Tag: joint venture

March 27, 2025

How to Sell Your Dental Practice in 2025: Private Equity, DSOs and Economic Insights

The economy is resilient, but currently faces some challenges – making it essential to navigate the current market with care. Whether you’re considering selling your dental practice now or preparing for the future, it’s important to understand how to leverage opportunities in the current market. Even in times of uncertainty, well-managed dental practices remain valuable assets, and buyers continue to seek them. The key is to be prepared, make smart decisions, and ensure your practice is positioned for success.

The Impact of a Resilient Economy on Dental Practice Sales

Robust Buyer Demand

Despite economic challenges, demand for high-quality dental practices remains strong. Private equity-backed Dental Service Organizations (DSOs) are still actively seeking acquisitions, seeing dental practices as stable, long-term investments. Buyers who understand the value of well-managed practices continue to invest, even in fluctuating markets.

Financing Made Easier

Continued support for business growth has made it easier for many institutional capital-backed buyers to access financing. While traditional financing might seem difficult for some buyers, private equity firms and DSOs often offer attractive deals, including cash offers or structured payouts. This flexibility opens doors for sellers, providing more opportunities to close deals without the typical hurdles.

Adjusting to Market Realities

Dental practice valuations take into account many more factors outside the economy. Valuations for dental practices shift depending on various factors, including profitability and future growth potential. It’s important for sellers to understand current market trends and adjust expectations accordingly. Even in an evolving market, there’s significant value to be found in high-performing dental practices.

Why Dental Practices Continue to Be Strong Investments

Stability in Changing Times

What we know from the 2008 recession and COVID-19 shutdown is that dentistry is an incredibly resilient investment. Dental practices remain a stable investment, especially given the ongoing demand for dental services and its minuscule default rate of 3%. While other industries may face uncertainty, dentistry is an essential service with recurring revenue, making dental practices a reliable investment — an asset that will continue to hold value.

Opportunities for Growth and Efficiency

Private equity firms and DSOs look for dental practices that are not only well-run but also have the potential for growth. Operational efficiencies, optimized workflows and a forward-thinking approach to technology can make a practice highly attractive to these investors, who are focused on long-term success.

Long-Term Value

For many investors, economic fluctuations create opportunities to acquire valuable assets at favorable prices. Once the initial transaction is complete, these investors aim to grow the practice for even greater long-term success. If your practice offers strong growth potential, it will remain a highly sought-after asset.

Securing Your Financial Future

Selling to a DSO doesn’t have to be a one-time payout – it can be a strategic way to build long-term financial security. Deal structures like equity rolls, joint venture models and performance-based earnouts allow dentists to maintain ownership stakes and generate ongoing income even after transitioning out of day-to-day operations. These models can not only provide funds upfront, but it also can carve a path to retirement with financial flexibility, whether through passive income, reinvestment opportunities or a second payout when the DSO itself sells. By leveraging a DSO’s resources and growth strategies, dentists can not only maximize their practice’s value but also create a more secure and sustainable financial future.

How to Maximize Your Practice’s Value During Market Changes

Get an Accurate Valuation

A professional practice valuation is key to understanding where your dental practice stands in today’s market. A clear, realistic valuation helps set expectations and ensures you’re making informed decisions during the selling process.

Optimize Financial Performance

Focusing on reducing unnecessary expenses and improving profitability enhances your practice’s value. Buyers are particularly interested in practices with strong financial health, so ensuring your practice is financially sound will make it more attractive.

Streamline Operations

Investing in better management, technology and operational systems will make your practice more efficient and reduce risk for potential buyers. A streamlined practice is easier to transition and offers better long-term stability.

Build and Retain a Loyal Patient Base

A strong, loyal patient base is one of your greatest assets. Buyers value practices that maintain steady patient retention and growth potential, so it’s important to foster lasting relationships with your patients.

Explore Different Buyer Types

Understanding the different types of buyers — whether private equity firms, DSOs or individual buyers — will help you find the right fit for your practice. Each type of buyer offers unique benefits, and aligning with the right one can help you achieve your desired goals.

Common Mistakes to Avoid When Selling Your Practice

Holding Out for Valuations

Expecting to receive the same price as during more stable economic times can make it difficult to sell your practice. Being flexible with your expectations and adjusting to the current market realities can increase your chances of closing a successful deal.

Failing to Organize Financial Records

Disorganized financial records can make your practice less appealing to potential buyers. Ensure that your financial statements are accurate, up-to-date and transparent to make the selling process smoother.

Skipping Buyer Due Diligence

Carefully vetting potential buyers ensures that they have the financial stability and commitment necessary to complete the transaction. Thorough due diligence is essential to avoid complications down the road.

Deciding Whether to Sell Now or Wait

Selling Now

If your practice is financially healthy and you’re ready for a transition, selling now might be the right decision to capitalize on wealth-building opportunities that are only available once during an industry’s consolidation wave. The current market offers plenty of opportunities for sellers, and with proper preparation, you can secure a successful sale.

Waiting for Better Conditions

If you’re unsure about selling now or want to improve your practice’s financials, taking the time to enhance its value could lead to a more advantageous sale in the future. Use this time to improve the efficiency, profitability and overall appeal of your practice.

Obtain a Valuation

Even if you don’t plan to sell immediately, getting a valuation helps you understand your practice’s worth and positions you for informed decision-making down the road.

Empower Your Practice’s Future

Whether you choose to sell now or wait, being prepared is the key to success. Understanding the market, optimizing your practice’s operations, and finding the right buyer will lead to a rewarding transition. By focusing on what makes your practice valuable and aligning with the right partners, you’re setting your practice up for continued success, no matter what the future holds.

July 10, 2024

More Reasons To Sell Your Dental Practice to a DSO

dentist working on a patient

Now more than ever, dental entrepreneurs are learning that dental service organizations (DSOs) have wrongfully received a bad reputation. Thanks to the industry-wide consolidation trend, the industry has gone from a buyer’s market to a seller’s market, further ensuring that DSOs are mutually beneficial for all parties. But in just five years, DSOs may no longer offer investment options like equity rolls and other lucrative opportunities currently available.

