The short answer
A med spa offer is a package, not a payment. It combines cash at closing with some mixture of rollover equity, an earnout, and a seller note, then subtracts escrow, a working capital adjustment, and transaction costs. Two offers carrying identical headline numbers can deliver very different amounts of money, at very different levels of certainty.
Quick answers
Seven narrow questions, one sentence each. These catch conversational queries that don’t warrant reading the article. Phrased deliberately differently from the FAQ at the bottom, and not included in the FAQPage schema — two Question entities sharing a name but not an answer is a quality problem.
Is the headline number what I receive? No — debt, working capital, escrow, deferred consideration and transaction costs all sit between the headline and your account.
What is the difference between an earnout and rollover equity? An earnout is money you may receive if targets are met; rollover equity is not money at all, but a stake in the buyer’s business.
Which is better, an asset sale or a stock sale? Buyers generally prefer asset sales and sellers generally prefer stock sales, and the choice has legal and tax consequences that require your own advisors.
Can I negotiate the terms after signing a letter of intent? In principle yes, in practice much less effectively — exclusivity removes the competing buyers that gave you leverage.
What is a working capital peg? The amount of working capital you must leave in the business at closing, below which the price falls dollar for dollar.
Will I be able to work after I sell? That depends entirely on the restrictive covenant you sign, which is negotiable before the letter of intent and effectively fixed afterwards.
Should I take the highest offer? Only after modelling each one under a downside case, because the highest headline is frequently not the highest net proceeds.
Key takeaways
- Enterprise value is not proceeds — the gap between them is routinely larger than sellers anticipate, and it is knowable in advance.
- Escrow, earnout and rollover equity are three different instruments with three different probabilities of arriving, and treating them as one category overstates the certainty of an offer.
- Rollover equity’s terms — governance, dilution, waterfall position — matter more than its headline percentage.
- The working capital peg sounds administrative and moves real money, particularly in medical aesthetics where prepaid packages and unredeemed memberships complicate the calculation.
- Sale-of-business non-competes are treated far more permissively than employment non-competes, including in states that restrict the latter — so your staff may become harder to bind while the restriction on you remains fully enforceable.
From enterprise value to your bank account
Enterprise value is the headline. What reaches you is a different figure, arrived at after a sequence of deductions that appear in different documents drafted by different people for different purposes. Nobody hands a seller the summary, so here it is.
| Step | Effect |
|---|---|
| Enterprise value | The headline number |
| Less outstanding debt and device financing | Settled at closing from the proceeds |
| Plus or minus the working capital adjustment | Measured against the agreed peg |
| Less transaction costs | Advisory, legal, quality of earnings |
| = Equity proceeds | What the deal is worth to you in total |
| Less escrow or holdback | Released later, if no claims arise |
| Less the earnout portion | Paid only if targets are met |
| Less rollover equity | Not cash — a stake in the buyer’s entity |
| = Cash in hand at closing | Frequently well under half the headline |
Three things that are not the same thing
This distinction does more work than anything else in the article, and getting it wrong is what makes an offer look more certain than it is.
Escrow is your money, held temporarily by a third party, exposed to claims, and released if none arrive. You will probably receive it.
An earnout is money you receive only if defined conditions are satisfied after closing. You might receive it.
Rollover equity is not money at all. It is ownership in the buyer’s entity, worth whatever that business is worth at a liquidity event several years out — after leverage, after dilution, and after any claims that rank ahead of yours.
Same column on the term sheet. Entirely different probability of arriving.
Asset sale or stock sale?
In an asset sale the buyer acquires specified assets and assumes specified liabilities. In a stock sale the buyer acquires the entity itself, with its contracts, history and liabilities intact. Buyers generally prefer the first for the liability protection; sellers generally prefer the second for the cleaner exit.
What each one actually means
Asset sale. The buyer takes the equipment, patient records, brand, goodwill and contracts it wants, and assumes only the liabilities it agrees to assume. Whatever remains stays with you and your entity.
