Calling. Here's What They're Not Telling You Over Dinner.
The deck was beautiful.
Consider a surgeon sitting in a private dining room during a medical conference, flipping through a presentation from a private equity group. The slides are polished. The projections are compelling. The word "partnership" appears on nearly every page. And the multiple being discussed (often in the 8x to 12x EBITDA range for attractive platforms) sounds like the kind of number that changes a financial trajectory overnight.
This scene is playing out across orthopedic conferences right now. PE consolidation in orthopedics has entered a new wave, and the pitch has gotten more sophisticated. The first wave (roughly 2018 to 2022) was aggressive and sometimes clumsy. The second wave is refined. The language is better. The decks are better. The dinners are nicer.
But the things left out of those decks haven't changed much. And those omissions are where the real financial decisions live.
Four Things the Pitch Deck Doesn't Emphasize
Let's walk through a scenario to make this concrete. A surgeon owns a practice valued at $4M. A PE firm approaches with a deal. Here's how the structure often works, and where the fine print matters.
1. Rollover Equity: 30–35% of the Sale Price
In many PE transactions, the surgeon doesn't receive the full sale price in cash at closing. It is common for 20% to 40% of the total value to be required as "rollover equity" in the acquiring entity. If 35% is rolled on a $4M deal, roughly $1.4M stays in the deal.
The pitch frames this as a feature: "You get a second bite of the apple." The idea is that the PE firm will grow the combined platform, and when the entity sells again in 3 to 5 years, your $1.4M could be worth $3.5M or more.
That story can absolutely come true. But here's what the pitch deck rarely highlights. That $1.4M is now illiquid. You generally can't sell your position on your own timeline. You have limited control over timing, strategy, or operational decisions. And the entity you've invested in is controlled by people whose financial incentives may not perfectly align with yours. If the second sale doesn't happen on the projected timeline, or if the multiple compresses in a less favorable market, your "second bite" may be significantly smaller than expected.
This is concentrated, illiquid risk in someone else's hands. Which is worth understanding clearly before you agree to it.
2. Compensation Adjustments: The 15–25% Reality
After the sale closes, the surgeon typically stays on as a practicing physician under an employment agreement. The pitch deck will show competitive compensation. What it may not show clearly is how that compensation evolves over the first 12 to 24 months.
In many deals, surgeon compensation can decline meaningfully—sometimes on the order of 15% to 25%—through a combination of mechanisms: productivity thresholds that reset, management fees that didn't exist before the deal, and support staff reductions that shift administrative work back to the surgeon. The total compensation may look similar on paper, but the take-home frequently drops.
Not every PE deal follows this pattern. Some firms maintain compensation well. But the pattern is common enough that any surgeon evaluating a deal should model what their Year 2 and Year 3 compensation actually looks like. Not just the Year 1 guarantee.
3. EBITDA Engineering: The Baseline Problem
PE firms value practices based on normalized EBITDA (earnings before interest, taxes, depreciation, and amortization, adjusted for owner-specific expenses). The normalization process is legitimate. But it's also where creative math can appear.
A buyer might normalize your EBITDA upward (which inflates the valuation and looks generous), then hold you to performance targets based on that inflated baseline. If the normalized EBITDA assumed you'd maintain 110% of your historical production, you're starting your earn-out period behind before you see your first patient under the new structure.
Understanding how your EBITDA was normalized, what assumptions were built in, and how performance targets relate to realistic production levels is essential. A compelling multiple means very little if the EBITDA it's applied to doesn't reflect your practice's actual earning power.
4. The Hold Period: 3–5 Years as an Employee
When the deal closes, the surgeon becomes an employee of the entity that purchased their life's work. The typical private equity hold period is often in the 3 to 7 year range, and many platforms model a second exit in about 3 to 5 years.
During this period, the surgeon practices under a new operational structure with new reporting requirements, new compensation formulas, and reduced autonomy over daily decisions. For some surgeons, this trade-off is absolutely worth it. For others, the loss of control over their professional life carries a cost that no financial gain can offset.
The pitch deck rarely addresses this qualitative dimension. The question "how will your daily life change?" deserves as much analysis as the question "what's the multiple?"
The $680K Question
Here's where pre-transaction planning can create some of the biggest financial impact, and where many surgeons leave substantial money on the table.
Let's walk through a simplified illustration of the federal tax math on that $4M practice sale. This example uses current top federal rates and assumes the 3.8% Net Investment Income Tax (NIIT) applies, which is common for high-income physicians. The critical variable is personal goodwill: the value attributable to the surgeon's individual reputation, referral relationships, surgical skill, and patient loyalty (as distinct from the practice's enterprise value in its systems, equipment, and brand).