This shift underscores why dentists should seize the advantages of joining a DSO now. With over 375 DSOs to choose from, the time is ripe to explore the many benefits they offer. In this blog, we share even more reasons why selling your dental practice to a DSO is the best strategic move for your future.

Equity Arbitrage for Your Dental Practice

Equity arbitrage is a financial concept that was rarely utilized by dentists before private equity started investing in the space. In short, it all has to do with how valuable the equity is in your practice currently and how much your equity ends up being worth after the sale of your dental practice.

With DSOs, dentists receive a much higher financial result compared to selling to a private party, and the dentist can be a beneficiary of that arbitrage with less risk to the provider. This happens because dental practices have a steady cash flow and returning clientele, making them appealing to private equity investors since they can be very profitable. The best way to know the true value of your dental practice is to have it appraised to learn its enterprise value, which calculates earnings before interest, taxes, depreciation, and amortization (EBITDA), along with how many multiples that groups will consider offering.

The window for equity arbitrage is closing as the industry moves towards consolidation. Dentists, particularly younger entrepreneurs, are increasingly selling to DSOs to seize these opportunities before they diminish. Act now to avoid missing out on maximizing your practice’s value and potential recapitalization events in the next five years.

Higher Valuations When You Sell

It’s no secret fewer dental practices are selling to individuals than ever before, and there’s good reason why. With an increase in DSOs comes more competition available to dentists looking to sell. And since DSOs typically do not have to rely on bank financing because they are funded by private equity groups, they can pay more for practices than the standard individual thanks to private equity money, economies of scale, and cost structure optimization.

In individual sales, banks often assess practice values based on collections and seller’s discretionary earnings (SDE), which can restrict the maximum price individual buyers are willing to pay. In contrast, DSOs base their valuations on EBITDA, which considers the practice’s profitability and growth potential. This approach aligns more closely with the long-term financial strategies of DSOs supported by private equity.

In the end, not only will you receive a higher valuation for your dental practice, but you’ll also get a higher price point than if you were to sell to a single practitioner.

Partnership Options with DSO Models

When co-owners of a dental practice choose to part ways, there’s a lot that can be done ahead of time to make the transition easier for all those involved. This often happens when one dentist is looking to retire and the other wants to stay on to practice. Even in a partnership, everyone has different paths they want to explore, and joining a DSO helps to navigate the situation and ensure a smooth transition.

Flexible Financial Options

Before deciding to partner with a DSO, it’s important to explore other options that exist beyond selling 100% of the practice to a traditional DSO:

  • In the joint venture model, 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, while the dentist retains day-to-day clinical control of the practice. Additionally, participating dentists typically have the opportunity to share in the practice’s profits, aligning their financial incentives with the success of the venture.
  • 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. Returns are made on various levels, including equity, profit sharing, and exit upon a parent DSO recapitalization.
  • With a traditional equity roll, the practice owner will sell 100% of their practice. They will then transfer their equity into the DSO as a whole to continue growing their investment. However, there are additional options available that don’t require selling the entire practice. For instance, in a joint venture (JV) model with an equity roll, you can choose to roll a portion of your equity or investment into the DSO. This allows dentists to maintain partial ownership of their practice while benefiting from the resources and support of the DSO.
  • In a roll-up, multiple dental practices are combined under one entity in a group to maximize the economies of scale. A well-laid roll-up plan will then receive a higher valuation when the practice is purchased. This is especially relevant with inflation top of mind.
  • With a 100% affiliation model, the practice owner sells their entire practice to a DSO, transferring full ownership and operational control to the DSO. This approach allows the dentist to exit completely from practice ownership after a transition period while benefiting from a lump-sum payment and, if preferred, maintaining involvement in patient care.
  • In a direct investment scenario, the investor (typically a private equity firm) purchases a stake in the dental practice, which means they become a shareholder or partner. This type of arrangement typically occurs with very large practices or groups of practices that already have robust infrastructure in place. The amount of ownership in the operating company varies per deal; this direct investment can be a buy-out with controlling interest transferring to the investor, or it can be a minority growth investment. The dentist, as the owner of the dental practice or group, continues to manage the clinical and operational aspects of the practice. The investor provides financial resources and strategic support to enhance the practice’s growth and operational efficiency while respecting the dentist’s expertise and role as the primary clinician and business leader.

Defined Exit Strategy for Selling

For many dental practitioners, the thought of retiring or transitioning out of practice can bring a significant amount of anxiety. They have concerns about legacy and the future of their practice as they enter the final stages of their careers.

If your exit plan involves selling your practice to another practitioner and then gradually phasing out, it’s important to be aware of potential pitfalls. Once ownership is transferred, you may lose agency in decision-making, which could harm your practice’s reputation and legacy. We’ve seen cases where new owners make sweeping changes that alienate staff and undermine the reputation the previous doctor worked hard to build.

Alternatively, forming a deal with a DSO such as a joint venture can be more beneficial. In such arrangements, the outgoing doctor remains involved in key decisions, maintaining stability within the practice. This model ensures that the practice continues to reflect the standards and values established over many years.

By partnering with a DSO, instead of waiting until retirement is imminent, dentists can develop an exit strategy well in advance. This proactive approach ensures a smoother transition and helps mitigate potential transition issues.

Better Health Care Through Practice Consolidation

It’s no secret the connection between oral health and overall health has become stronger over recent years. But the connection between DSOs and better medical and dental integration may not be as obvious. The reality is that DSOs are better equipped to handle “whole person” treatment and have the ability to partner with other medical professionals to play a part in treatment and prevention. These days, DSOs are leading the charge, which is why transitioning to one of the DSO models might be the right move for your dental practice.