The friction is practical: contracts and leases frequently require consent to assign, licences may need re-issuing, and in medical aesthetics the corporate structure can make assignment more complicated than it first appears.
Stock sale. The buyer acquires the ownership interests. The business continues unchanged — same entity, same contracts, same history, including anything not yet discovered. Sellers prefer this because it is a clean break. Buyers resist it for precisely the same reason, and compensate with tighter representations, longer survival periods and a larger escrow.
Why medical aesthetics complicates the choice
Where a practice operates through a professional entity alongside a management services organisation, what is being bought and by whom becomes a structural question before it is a commercial one. The clinical entity and the business entity may not be able to transfer to the same buyer in the same way.
That is not a reason for alarm. It is a reason to have the structure reviewed well before a buyer asks about it.
The choice between asset and stock structures carries significant legal and tax consequences that differ by state and by entity type. This is background only — take advice from a qualified attorney and tax advisor on your own transaction. Nothing in this article is tax advice.
What is rollover equity?
Rollover equity is consideration taken as an ownership stake in the buyer’s new entity instead of as cash at closing. It is common in platform transactions, it is frequently the component owners understand least, and it is the one they are sold hardest.
What the pitch says, and what it leaves out
The pitch is genuine. You retain a stake, the platform grows and professionalises, it eventually sells at a higher multiple, and your retained slice is worth more than the cash you gave up. This is the “second bite,” and it does sometimes work exactly that way.
Three things are usually left out.
You are now a minority holder in someone else’s company. You do not control strategy, leverage, timing, or the decision to sell. Your outcome depends on a management team you did not appoint executing a plan you did not write.
The waterfall decides your return, not the headline valuation. This is the point almost nobody explains. A platform’s enterprise value can grow substantially while your return stays modest, because debt, dilution from subsequent acquisitions, and preferred claims ranking ahead of you absorb the increase before it reaches common equity.
Management incentive plans dilute you. Platforms grant equity pools to the management teams they install, and those pools come out of the same pie. ⟦SOURCE NEEDED — if a citable figure for typical management incentive pool sizing in healthcare platforms exists, insert with source and date; otherwise leave qualitative.⟧
Six questions to answer in writing before agreeing to any rollover
- Common or preferred, and what preferences rank ahead of me?
- What is my fully diluted percentage, and what dilutes it further?
- What information rights do I have — what will I actually be told, and how often?
- Drag-along and tag-along: if they sell, am I dragged? If they sell part, can I follow?
- How is my stake valued if I want or need to exit early?
- What happens to it if my post-closing role ends, voluntarily or otherwise?
Rollover is not a bad term. It is an uncertain one, and it should be valued at a discount to cash in any model you build — not at face value.
What is an earnout, and how often do they pay?
An earnout is additional consideration payable only if the practice meets defined performance conditions after closing. It has become more common in the lower middle market, and when used, the amount at stake has grown.
Four studies, four different numbers
Prevalence figures vary because the studies measure different deal populations. Publishing the spread is more honest than averaging them into one tidy figure — and the disagreement is itself informative.
| Source | Population | Earnout prevalence |
|---|---|---|
| IBBA Market Pulse, Q4 2025 | Lower-middle-market healthcare and services, $2M–$50M EV | 31.8% of closed deals |
| SRS Acquiom, 2026 lower-middle-market report | Deals up to $25M | 35% |
| SRS Acquiom, 2026 lower-middle-market report | Deals up to $50M | 29% |
| ABA deal points study, 2025 | Middle-market private targets | 18% |
IBBA additionally recorded earnouts averaging 12.4 percent of consideration in that segment, up from 22.5 percent prevalence in Q4 2021 — and median earnout potential rose from roughly 32 to 43 percent of the closing payment between the 2023 and 2025 ABA studies.
Why earnouts fail
Rarely bad faith. Almost always definitions.
- The metric is adjusted EBITDA, and the buyer’s post-closing adjustments differ from the ones you assumed.
- The buyer allocates central overhead to your location, and the target becomes unreachable.
