May 16, 2023

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) wrongfully got a bad reputation. But thanks to the industry-wide consolidation trend, working with a DSO can be mutually beneficial. Depending on your transition goals, now is a good time to join a DSO with more than 350 DSOs currently from which to choose. Here are even more reasons to sell your dental practice to a DSO.

Invest in equity arbitrage

Even if you’ve heard the term before, you may not know that 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, a much higher financial result is accomplished, 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 and 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 of this value groups will consider offering.

Equity arbitrage is yet another reason to consider selling before you’re ready to retire, so you don’t leave money on the table with opportunities left for recapitalization events and ultimately why younger dental entrepreneurs are electing to sell to DSOs.

Understand your options

Before deciding to partner with a DSO, it’s important to explore other options 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.
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 group affiliation versus a partnership with a group, the practice owner will sell 100% of their practice. They will then transfer their equity into the DSO as a whole.
A direct investment is when an investor purchases ownership within an operating company. 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.
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.

Receive higher valuation

It’s no secret fewer dental practices are selling to individuals than ever before. 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, cost structure optimization and the amount banks are willing to lend. 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.

Promote better health care

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. After all, 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.

Explore partnership options

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.

Release managerial responsibilities

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, perhaps leading up to retirement, and 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

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 than they used to be, and with more than 375 DSOs in operation today, sellers are able to find one that is aligned with their clinical and cultural philosophies for a smoother transition for both patients and staff.

What’s next?

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 learn why not all DSOs are created equal.

March 13, 2023

How to Think Like a DSO

dentist working on a patient

Invest in equity arbitrage

Understand your options

Before deciding to partner with a DSO, it’s important to explore other options 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.
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 group affiliation versus a partnership with a group, the practice owner will sell 100% of their practice. They will then transfer their equity into the DSO as a whole.
A direct investment is when an investor purchases ownership within an operating company. 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.
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.

Receive higher valuation

Promote better health care

Explore partnership options

Release managerial responsibilities

Retain clinical autonomy

What’s next?

March 5, 2023

How DSOs (Wrongfully) Got a Bad Name

dentist working on a patient

Invest in equity arbitrage

Understand your options

Before deciding to partner with a DSO, it’s important to explore other options 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.
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 group affiliation versus a partnership with a group, the practice owner will sell 100% of their practice. They will then transfer their equity into the DSO as a whole.
A direct investment is when an investor purchases ownership within an operating company. 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.
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.

Receive higher valuation

Promote better health care

Explore partnership options

Release managerial responsibilities

Retain clinical autonomy

What’s next?

February 28, 2023

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

dentist working on a patient

Invest in equity arbitrage

Understand your options

Before deciding to partner with a DSO, it’s important to explore other options 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.
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 group affiliation versus a partnership with a group, the practice owner will sell 100% of their practice. They will then transfer their equity into the DSO as a whole.
A direct investment is when an investor purchases ownership within an operating company. 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.
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.

Receive higher valuation

Promote better health care

Explore partnership options

Release managerial responsibilities

Retain clinical autonomy

What’s next?

January 31, 2023

Is the Window Closing on Dental Practice Equity Arbitrage?

dentist working on a patient

Invest in equity arbitrage

Understand your options

Before deciding to partner with a DSO, it’s important to explore other options 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.
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 group affiliation versus a partnership with a group, the practice owner will sell 100% of their practice. They will then transfer their equity into the DSO as a whole.
A direct investment is when an investor purchases ownership within an operating company. 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.
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.

Receive higher valuation

Promote better health care

Explore partnership options

Release managerial responsibilities

Retain clinical autonomy

What’s next?

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

How to Leverage Equity Arbitrage in the Sale of Your Dental Practice

dentist working on a patient

Invest in equity arbitrage

Understand your options

Before deciding to partner with a DSO, it’s important to explore other options 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.
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 group affiliation versus a partnership with a group, the practice owner will sell 100% of their practice. They will then transfer their equity into the DSO as a whole.
A direct investment is when an investor purchases ownership within an operating company. 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.
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.

Receive higher valuation

Promote better health care

Explore partnership options

Release managerial responsibilities

Retain clinical autonomy

What’s next?

August 9, 2022

Should I Sell My Dental Practice by Myself?

dentist working on a patient

Invest in equity arbitrage

Understand your options

Before deciding to partner with a DSO, it’s important to explore other options 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.
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 group affiliation versus a partnership with a group, the practice owner will sell 100% of their practice. They will then transfer their equity into the DSO as a whole.
A direct investment is when an investor purchases ownership within an operating company. 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.
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.

Receive higher valuation

Promote better health care

Explore partnership options

Release managerial responsibilities

Retain clinical autonomy

What’s next?

August 1, 2022

How to Get the Most Out of Your Dental Practice Transition

dentist working on a patient

Invest in equity arbitrage

Understand your options

Before deciding to partner with a DSO, it’s important to explore other options 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.
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 group affiliation versus a partnership with a group, the practice owner will sell 100% of their practice. They will then transfer their equity into the DSO as a whole.
A direct investment is when an investor purchases ownership within an operating company. 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.
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.

Receive higher valuation

Promote better health care

Explore partnership options

Release managerial responsibilities

Retain clinical autonomy

What’s next?

September 15, 2020

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.