Release Managerial Responsibilities to Focus on Dental Care

DSOs fit the dentist who craves a work-life balance and don’t want the added stress of the managerial responsibilities that come along with owning a business. Working 32 clinical hours (instead of six days a week with early mornings) is appealing to both the younger and older generation, especially leading up to retirement and to avoid burnout. For those looking to ease into retirement, working for a DSO can offer an abbreviated schedule rather than the added stress of a transition to another dentist. What’s more, you have the chance to expand and move toward a one-stop-shop model, all while increasing the value of your dental practice.

Retain Clinical Autonomy as Dentists

Gone are the days of having to hit quotas and report how many procedures have been performed. These days, dental entrepreneurs are looking for a true business partner rather than just someone to buy their practice. Modern DSOs are much more hands-off compared to their past reputation. With over 375 DSOs currently operating, sellers can find one that aligns with their clinical and cultural philosophies. This alignment ensures a smoother transition for both patients and staff, allowing dentists to maintain full clinical autonomy while benefiting from DSO support in operational and administrative areas.

Capitalize on the Consolidation Wave

The dental industry is currently halfway through its consolidation wave, only expected to continue for the next 5-7 years, driven by the significant advantages that DSOs offer both financially and operationally. This trend is transforming the landscape, making it an ideal time for dental practitioners to act now. By selling your practice to a DSO, you not only benefit from a higher valuation and reduced managerial responsibilities but also position your practice to thrive under a model that promotes better healthcare integration and operational efficiency.

As this wave continues, the competition among DSOs for quality practices will increase, but it won’t last forever. This means acting now can maximize your financial return and ensure a smooth transition for your practice. Embracing this trend can safeguard your legacy and provide a stable, profitable future for your practice.

Bottom Line for Dental Transitions

It’s easy to get wrapped up in the conundrum that still exists in the world of DSOs if you try to take the sale of your dental practice into your own hands.

Contact the experts at Professional Transition Strategies to ensure your dental practice transition goes smoothly while preserving the legacy you’ve worked so hard to build.

April 4, 2024

The Ultimate Guide to Practice Transitions

As the landscape of the dental industry continues to evolve, understanding practice transitions has become more crucial than ever for dentists. Currently, about 35% of dental practices are consolidated, with our industry experts projecting this figure to reach full consolidation within the next five years. This underscores the urgency for dentists to act swiftly if they’re considering selling their practice. We created this “Ultimate Guide” to help dentists through every step of the practice transition process.

Understanding and Navigating Practice Transitions?

Once you understand what your options are, you can make the best decision for you. And practice transitions encompass a large spectrum of options, including buying, selling and merging practices. These transitions are driven by various factors such as retirement, relocation or partnership changes. Regardless of the reason, proper planning is paramount to ensure a smooth transition process.

The transition process can seem daunting, but breaking it down into manageable steps and surrounding yourself with a team of experts can ease the burden. From initial planning to finalizing the deal, dentists need to navigate negotiations, legal intricacies and operational adjustments. Common challenges may arise, such as disagreements over valuation or concerns about patient retention. However, with the right guidance and support from professionals, navigating through these obstacles can be a smooth and stress-free experience.

Preparing for a Practice Transition

Dentists should assess their readiness for a transition by evaluating multiple factors, including their practice’s financial health, market position and personal goals. Even if you’re not set on selling your practice, you should know how much the asset you own is worth. This starts with getting an appraisal for your business. 

Consultants and brokers evaluate the practice’s financials and can help with goal-planning, increasing profitability and cleaning up financial statements so that you’re in a strong position to sell your practice when the time comes. A formal appraisal by a broker includes conducting a comprehensive financial assessment, valuation and addressing legal considerations. While financial health is a crucial aspect, a valuation is a comprehensive assessment that includes factors such as patient demographics, location, equipment, and goodwill, which covers intangible assets like the doctor’s status within the community – all of which contribute to the practice’s overall value.

By taking these steps, dentists can better understand their practice’s worth and ensure they are well-prepared for the transition journey ahead.

Types of Essential Expertise

Successfully transitioning a dental practice requires more than just expertise in one area — it hinges on a well-coordinated team working in unison to achieve the best outcomes. From dental practice brokers to CPAs and consultants, each member plays a vital role in maximizing value and facilitating a seamless transition.

Brokers guide negotiations and identify suitable deals, CPAs ensure financial transparency and informed decisions, while consultants offer strategic guidance for long-term success. Together, they guide negotiations, ensure financial transparency, and offer strategic counsel tailored to the dentist’s goals. Leveraging their expertise empowers dentists to navigate transitions confidently and enhance their practice’s value.

Types of Practice Transitions

In addition to traditional transitions, such as outright sales and mergers, dentists may also explore alternative options, including various DSO deal structures. These structures offer unique advantages and considerations, catering to the needs of individual practices.

A seasoned broker can help you understand and analyze these options to select the most suitable transition strategy. With extensive experience, brokers offer insights into market trends, empowering dentists to make informed decisions aligned with their goals. As such, starting out the process of a practice transition with the help of a professional broker has become increasingly essential.

Finding the Right Transition Strategy

Determining the right transition strategy requires dentists to align their choices with their personal goals, financial objectives and career aspirations.

Dental practice brokers have a wealth of tools at their disposal, enabling them to craft more advantageous deal structures. For one, they should always strategically position your practice in a competitive environment to further source attractive offers. Seasoned dental practice brokers should also bring enhanced negotiating capabilities to the table to secure more competitive offers. Additionally, brokers navigate legal and financial complexities, streamlining the planning process and maximizing transaction value.

Offer Evaluation

Professional brokers play a critical role in assessing offers and letters of intent. They employ various strategies such as creating a “scorecard” to aid the seller in ranking the letters of intent and comparing the options available. Additionally, brokers consider the long-term outlook of each offer and make recommendations on the best option for the seller.

Timing is also a crucial factor in this phase, as consultants may advise on scheduling evaluations around tax season to allow for strategic tax planning and minimize capital gains tax implications. This collaborative effort often involves working closely with CPAs to optimize tax strategies within the calendar year. By leveraging the expertise of brokers and CPAs, sellers can make well-informed decisions that align with their financial goals and maximize the value of their practice.