- The buyer changes pricing, marketing spend or service mix in ways that serve the platform and depress your measured performance.
- Absent specific operating covenants, the buyer has no obligation to run the business the way you would have.
What to negotiate, and when
Before the letter of intent, not after:
- The measurement definition in precise terms, with a worked example attached to the agreement
- Operating covenants protecting the conditions your target depends on
- Your right to receive the calculation and to dispute it, through a defined mechanism
- Acceleration if the buyer sells the platform or materially changes the business during the earnout period
Then model your proceeds twice — once assuming the earnout pays in full, once assuming it pays nothing. If the second number does not work for you, the deal does not work for you.
Seller notes, escrow, and what R&W insurance changed
Three mechanisms that hold back part of the price. They are frequently discussed together and they work quite differently.
Seller notes
Part of the price paid over time under a promissory note, usually with interest. IBBA Market Pulse recorded seller notes in 41.2 percent of closed lower-middle-market healthcare deals in Q4 2025, up from 32.0 percent in Q4 2021.
Three things to establish before agreeing to one:
Where do you rank? Seller notes are typically subordinated to the buyer’s senior lender. If the business struggles, the bank is paid first, and you may be contractually prevented from enforcing at all.
What secures it? An unsecured note from a newly formed acquisition entity holding no other assets is a very different instrument from one secured against the business.
Is the rate market? A below-market interest rate is a price reduction wearing a disguise.
Escrow and holdbacks
A portion of the price held by a third party for a defined period, securing your indemnification obligations if a representation you made turns out to be wrong.
What to negotiate: size, duration before release, the survival period for your representations, whether there is a cap on your total liability, and whether there is a basket — a threshold below which small claims cannot be brought at all.
What representations and warranties insurance changed
An R&W policy covers breaches of the seller’s representations. Historically it was reserved for large transactions on cost grounds. As premiums have fallen, it has become economical further down the market, and where a policy is available it can replace some or all of a traditional escrow — meaning more of your money at closing, and claims directed at an insurer rather than at you personally.
The practical instruction stands regardless: if your transaction is anywhere near the lower middle market, ask whether R&W insurance is available for it. Many sellers are never told to ask.
What is a working capital peg?
The working capital peg is the level of working capital you must leave in the business at closing, usually set by reference to a historical average. Deliver less than the peg and the purchase price reduces dollar for dollar. It is negotiable, routinely skimmed, and the amounts involved are not small.
The concept is fair. A buyer is purchasing a functioning business, not an empty one, and needs enough working capital to operate from day one.
The problems are in the detail — and medical aesthetics has unusual detail.
What counts
Product inventory, prepaid packages, unredeemed memberships, gift certificates, deferred revenue.
Prepaid and deferred balances are unusually significant in this sector. Package revenue collected in advance represents an obligation to deliver treatment later, and how that obligation is classified in the peg calculation can move the number substantially. Practices that recognise package revenue on collection rather than on delivery frequently discover during diligence that both their earnings and their working capital position look different under a buyer’s accounting than under their own.
Which reference period
A twelve-month average across a seasonal business is not the same as a three-month average ending in your strongest quarter. The reference period is a negotiation, not a given, and it is worth having before the letter of intent rather than after.
Who calculates the true-up
Usually the buyer. Establish in the letter of intent that you receive the workings and hold a defined right to dispute them.
Owners skim this term because it sounds administrative. It is one of the most common places a headline price quietly shrinks after signing.
What can you do after you sell? Restrictive covenants
Sale-of-business non-competes are treated far more permissively than employment non-competes, including in several states that otherwise restrict or ban them. This distinction is widely misunderstood, and the misunderstanding runs in the direction that costs sellers.
The federal position
The FTC’s Non-Compete Clause Rule, finalised in 2024, never took effect. It was vacated by a federal court in August 2024, the Commission abandoned its appeals in September 2025, and the rule was formally removed from the Code of Federal Regulations in February 2026. There is no federal ban, and enforceability is governed by state law.