Without thoughtful structuring and personal goodwill analysis, a large share of the economic benefit from the sale may end up taxed at higher ordinary income rates or subject to double taxation, depending on your entity type and how the deal is structured. At the current top federal ordinary income rate of 37%, plus the 3.8% NIIT, the combined rate can approach 40.8%. On a $4M sale taxed at that combined rate, the federal tax bill would be approximately $1.63M.
With a properly structured transaction and credible personal goodwill documentation, a significant portion of the proceeds may qualify for long-term capital gains treatment instead, subject to IRS rules and your specific facts. At the current top federal long-term capital gains rate of 20%, plus the 3.8% NIIT, the combined rate can be about 23.8%. If the full $4M were taxed at that combined rate, the federal tax bill would be approximately $952K.
The difference between those two simple scenarios is roughly $680,000.
Same deal. Same practice. Same sale price. In this illustration, the variable is how much of the value can properly be treated as capital gain versus ordinary income—and that, in turn, depends heavily on planning and documentation.
Whether personal goodwill exists, how much value can be allocated to it, and whether it receives capital gains treatment are all fact-specific determinations that should be made with experienced tax and legal counsel and may be challenged by the IRS. For medical practices, this typically involves careful review of employment and non-compete agreements (where permitted), referral source patterns, patient relationships, and how much of the goodwill truly resides with the individual surgeon rather than the entity.
And here's the critical timing element. Ideally, this work starts well before a sale—often years in advance—because the IRS scrutinizes after-the-fact personal goodwill claims closely. Non-compete or other restrictive covenant structures, referral source analysis, patient relationship evidence, and personal branding documentation all carry more weight when they reflect the reality of how the practice has been run over time, not just what was drafted after a letter of intent.
Starting this work after a PE firm calls is already late.
A Clarity Framework for Conference Season
None of this means PE deals are bad. Some PE transactions create genuine wealth and genuine professional opportunity for the selling surgeon. The right deal, with the right partner, at the right stage of a career, can support financial independence while allowing the surgeon to continue practicing on acceptable terms.
The challenge is that the conversation usually starts with a beautiful pitch deck and a flattering multiple, rather than with the structural questions that determine whether the deal actually serves the surgeon's long-term interests.
Before sitting down with any PE firm (and conference season will offer plenty of opportunities), consider building your own clarity framework. Four questions to answer for yourself, before the appetizers arrive:
What is my personal goodwill worth, and is it documented? If the answer is "I don't know" or "not yet," the deal likely isn't ready from a tax-planning standpoint, even if the PE firm says it is.
What does my compensation look like in Year 2 and Year 3? Not just the guarantee period. The steady-state compensation after earn-out adjustments, productivity thresholds, and management fees take effect.
What are the rollover equity terms? Specifically: what percentage is required? What are the liquidity restrictions? What happens if the second exit is delayed? What governance rights do I retain?
How was my EBITDA normalized? Are the assumptions realistic? Are performance targets tied to the normalized number? What happens if my production varies from the baseline?
These aren't hostile questions. They're the same kind of diagnostic rigor you'd apply to a complex surgical case. The PE firm that responds to these questions with transparency and specificity is probably the kind of partner worth considering. The one that responds with vague assurances and a refill of your wine glass is telling you something important, too.
The Concentration Risk Behind Every Deal
Your practice is likely one of the single largest assets you own. For many orthopedic surgeons, it represents a substantial share—often 40% to 50% or more—of total net worth. And unlike a diversified stock portfolio that can be rebalanced, hedged, or sold in increments, your practice is a concentrated, illiquid position in an asset you can't diversify without a major transaction.
That concentration makes every practice transition decision high-stakes. There's no "selling 10% to see how it goes." There's no stop-loss order. The exit, when it happens, affects the majority of your wealth in a single event.
Which is exactly why the preparation before that event matters more than the event itself. Whether you ultimately sell to PE, transition to a partner, merge with a hospital system, or wind down over a decade, the quality of the outcome depends on how early you started planning and how clearly you understood the terms.
The best deals happen when the surgeon walks in with the same level of preparation they bring to the OR. Clear-eyed. Informed. Ready to evaluate the pitch on its merits, not its presentation.
Conference season is here. The dinners will be lovely. The pitch decks will be polished. Just make sure you know what's not on the slides before you decide what to do about what is.
Capably Yours,
Jared
Disclaimer
This article is for informational and educational purposes only and does not constitute investment, tax, or legal advice. It does not take into account the specific objectives, financial situation, or needs of any particular person. You should consult your own tax, legal, and investment professionals before acting on any information contained herein. Capable Wealth, a New York registered investment adviser, provides advisory services only where properly licensed or exempt from licensing.