Finalizing the Deal

After signing the letter of intent, a doctor will go through the due diligence process to finalize the deal. This crucial phase involves a comprehensive examination of various aspects of the practice to ensure transparency and mitigate risks. During the due diligence process, several components are scrutinized, including:

 – Profit and Loss statements (P&Ls): Provides insights into the financial performance of the practice, helping both parties assess its profitability and identify areas for improvement.

 – Quality of Earnings: Analyzes the sustainability and reliability of the practice’s earnings over time, offering a deeper understanding of its financial health.

At this stage, doctors must prioritize certain considerations to ensure a successful transition. Understanding the practice’s financial standing and identifying any red flags is paramount. Also, clarifying expectations regarding patient retention, staff integration, and contractual obligations can mitigate potential challenges post-transition. Open communication with the buyer or seller and seeking professional guidance can significantly facilitate this process.

Post-Transition Considerations

The journey doesn’t end once the transition is complete. However, with the right experts at your side, this process can be easy and manageable for all types of sellers and transactions. The post-transition phase varies depending on individual circumstances, with some sellers opting for a more hands-off approach or walking away shortly after the transition, while others prefer to remain actively engaged in the clinical aspects of the practice.

For some, that means staying involved in post-transition integration and adjustment to ensure the long-term success of their practice, such as being involved in patient care, staffing decisions and implementing practice growth strategies.

Regardless of the approach, the best brokers provide ongoing support and resources to assist dentists in navigating the post-transition landscape seamlessly. With the right assistance, dentists can confidently navigate the complexities of the post-transition period and set their practice up for long-term success.

Bottom Line

Practice transitions are a significant aspect of the evolving dental industry landscape. By understanding the process, preparing diligently, and seeking professional assistance, dentists can navigate transitions with confidence and achieve their desired outcomes. At Professional Transition Strategies, we are committed to supporting dentists through every stage of their practice transition journey.

Contact us today to learn more about how we can help you navigate your practice transition successfully.

January 29, 2024

Dentists & Succession Planning: Beyond the Family Legacy

As the landscape of the dental industry continues to evolve, understanding practice transitions has become more crucial than ever for dentists. Currently, about 35% of dental practices are consolidated, with our industry experts projecting this figure to reach full consolidation within the next five years. This underscores the urgency for dentists to act swiftly if they’re considering selling their practice. We created this “Ultimate Guide” to help dentists through every step of the practice transition process.

Understanding and Navigating Practice Transitions?

Once you understand what your options are, you can make the best decision for you. And practice transitions encompass a large spectrum of options, including buying, selling and merging practices. These transitions are driven by various factors such as retirement, relocation or partnership changes. Regardless of the reason, proper planning is paramount to ensure a smooth transition process.

The transition process can seem daunting, but breaking it down into manageable steps and surrounding yourself with a team of experts can ease the burden. From initial planning to finalizing the deal, dentists need to navigate negotiations, legal intricacies and operational adjustments. Common challenges may arise, such as disagreements over valuation or concerns about patient retention. However, with the right guidance and support from professionals, navigating through these obstacles can be a smooth and stress-free experience.

Preparing for a Practice Transition

Dentists should assess their readiness for a transition by evaluating multiple factors, including their practice’s financial health, market position and personal goals. Even if you’re not set on selling your practice, you should know how much the asset you own is worth. This starts with getting an appraisal for your business. 

Consultants and brokers evaluate the practice’s financials and can help with goal-planning, increasing profitability and cleaning up financial statements so that you’re in a strong position to sell your practice when the time comes. A formal appraisal by a broker includes conducting a comprehensive financial assessment, valuation and addressing legal considerations. While financial health is a crucial aspect, a valuation is a comprehensive assessment that includes factors such as patient demographics, location, equipment, and goodwill, which covers intangible assets like the doctor’s status within the community – all of which contribute to the practice’s overall value.

By taking these steps, dentists can better understand their practice’s worth and ensure they are well-prepared for the transition journey ahead.

Types of Essential Expertise

Successfully transitioning a dental practice requires more than just expertise in one area — it hinges on a well-coordinated team working in unison to achieve the best outcomes. From dental practice brokers to CPAs and consultants, each member plays a vital role in maximizing value and facilitating a seamless transition.

Brokers guide negotiations and identify suitable deals, CPAs ensure financial transparency and informed decisions, while consultants offer strategic guidance for long-term success. Together, they guide negotiations, ensure financial transparency, and offer strategic counsel tailored to the dentist’s goals. Leveraging their expertise empowers dentists to navigate transitions confidently and enhance their practice’s value.

Types of Practice Transitions

In addition to traditional transitions, such as outright sales and mergers, dentists may also explore alternative options, including various DSO deal structures. These structures offer unique advantages and considerations, catering to the needs of individual practices.

A seasoned broker can help you understand and analyze these options to select the most suitable transition strategy. With extensive experience, brokers offer insights into market trends, empowering dentists to make informed decisions aligned with their goals. As such, starting out the process of a practice transition with the help of a professional broker has become increasingly essential.

Finding the Right Transition Strategy

Determining the right transition strategy requires dentists to align their choices with their personal goals, financial objectives and career aspirations.

Dental practice brokers have a wealth of tools at their disposal, enabling them to craft more advantageous deal structures. For one, they should always strategically position your practice in a competitive environment to further source attractive offers. Seasoned dental practice brokers should also bring enhanced negotiating capabilities to the table to secure more competitive offers. Additionally, brokers navigate legal and financial complexities, streamlining the planning process and maximizing transaction value.

Offer Evaluation

Professional brokers play a critical role in assessing offers and letters of intent. They employ various strategies such as creating a “scorecard” to aid the seller in ranking the letters of intent and comparing the options available. Additionally, brokers consider the long-term outlook of each offer and make recommendations on the best option for the seller.