The Commission has not gone quiet, however. It shifted to case-by-case enforcement under Section 5 of the FTC Act and has been active — including a consent order against Rollins, parent of Orkin, finalised in June 2026, alongside warning letters to other companies.
States have moved independently, and several changes are healthcare-specific
Utah prohibited non-competes with healthcare workers from May 2026. Virginia enacted a broad healthcare and low-wage ban effective July 2026. Washington’s comprehensive ban takes effect in June 2027. Montana expanded its physician non-compete prohibition. California’s SB 351 rendered non-compete and non-disparagement clauses in provider employment agreements unenforceable from January 2026.
The distinction that matters to you
Nearly all of the above concerns employment non-competes — what you can impose on your injectors.
The covenant you sign as a seller falls into a different category, and it is treated far more permissively almost everywhere, including in states with strict employment bans. California’s SB 351, for example, carries a narrow exception for sale-of-business covenants.
In plain terms: your staff may become harder to bind, while the restriction on you remains fully enforceable.
What to negotiate
Four dimensions, all before signing:
- Duration.
- Geographic radius — and measured from what? Your location, or every location the platform owns or later acquires?
- Scope — all aesthetic services, or the specific services you personally provided?
- Non-solicit terms, covering both patients and staff. Buyers have leaned harder on these precisely because non-compete enforceability is contested.
Ask the question owners forget: if I want to work part-time as an injector somewhere else in three years, does this document allow it?
Non-compete law varies significantly by state and is changing quickly. This is background, not legal advice — have your covenant reviewed by an attorney in your state.
How do you read a letter of intent?
The letter of intent is largely non-binding on price and structure, and firmly binding on exclusivity. That asymmetry is the whole document, and it arrives at the point where a seller is least equipped to evaluate it.
What binds
Price and structure are usually non-binding. Exclusivity is binding, and it is the point — once you sign, you stop talking to other buyers, which switches off the competitive tension you spent months building. Confidentiality provisions bind as well.
What to settle before signing
Because all of it becomes very hard afterwards:
- Exclusivity length, and what happens when it expires
- The earnout metric and its definition, not merely its headline amount
- Escrow size and duration
- Working capital peg methodology and reference period
- Rollover security class and governance rights
- Non-compete scope, duration and radius
- What happens if diligence produces a price reduction — is there a floor, or can the buyer re-trade freely?
The re-trade
A buyer reduces the price late in diligence, once you are exclusive, invested, and emotionally committed to the outcome.
Sometimes it is justified — diligence found something real. Sometimes it is a tactic, and an effective one, because your alternatives have been contractually removed.
Your defences are both built earlier: a practice whose numbers survive a quality of earnings review gives a buyer nothing to re-trade against, and a walk-away number decided before you signed gives you somewhere to stand.
How do you compare two offers?
Compare on net proceeds and risk, never on headline multiple. Model the cash at closing, value deferred consideration at a discount reflecting its uncertainty, then run a downside case in which the earnout pays nothing and the rollover returns nothing. Rank the offers on the downside numbers.
An illustrative comparison. Same practice, two offers.
| Offer A | Offer B | |
|---|---|---|
| Headline enterprise value | $8.0M (6.7×) | $9.5M (7.9×) |
| Cash at closing | $6.4M (80%) | $5.2M (55%) |
| Rollover equity | — | $2.85M (30%) |
| Earnout | $0.8M (10%) | $1.45M (15%) |
| Escrow | $0.8M, 18 months | $0.5M, 12 months (R&W policy) |
| Non-compete | 36 months, 15 miles | 60 months, statewide |
| Base case total | $8.0M | $9.5M |
| Downside: earnout nil, rollover nil | $7.2M | $5.2M |
Illustrative only. Figures constructed to demonstrate the comparison method; not a market claim and not based on any real transaction.
Offer B is $1.5 million better in the base case and $2 million worse in the downside.
Neither is the right answer in the abstract. The right answer depends on whether you can afford the downside, how much you believe in the platform’s execution, and whether a 60-month statewide covenant is compatible with the life you intend to have next.
