PTS Launches Innovative New Dental Practice Real Estate Cooperative

Co-op concept groups single-tenant dental practice properties for dentists who join dental service organizations (DSOs), allowing dentists to retain part ownership and lower capitalization rate with private equity backing

Professional Transition Strategies (PTS), a company that represents dental practice buyers and sellers and offers brokerage and practice consulting services, today announced the launch of a new real estate concept that will improve property value for dentists who own a single-tenant building where they practice when they join a dental service organization (DSO). By joining PTS’s dental practice real estate cooperative (co-op), dentists can retain part ownership in their building while significantly improving the property’s capitalization (cap rate).

“DSOs are the fastest-growing sector in dentistry right now, especially among younger dentists, who are three times as likely as older peers to be affiliated with a DSO, according to the American Dental Association (ADA),” PTS Founder and President Kyle Francis said. “When DSOs purchase a practice, private equity groups typically purchase the buildings that DSO group affiliates practice from, but when a dentist joining a DSO owns a single-tenant building, that property falls through the cracks. The co-op groups those properties together, backing leases with a portfolio worth hundreds of millions of dollars, increasing security and value.”

Dentists who sell to the co-op and retain part ownership benefit from the arrangement by lowering the cap rate, a formula used in real estate investing that divides the annual income of the property by its cost or value. The cap rate is a measure of risk in an investment, and lower cap rates are more attractive to investors. Dentists who sell a portion of their practice to PTS’s new dental practice real estate co-op can expect a lower cap rate on the same principle that makes any other type of business’s property more attractive to investors if it’s occupied by a chain rather than a mom-and-pop shop: lower risk.

The co-op bundles properties for dental practices similarly to how DSOs bundle the dental practices, with the selling dentist retaining part ownership in a joint venture (JV) agreement and selling over time. A property that is part of a co-op portfolio of strong leases with many long-term tenants generating hundreds of millions annually is more attractive to investors than a single-tenant practice generating half a million dollars per year, so it can sell at a lower cap rate and secure a stronger return.

“For dentists who own the property where they practice, that property is typically their second-most valuable asset after the practice itself,” PTS Lead Broker Stanton Kensinger noted. “If there’s a way they can lower the cap rate from the 8.5 to 10 range to 6.5 to 7 by selling to the co-op, that’s a win-win situation for everyone. PTS is in a unique position to put this co-op together since we already work with numerous DSOs across the US. As far as we know, this co-op concept has not been done before in the dental industry, but we have an opportunity to create additional value with the co-op, so we’re pleased to offer this new option.”

About Professional Transition Strategies

Founded in 2006 and headquartered in Colorado Springs, Colorado, PTS helps dentists buy, sell or start dental practices, move to new offices or expand at a current location. The company is committed to client success and provides expert consulting services to help dental professionals improve operations, marketing, accounting and other facets of practice management. PTS donates a percentage of its profits to Give Back a Smile, a cosmetic dentistry charitable foundation that restores the smiles of victims of violence. Find out more about PTS at www.professionaltransition.com.

3 Considerations When Going with a Joint Venture Model

It’s easy to think that partnering with a dental service organization (DSO) that acts as a silent partner in your business is a cut-and-dry decision. But because a dental practice tends to take on this joint venture (JV) years ahead of retirement or a transition, it’s important to find a match made for the long haul. Here’s what to take into consideration when looking to partner with a JV.

Duration

The JV model runs the gamut from decades-long ventures that have acquired practices and returned billions to their investors, including the practice owners, to newer DSOs that carry the same goal to buy, build, get big and sell. Whether established or new, DSOs should be thoroughly vetted in the exploration process. The goal of the business owner should be to solicit multiple interested offers.

Long term

A partnership with a DSO is not a one-time transaction. Rather, while the investor will put the decisions about the practice brand and strategy in the hands of the dentist, the partnership will ideally last until retirement or another exit transition is planned for many years in the future. These JVs will continue to provide extensive resources throughout the years while working with the dentist to ensure business continuity throughout the process.

Risks and rewards

As with any transaction, there are risks and rewards to consider before signing on the dotted line. Throughout the process, it’s important to weigh the retained minority equity position and future of the market against a guaranteed exit plan with no uncertainty and long-term gains from retained parent equity through internal practice improvement and acquisitions.

What’s next?

Contact the experts at Professional Transition Strategies to see if a JV model is right for you.

How to Grow Your Dental Practice with a Joint Venture Partner

The silent partners of the dental world, joint venture (JV) partnerships are an often-underutilized or lesser-known way to grow a dental practice. When planning for retirement or an exit strategy in the distant future, a JV can increase profitability by investing in dental practices in which the doctor remains as the owner, operating under their brand with their staff and strategy for many years. Here are the methods JVs can use to grow your dental practice.

Practice enhancement

A JV‘s goal is to accelerate internal growth and profitability under the dentist’s leadership and brand. Strategies could involve lower product and team benefit costs, payer negotiation leverage, marketing expertise and partnerships with other local dental practices. A well-managed JV can even increase margins with new patients, something the owner might not have time to do while managing the practice and its staff.

Acquisitions

While some branded dental service organizations (DSOs) grow primarily by starting new offices, most are creating growth through acquisitions. However, investing in already-established practices will pay out come valuation time. A JV partnership should execute both internal practice improvement and acquisitions effectively to increase capital, as long as the transaction is structured properly. With private equity, a transaction should earn a significant value increase for the investors in your JV, as well as the practice owner who takes part of their purchase consideration in equity.

What’s next?

Contact the experts at Professional Transition Strategies to see if a JV partnership is right for you.

What You Need to Know About Joint Ventures for Your Dental Practice

Dental service organizations (DSOs) aren’t uncommon these days, but perhaps a newer term is joint ventures (JVs). Much like a silent business partner, a JV invests in dental practices in which the doctor remains as the owner, operating under their brand with their staff and strategy for many years. This option works best when retirement or an exit strategy is in the distant future. Here’s a primer on JV models.

The transaction

In a typical JV transaction, the dentist sells the practice anywhere from 60% to 90% for cash now — as long 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 risks

In some cases, the retained minority equity position will be far more valuable in the future if the dentist had kept 100% of the practice. Additionally, it’s impossible to predict when the market will peak so there’s always a chance a better deal could have been on the horizon rather than securing one in advance. The potential for more value in a larger, diversified group varies based on time line, as well.

The rewards

No matter the dentist’s age, when securing a JV partnership, there is a guaranteed exit plan in place when the transaction is structured correctly, eliminating the uncertainty when the time comes to transition. What’s more, the partnership secures the dentist’s financial future with cash at the start of the deal and long-term gains from retained parent equity. The bottom line is to choose a partnership that capitalizes retained equity through internal practice improvement and acquisitions.

What’s next?

Contact the experts at Professional Transition Strategies to see if a JV partnership is right for you.