Timing is also a crucial factor in this phase, as consultants may advise on scheduling evaluations around tax season to allow for strategic tax planning and minimize capital gains tax implications. This collaborative effort often involves working closely with CPAs to optimize tax strategies within the calendar year. By leveraging the expertise of brokers and CPAs, sellers can make well-informed decisions that align with their financial goals and maximize the value of their practice.

Finalizing the Deal

After signing the letter of intent, a doctor will go through the due diligence process to finalize the deal. This crucial phase involves a comprehensive examination of various aspects of the practice to ensure transparency and mitigate risks. During the due diligence process, several components are scrutinized, including:

 – Profit and Loss statements (P&Ls): Provides insights into the financial performance of the practice, helping both parties assess its profitability and identify areas for improvement.

 – Quality of Earnings: Analyzes the sustainability and reliability of the practice’s earnings over time, offering a deeper understanding of its financial health.

At this stage, doctors must prioritize certain considerations to ensure a successful transition. Understanding the practice’s financial standing and identifying any red flags is paramount. Also, clarifying expectations regarding patient retention, staff integration, and contractual obligations can mitigate potential challenges post-transition. Open communication with the buyer or seller and seeking professional guidance can significantly facilitate this process.

Post-Transition Considerations

The journey doesn’t end once the transition is complete. However, with the right experts at your side, this process can be easy and manageable for all types of sellers and transactions. The post-transition phase varies depending on individual circumstances, with some sellers opting for a more hands-off approach or walking away shortly after the transition, while others prefer to remain actively engaged in the clinical aspects of the practice.

For some, that means staying involved in post-transition integration and adjustment to ensure the long-term success of their practice, such as being involved in patient care, staffing decisions and implementing practice growth strategies.

Regardless of the approach, the best brokers provide ongoing support and resources to assist dentists in navigating the post-transition landscape seamlessly. With the right assistance, dentists can confidently navigate the complexities of the post-transition period and set their practice up for long-term success.

Bottom Line

Practice transitions are a significant aspect of the evolving dental industry landscape. By understanding the process, preparing diligently, and seeking professional assistance, dentists can navigate transitions with confidence and achieve their desired outcomes. At Professional Transition Strategies, we are committed to supporting dentists through every stage of their practice transition journey.

Contact us today to learn more about how we can help you navigate your practice transition successfully.

March 13, 2023

How to Think Like a DSO

dentist looking at an x-ray

“When a DSO approaches you with a deal, do your homework before taking their offer. They may not always have your best interests in mind,” Professional Transition Strategies Chief Operating Officer Rebecca Kilibarda wrote in a recent article for Dental Economics. To work with a dental service organization (DSO), you must first think like one. Here are some key takeaways to understand and work with a DSO, whether now or in the future.

How a DSO targets your dental practice

“DSOs typically target practices for acquisition via passive and proactive marketing,” Kilibarda wrote. DSOs could send out flyers and postcards, ask for referrals, or make cold calls, as well as call practices after hours to get a dentist’s home phone number or even scan “best of” issues from local and trade publications. Oftentimes, your website will answer questions, such as how many employees your practice has, to then determine your estimated financial position. Once contact has been made, a DSO will want to know what your annual collections are, your PPO/Medicaid/fee-for-service ratios, and how many operatories you have.

What an offer from a DSO looks like

A DSO will typically conduct an in-house valuation of your dental practice before putting together an offer. But just like you wouldn’t accept an offer from a buyer interested in your house, a dollar amount from a DSO will typically come in at a lower amount than your business is actually worth. You should look for the maximum value for your life’s work. Be sure to examine the terms of the deal during the due diligence process and ask what multiples are being used to calculate the offer to determine how they arrived at that figure.

Look for red flags

Ask yourself: Does this offer seem too good to be true? “If so, proceed with caution,” Kilibarda advised. “To fully understand the offer, ask the DSO rep for a list of doctors with whom they’ve completed transactions — ideally 30-, 60-, or 90-days post-transaction — so you can chat with those dentists.” What’s more, you should look at the offer from all angles, including the noncompete clause, the level of equity you’ll receive, and what projections look like, as well as the productivity terms, such as how long you will be required to stay on before exiting the practice. Also, be sure to understand the structure under which you’ll be transitioning ownership, whether that’s a joint venture, equity roll, or straight buy-out.

Maximize your value

“DSOs can typically buy at a lower price than the actual value of the practice because there isn’t competition in most of these deals,” Kilibarda explained. The best way then is to put yourself in a competitive environment by bringing your dental practice to market, and working with an experienced dental practice broker will put your business in front of more potential buyers. “Thankfully, with hundreds of DSOs in the market, it’s not one-size-fits-all anymore,” Kilibarda continued. “But in all cases, look out for your own interests by working with expert partners who have no incentive to sell your practice short but rather a commitment to maximizing the value you receive.”

What’s next?

The best way to get inside the mind of a DSO is to work with a dental practice broker that has experience with the various options available to you. Contact the experts at Professional Transition Strategies to arrive at a comfortable decision that will ensure peace of mind for all parties involved.

March 5, 2023

The Misunderstood Value of DSOs in Modern Dentistry

dentist looking at an x-ray

“When a DSO approaches you with a deal, do your homework before taking their offer. They may not always have your best interests in mind,” Professional Transition Strategies Chief Operating Officer Rebecca Kilibarda wrote in a recent article for Dental Economics. To work with a dental service organization (DSO), you must first think like one. Here are some key takeaways to understand and work with a DSO, whether now or in the future.

How a DSO targets your dental practice

“DSOs typically target practices for acquisition via passive and proactive marketing,” Kilibarda wrote. DSOs could send out flyers and postcards, ask for referrals, or make cold calls, as well as call practices after hours to get a dentist’s home phone number or even scan “best of” issues from local and trade publications. Oftentimes, your website will answer questions, such as how many employees your practice has, to then determine your estimated financial position. Once contact has been made, a DSO will want to know what your annual collections are, your PPO/Medicaid/fee-for-service ratios, and how many operatories you have.