Run this table for every offer you receive. If an advisor will not produce it for you, produce it yourself.
Seven mistakes that cost sellers the most
- Negotiating with one buyer. The single most expensive mistake available. Without competitive tension, every term is set by the party who does this professionally.
- Responding substantively to an unsolicited approach before establishing independent value. You are being asked to name a number before you know what the number should be.
- Signing a letter of intent without negotiating what sits underneath the price. Leverage collapses the moment exclusivity begins.
- Valuing deferred consideration at face value. Rollover and earnout are not cash. Discount them, and know your number if they are worth nothing.
- Undocumented add-backs. Every add-back that fails a quality of earnings review is multiplied by the multiple, and it fails at the point of least leverage.
- Ignoring the working capital peg. It sounds like accounting. It moves real money.
- Not knowing your walk-away number before the process starts. Without it you cannot distinguish a good offer from a flattering one — and by month eight you will be tired and inclined to accept.
Deal terms glossary
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Asset sale — A transaction in which the buyer acquires specified assets and assumes specified liabilities, rather than acquiring the ownership interests of the entity itself.
Stock sale — A transaction in which the buyer acquires the equity interests of the entity, taking the business with its liabilities, contracts and history intact.
Rollover equity — Consideration taken as an ownership stake in the buyer’s new entity rather than as cash at closing. Its value depends on the buyer’s future performance and on your position in the distribution waterfall.
Earnout — Additional consideration payable only if the business meets defined performance conditions after closing, most often measured on adjusted EBITDA over a set period.
Seller note — A portion of the price paid over time under a promissory note, usually with interest and often subordinated to the buyer’s senior lender.
Escrow — A portion of the purchase price held by a third party for a defined period to secure the seller’s indemnification obligations.
Working capital peg — The agreed level of working capital the seller must leave in the business at closing. Delivering less reduces the price dollar for dollar.
Letter of intent — A largely non-binding document setting out proposed price and structure, typically binding on exclusivity and confidentiality. Signing it suspends the competitive process.
Representations and warranties insurance — A policy covering breaches of the seller’s representations, used in some transactions in place of a traditional escrow holdback.
Quality of earnings — An independent accounting review testing whether reported and adjusted earnings are accurate, sustainable and supportable by evidence.
Frequently asked questions
How is a med spa deal structured? As a package: cash at closing, often rollover equity, sometimes an earnout or a seller note, plus escrow, a working capital peg and restrictive covenants. The distribution across those components matters as much as the total.
What is rollover equity in a med spa sale? Consideration taken as a stake in the buyer’s entity instead of cash, typically held until the buyer’s own exit several years later. Its value depends on the buyer’s performance and on your position in the distribution waterfall — which makes its governance terms more important than its percentage.
What is an earnout, and do they usually pay? Additional consideration payable only if defined targets are met after closing. Prevalence in the lower middle market has risen, and earnouts most often fail on definitions rather than bad faith. Model your proceeds as though it pays nothing.
What is the difference between an asset sale and a stock sale? In an asset sale the buyer takes specified assets and assumes specified liabilities. In a stock sale the buyer acquires the entity with its history intact. Buyers usually prefer the former, sellers the latter, and the choice carries legal and tax consequences requiring professional advice.
What is a working capital peg? The working capital you must leave in the business at closing, set from a historical average. Deliver less and the price falls dollar for dollar. What counts — inventory, prepaid packages, unredeemed memberships — is negotiable and matters more in this sector than in most.
Can I still work after selling my med spa? It depends on your restrictive covenant. Sale-of-business non-competes are treated more permissively than employment non-competes in most states, including several that otherwise restrict them. Negotiate duration, radius, scope and non-solicit terms before signing.
Should I accept the highest offer for my med spa? Not automatically. An offer with more cash at closing and less contingent consideration can be worth more than a higher headline carrying heavy rollover and a long earnout. Model every offer under a downside case first.
