October 30, 2023
5 Types of DSO Deal Structures
There is much more to selling your practice to a dental service organization (DSO) than a signature on a dotted line. Before deciding to affiliate with one, it’s important to explore other options beyond selling 100% of the practice to a traditional DSO. Good news: Because deal structures are shifting, dentists are getting more value out of these transactions than ever before. We help you scratch the surface on this group of investors and unpack everything you need to know about the different types of DSO deal structures.
This is the original model for DSOs, perhaps one you’re already familiar with. In this situation, you sell 100% of your practice to a DSO and either step into a role of strictly handling patient care or even going straight into retirement.
Joint venture model
In the joint venture model, the dentist sells 60% to 90% of the practice for cash now — as early as 30 years out from officially transitioning — but retains equity ownership of 10% to 40%. The type of equity retained depends on the dentist’s goals and transaction structure, which varies based on levels of risks and rewards. The dentist and DSO both invest capital in the form of money, equipment and other assets into the joint venture, sharing proportionally in the growth of the practice. The dentist retains day-to-day clinical control of the practice.
With a group affiliation versus a partnership with a group, the practice owner will sell 100% of their practice. They will then trade in their equity into the DSO as a whole and roll however much of their equity into the DSO to keep growing their investment.
This deal structure has some characteristics of a joint venture and equity roll. When transitioning as a sub-DSO, the practice owner will exit the transaction debt-free with a large upfront payment and typically hold 40% ownership and profit share in the sub-DSO portfolio. The equity in this model isn’t held at the DSO or practice level but rather in a holding space to give you room to expand. Returns are made on various levels, including equity, profit sharing and exit upon a parent DSO recapitalization.
Direct investment with private equity
If you have a more robust practice, you don’t need to go through a DSO. A direct investment is when an investor purchases ownership within an operating company, bypassing the DSO if your practice is big enough. The amount of ownership in the operating company varies per deal. This direct investment can be a buyout with controlling interest transferring to the investor or it can be a minority growth investment. You would then become a founding member of a DSO, if that’s the route you choose.
There’s no one-size-fits-all solution when selling your dental practice. Contact the experts at Professional Transition Strategies to see which DSO deal structure works best for you and your practice.