What an offer from a DSO looks like

A DSO will typically conduct an in-house valuation of your dental practice before putting together an offer. But just like you wouldn’t accept an offer from a buyer interested in your house, a dollar amount from a DSO will typically come in at a lower amount than your business is actually worth. You should look for the maximum value for your life’s work. Be sure to examine the terms of the deal during the due diligence process and ask what multiples are being used to calculate the offer to determine how they arrived at that figure.

Look for red flags

Ask yourself: Does this offer seem too good to be true? “If so, proceed with caution,” Kilibarda advised. “To fully understand the offer, ask the DSO rep for a list of doctors with whom they’ve completed transactions — ideally 30-, 60-, or 90-days post-transaction — so you can chat with those dentists.” What’s more, you should look at the offer from all angles, including the noncompete clause, the level of equity you’ll receive, and what projections look like, as well as the productivity terms, such as how long you will be required to stay on before exiting the practice. Also, be sure to understand the structure under which you’ll be transitioning ownership, whether that’s a joint venture, equity roll, or straight buy-out.

Maximize your value

“DSOs can typically buy at a lower price than the actual value of the practice because there isn’t competition in most of these deals,” Kilibarda explained. The best way then is to put yourself in a competitive environment by bringing your dental practice to market, and working with an experienced dental practice broker will put your business in front of more potential buyers. “Thankfully, with hundreds of DSOs in the market, it’s not one-size-fits-all anymore,” Kilibarda continued. “But in all cases, look out for your own interests by working with expert partners who have no incentive to sell your practice short but rather a commitment to maximizing the value you receive.”

What’s next?

The best way to get inside the mind of a DSO is to work with a dental practice broker that has experience with the various options available to you. Contact the experts at Professional Transition Strategies to arrive at a comfortable decision that will ensure peace of mind for all parties involved.

February 28, 2023

What It’s Like to Work With a Dental Practice Broker

dentist looking at an x-ray

“When a DSO approaches you with a deal, do your homework before taking their offer. They may not always have your best interests in mind,” Professional Transition Strategies Chief Operating Officer Rebecca Kilibarda wrote in a recent article for Dental Economics. To work with a dental service organization (DSO), you must first think like one. Here are some key takeaways to understand and work with a DSO, whether now or in the future.

How a DSO targets your dental practice

“DSOs typically target practices for acquisition via passive and proactive marketing,” Kilibarda wrote. DSOs could send out flyers and postcards, ask for referrals, or make cold calls, as well as call practices after hours to get a dentist’s home phone number or even scan “best of” issues from local and trade publications. Oftentimes, your website will answer questions, such as how many employees your practice has, to then determine your estimated financial position. Once contact has been made, a DSO will want to know what your annual collections are, your PPO/Medicaid/fee-for-service ratios, and how many operatories you have.

What an offer from a DSO looks like

A DSO will typically conduct an in-house valuation of your dental practice before putting together an offer. But just like you wouldn’t accept an offer from a buyer interested in your house, a dollar amount from a DSO will typically come in at a lower amount than your business is actually worth. You should look for the maximum value for your life’s work. Be sure to examine the terms of the deal during the due diligence process and ask what multiples are being used to calculate the offer to determine how they arrived at that figure.

Look for red flags

Ask yourself: Does this offer seem too good to be true? “If so, proceed with caution,” Kilibarda advised. “To fully understand the offer, ask the DSO rep for a list of doctors with whom they’ve completed transactions — ideally 30-, 60-, or 90-days post-transaction — so you can chat with those dentists.” What’s more, you should look at the offer from all angles, including the noncompete clause, the level of equity you’ll receive, and what projections look like, as well as the productivity terms, such as how long you will be required to stay on before exiting the practice. Also, be sure to understand the structure under which you’ll be transitioning ownership, whether that’s a joint venture, equity roll, or straight buy-out.

Maximize your value

“DSOs can typically buy at a lower price than the actual value of the practice because there isn’t competition in most of these deals,” Kilibarda explained. The best way then is to put yourself in a competitive environment by bringing your dental practice to market, and working with an experienced dental practice broker will put your business in front of more potential buyers. “Thankfully, with hundreds of DSOs in the market, it’s not one-size-fits-all anymore,” Kilibarda continued. “But in all cases, look out for your own interests by working with expert partners who have no incentive to sell your practice short but rather a commitment to maximizing the value you receive.”

What’s next?

The best way to get inside the mind of a DSO is to work with a dental practice broker that has experience with the various options available to you. Contact the experts at Professional Transition Strategies to arrive at a comfortable decision that will ensure peace of mind for all parties involved.

January 31, 2023

Is the Window Closing on Dental Practice Equity Arbitrage?

dentist looking at an x-ray

“When a DSO approaches you with a deal, do your homework before taking their offer. They may not always have your best interests in mind,” Professional Transition Strategies Chief Operating Officer Rebecca Kilibarda wrote in a recent article for Dental Economics. To work with a dental service organization (DSO), you must first think like one. Here are some key takeaways to understand and work with a DSO, whether now or in the future.

How a DSO targets your dental practice

“DSOs typically target practices for acquisition via passive and proactive marketing,” Kilibarda wrote. DSOs could send out flyers and postcards, ask for referrals, or make cold calls, as well as call practices after hours to get a dentist’s home phone number or even scan “best of” issues from local and trade publications. Oftentimes, your website will answer questions, such as how many employees your practice has, to then determine your estimated financial position. Once contact has been made, a DSO will want to know what your annual collections are, your PPO/Medicaid/fee-for-service ratios, and how many operatories you have.

What an offer from a DSO looks like

A DSO will typically conduct an in-house valuation of your dental practice before putting together an offer. But just like you wouldn’t accept an offer from a buyer interested in your house, a dollar amount from a DSO will typically come in at a lower amount than your business is actually worth. You should look for the maximum value for your life’s work. Be sure to examine the terms of the deal during the due diligence process and ask what multiples are being used to calculate the offer to determine how they arrived at that figure.

Look for red flags

Ask yourself: Does this offer seem too good to be true? “If so, proceed with caution,” Kilibarda advised. “To fully understand the offer, ask the DSO rep for a list of doctors with whom they’ve completed transactions — ideally 30-, 60-, or 90-days post-transaction — so you can chat with those dentists.” What’s more, you should look at the offer from all angles, including the noncompete clause, the level of equity you’ll receive, and what projections look like, as well as the productivity terms, such as how long you will be required to stay on before exiting the practice. Also, be sure to understand the structure under which you’ll be transitioning ownership, whether that’s a joint venture, equity roll, or straight buy-out.

Maximize your value

“DSOs can typically buy at a lower price than the actual value of the practice because there isn’t competition in most of these deals,” Kilibarda explained. The best way then is to put yourself in a competitive environment by bringing your dental practice to market, and working with an experienced dental practice broker will put your business in front of more potential buyers. “Thankfully, with hundreds of DSOs in the market, it’s not one-size-fits-all anymore,” Kilibarda continued. “But in all cases, look out for your own interests by working with expert partners who have no incentive to sell your practice short but rather a commitment to maximizing the value you receive.”

What’s next?

The best way to get inside the mind of a DSO is to work with a dental practice broker that has experience with the various options available to you. Contact the experts at Professional Transition Strategies to arrive at a comfortable decision that will ensure peace of mind for all parties involved.

December 14, 2022

Corporate Dentistry vs. Private Practice: What Are the Differences

laser dentistry

All dentists who own their practice will eventually reach a point when they’re ready to make a career transition. The circumstances vary by individual dentist. A dentist may decide to sell because they want to retire or move to a new career path altogether. A dentist may assume their only options are to take on an associate — often with an eye toward partnering and an eventual buy-out — or a straight buy-out of their practice. Little do they know, there are more options out there.

Selling a practice to a dental corporation is another option, but if you are a dentist who has thoughtfully built a practice over a number of years, creating a patient-centered business and cultivating a caring team, you might have misgivings about that idea. You may worry that a corporation won’t ensure patients are treated with the same level of care or your staff might be asked to cut corners and short-change patients in the name of profit.

It’s not an unreasonable concern. Committed, highly trained health care providers, like dentists, act in the best interests of their patients, and they don’t like the idea of a bean-counter who doesn’t have the appropriate clinical training weighing in on care plans. That said, it’s important to know there’s a wide range of operating models used by dental corporations. Dental service organizations (DSOs) are an increasingly popular choice for dentists.

DSOs aren’t a monolith — there are many types of DSO arrangements, as they can provide staff and patients with more opportunities while offering financial benefits for doctors. So, it pays to keep an open mind and not write DSOs off as “corporate dentistry.” It’s a good idea for dentists who are planning a career transition to get a better understanding of what DSOs are, why they are gaining marketplace traction, and the pros and cons of working with a DSO. Here’s a closer look at DSOs that can help you make a more informed decision about private practice versus corporate dentistry.

Why more dentists are choosing DSOs

The American Dental Association (ADA) defines a DSO as “entities that dental practice owners contract with to manage the administrative, marketing and/or business sides of that dental practice.” Put another way, they are organizations that handle the non-clinical aspects of a practice. For many dentists, the non-clinical portions of managing the practice are exactly the part they’d willingly hand off to someone else so that they can focus more of their attention on patient care.

DSOs come in all shapes and sizes, ranging from teams that manage a handful of practices to large DSOs that manage more than 1,600 offices. The fact is that fewer dental practices are selling to individuals now than ever before. One reason behind the shift is the high debt load new dentists carry: The average dental school graduate owes more than $290,000 in student loans today, so they are less likely to be in a position to buy a practice.

In addition to the debt load, dental practices have historically been undervalued by banks and an individual dentist is typically beholden to what a bank is willing to lend.

So, why the move toward DSOs? For one, there are simply more DSOs operating today than in the past and their more differentiated than ever, which makes it more likely that a dentist who wants to make a transition will choose a DSO. Also, because DSOs offer a variety of arrangements, dentists are more likely to find a DSO offering terms that help them meet their objectives, such as an arrangement where the dentist stays with the practice to provide patient care but relinquishes management responsibilities. That option could be a good fit for dentists in a variety of scenarios, including those who are planning for retirement in a few years and those who are seeking a better work-life balance.

Another factor that is contributing to the rise of DSOs is that they have a funding advantage. Individual buyers typically rely on bank financing, which can be hard to obtain for some would-be purchasers, particularly in an uncertain economy when banks are tightening standards. DSOs are usually funded by private equity groups, so they can pay more to purchase a practice.

Available DSOs models

Although some dentists may put DSOs under the “corporate dentistry” heading and conclude that selling to a DSO is tantamount to selling out to a corporation, the truth is there are many different types of DSOs. Here’s a brief look at DSO models and how they affect the dentists who sell their practices under each type of DSO investment arrangement.

  • Joint venture: In the joint venture model, the dentist who is selling and the DSO investor both contribute capital in the form of money, equipment and other types of assets into a joint venture, and they share in the growth of the practice proportionally, according to the terms of the joint venture agreement. In this arrangement, the dentist maintains day-to-day clinical control of the practice, and a doctor will often sell between 60% and 70% equity in their practice.
  • Equity roll: This type of arrangement is a group affiliation as opposed to a partnership with a group. In an equity roll, the practice owner sells 100% of the practice and then trades in a portion of their equity into the DSO as a whole.
  • Sub-DSO: In this type of practice transition, the dentist who owns the practice exits the transition debt-free with a substantial upfront payment and typically retains 40% ownership and profit shares in a holding space outside the DSO or practice level. Returns can be made on a variety of levels, including equity, profit sharing and exit after parent DSO recapitalization.
  • Direct investment with private equity: In this model, your practice may be large enough that you don’t need a DSO. You can circumvent the DSO and go directly to private equity. That way, you become a founding member of a DSO.

The key point to keep in mind is that DSOs are not one-size-fits-all. That’s why it’s important for any dentist who is considering a practice transition to be aware of their options, preferably by discussing them with an objective party, like a dental practice broker. It’s not a matter of “corporate dentistry versus private practice” — the terms of the arrangement and the value the selling dentist realizes are the most significant factors.

DSO pros and cons

Dentists who are planning a career transition should think outside the “corporate dentistry versus private practice” box, and it starts by better understanding what a DSO offers. In some situations, DSOs can offer the most value and still enable you to maintain high standards of patient care. But not all DSOs are alike, and neither are dental practice transitions, so it makes sense to review the pros and cons of selling to a DSO, as well as pros and cons of selling to an individual.

For a dentist who is not yet ready to retire but is nearing the end of their career and wants to offload some of the hassles associated with running a practice, a DSO can be a great option. The right DSO can make daily operations easier by handling the business side while the dentist manages clinical decisions. The DSO can handle collections, supplies, marketing and more, increasing profits without the dentist having to focus on business operations.

DSOs typically pay more than individual buyers for a practice because of private equity investment rather than having to use traditional bank financing and can offer other advantages to dentists who are nearing retirement age, including the ability to cash out with a higher valuation. In some scenarios, the dentist works the same or fewer hours after the sale. This approach can accelerate the transition timeline and reduce uncertainty in the retirement planning process.

DSOs can also be a great option for mid-career dentists. Not every dentist enjoys the business side of running a practice, so they may opt for a DSO arrangement to offload the aspects of the operation they don’t want to handle, like human resources and marketing, and focus on what they do best — patient care.

Younger doctors can oftentimes make out better when working with a DSO, especially with a joint venture deal structure. A DSO should help make the practice more profitable; therefore, when the doctor sells the rest of their equity, the value should have increased significantly over the years.

Working with a DSO can help dentists achieve a better balance in their lives, so it may be a good option for doctors who want to spend more time with their families and friends but aren’t yet ready to hang up their white coat just yet.

That said, not all DSOs are a fit for everyone. Like any other category of organization, some are run well, and some are managed poorly. In addition, poorly run DSOs will only focus on the bottom line and not on patient care. They can push unnecessary procedures to benefit their own interests. It’s a good idea to ask a DSO for references, i.e., the names and contact information for dentists who have recently transitioned their practice to the DSO, so you can get an insider’s view of what it’s like working with them.

Exploring options and taking the next step

DSOs aren’t the only practice transition option — fewer practice sales between individual dentists are happening now than in years past, but it’s still an effective and fulfilling route dentists who are planning a practice transition can pursue. Bringing in an associate is still an option, though it has about a 20% success rate. A dentist who is planning to retire can also choose to see fewer patients and eventually just close their doors. It’s important to note that transition plan leaves hundreds of thousands — if not millions — of dollars on the table.

It’s all about finding the right option for the doctor’s transition goals,  whether it be selling to an individual or going the group route. Because finding the right option is important, it’s also imperative to know that the process takes time, and we recommend beginning the planning process up to five years in advance.

The corporate dentistry versus private practice conundrum can be complicated, so the best bet if you are thinking about a practice transition is to find a dental practice broker with the experience and expertise to help you explore the many options available to you. A dental practice broker like Professional Transition Services can help you achieve the best outcome, so don’t go it alone.

October 4, 2022

Maximize Dental Practice Value Through Equity Arbitrage

dentist looking at an x-ray

“When a DSO approaches you with a deal, do your homework before taking their offer. They may not always have your best interests in mind,” Professional Transition Strategies Chief Operating Officer Rebecca Kilibarda wrote in a recent article for Dental Economics. To work with a dental service organization (DSO), you must first think like one. Here are some key takeaways to understand and work with a DSO, whether now or in the future.

How a DSO targets your dental practice

“DSOs typically target practices for acquisition via passive and proactive marketing,” Kilibarda wrote. DSOs could send out flyers and postcards, ask for referrals, or make cold calls, as well as call practices after hours to get a dentist’s home phone number or even scan “best of” issues from local and trade publications. Oftentimes, your website will answer questions, such as how many employees your practice has, to then determine your estimated financial position. Once contact has been made, a DSO will want to know what your annual collections are, your PPO/Medicaid/fee-for-service ratios, and how many operatories you have.

What an offer from a DSO looks like

A DSO will typically conduct an in-house valuation of your dental practice before putting together an offer. But just like you wouldn’t accept an offer from a buyer interested in your house, a dollar amount from a DSO will typically come in at a lower amount than your business is actually worth. You should look for the maximum value for your life’s work. Be sure to examine the terms of the deal during the due diligence process and ask what multiples are being used to calculate the offer to determine how they arrived at that figure.

Look for red flags

Ask yourself: Does this offer seem too good to be true? “If so, proceed with caution,” Kilibarda advised. “To fully understand the offer, ask the DSO rep for a list of doctors with whom they’ve completed transactions — ideally 30-, 60-, or 90-days post-transaction — so you can chat with those dentists.” What’s more, you should look at the offer from all angles, including the noncompete clause, the level of equity you’ll receive, and what projections look like, as well as the productivity terms, such as how long you will be required to stay on before exiting the practice. Also, be sure to understand the structure under which you’ll be transitioning ownership, whether that’s a joint venture, equity roll, or straight buy-out.

Maximize your value

“DSOs can typically buy at a lower price than the actual value of the practice because there isn’t competition in most of these deals,” Kilibarda explained. The best way then is to put yourself in a competitive environment by bringing your dental practice to market, and working with an experienced dental practice broker will put your business in front of more potential buyers. “Thankfully, with hundreds of DSOs in the market, it’s not one-size-fits-all anymore,” Kilibarda continued. “But in all cases, look out for your own interests by working with expert partners who have no incentive to sell your practice short but rather a commitment to maximizing the value you receive.”

What’s next?

The best way to get inside the mind of a DSO is to work with a dental practice broker that has experience with the various options available to you. Contact the experts at Professional Transition Strategies to arrive at a comfortable decision that will ensure peace of mind for all parties involved.