Is the Window Closing on Dental Practice Equity Arbitrage?

microphone in front of a computer

With consolidation in the dental industry expected to jump from 25%–30% to 60%–70% in the next 10 years, it’s important to leverage the equity in your businesses correctly during this all-important arbitrage event. Professional Transition Strategies (PTS) Founder and President Kyle Francis recently sat down with Dr. David Phelps of  Dentist Freedom Blueprint Podcast to discuss the window on equity arbitrage events in the dental industry. Here are some key takeaways from their conversation.

What is 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. Equity arbitrage occurs during a consolidation wave, such as the one occurring now with dental service organizations (DSOs). DSOs can offer more money for the same practice because they’re backed by private equity and, therefore, not beholden to the same debt ceilings that private owners have to deal with.

What is the state of the economy?

“A lot of what’s going on in the dental state isn’t new,” Francis says, noting private equity is leveraging buyouts and use of low-cost capital. “[Dentistry] isn’t the first part of medicine that has been consolidated.” Francis points out that most mom-and-pop dentistry shops are valued at less than $5 million, making them notoriously hard to consolidate, but thanks to competition and the emergence of DSOs, arbitrage opportunities are increasing.

What opportunities are being presented?

DSOs currently present some of the biggest opportunities in the dental industry since they can grow your dental practice faster than an individual practice can. Arbitrage is based on the lower cost of federal funds capital, and as competition increases, private equity investors emerge. “Dentistry is just one of hundreds of industries going through consolidation,” Francis said. “But dental practices are undervalued compared to every other industry out there.” Francis noted that as competition ramps up, that increases the multiples that can be paid, resulting in dental practices possibly going public or becoming nonprofits over the next seven years or so, while 30% to 40% will stay as “mom-and-pop shops.”

What insights and tips are there regarding dental practice transitions?

Francis emphasizes there’s no wrong time to know the worth of your dental practicing, adding that just because you consider a transition option, it doesn’t mean you have to take it. “Ultimately, you have to do what is the best fit for you and your dental practice,” he said. That could mean selling to a DSO sooner rather than later due to retirement, selling to an individual and rolling that money into a stock program, partnering with a joint venture or some hybrid of those options. “Competition is very high, and private equity companies are willing to give up part of their return because it’s more important for them to grow,” he added.

What are the key indicators of success?

Francis cites the 97% success rate of DSOs, pointing out that the risk profile is very slim, especially in an industry with a 0.3% failure rate. As for who to transition ownership to, ask yourself: Do the groups end up doing what they say they’re going to do for the doctors? What is the track record of that group? How easy was it for the doctor to exit? What is the retention rate? Francis elaborates that PTS presents potential buyers on a scorecard that narrows down the top options based on the seller’s goals and get offers from there.

What are the key attributes that make a dental practice more salable?

Francis said PTS lays out the factors that contribute to the risk analysis, noting it could take as long as five years to come up with the right type of transaction structure. Age and replicability of provider, payer mix, and PPO versus Medicaid are all taken into consideration. Buyers also want to see the growth trajectory of the dental practice — ideally 5% to 10% year over year. Is the dental practice located in a larger metropolitan area where it’s easier to recruit or a smaller rural area that already has another person on staff to take over in the long run?

What’s next?

“It’s never too early to jump in and have those conversations, beginning with the end in mind,” Francis said. “The important part is to have someone in your corner. Just like you have a financial advisor, a dental practice broker with expertise can walk you through all the options, especially new options on the table, like joint ventures.” Contact the experts at PTS to get the process started.

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.

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

microphone in front of a computer

With consolidation in the dental industry expected to jump from 25%–30% to 60%–70% in the next 10 years, it’s important to leverage the equity in your businesses correctly during this all-important arbitrage event. Professional Transition Strategies (PTS) Founder and President Kyle Francis recently sat down with Dr. David Phelps of  Dentist Freedom Blueprint Podcast to discuss the window on equity arbitrage events in the dental industry. Here are some key takeaways from their conversation.

What is 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. Equity arbitrage occurs during a consolidation wave, such as the one occurring now with dental service organizations (DSOs). DSOs can offer more money for the same practice because they’re backed by private equity and, therefore, not beholden to the same debt ceilings that private owners have to deal with.

What is the state of the economy?

“A lot of what’s going on in the dental state isn’t new,” Francis says, noting private equity is leveraging buyouts and use of low-cost capital. “[Dentistry] isn’t the first part of medicine that has been consolidated.” Francis points out that most mom-and-pop dentistry shops are valued at less than $5 million, making them notoriously hard to consolidate, but thanks to competition and the emergence of DSOs, arbitrage opportunities are increasing.

What opportunities are being presented?

DSOs currently present some of the biggest opportunities in the dental industry since they can grow your dental practice faster than an individual practice can. Arbitrage is based on the lower cost of federal funds capital, and as competition increases, private equity investors emerge. “Dentistry is just one of hundreds of industries going through consolidation,” Francis said. “But dental practices are undervalued compared to every other industry out there.” Francis noted that as competition ramps up, that increases the multiples that can be paid, resulting in dental practices possibly going public or becoming nonprofits over the next seven years or so, while 30% to 40% will stay as “mom-and-pop shops.”

What insights and tips are there regarding dental practice transitions?

Francis emphasizes there’s no wrong time to know the worth of your dental practicing, adding that just because you consider a transition option, it doesn’t mean you have to take it. “Ultimately, you have to do what is the best fit for you and your dental practice,” he said. That could mean selling to a DSO sooner rather than later due to retirement, selling to an individual and rolling that money into a stock program, partnering with a joint venture or some hybrid of those options. “Competition is very high, and private equity companies are willing to give up part of their return because it’s more important for them to grow,” he added.

What are the key indicators of success?

Francis cites the 97% success rate of DSOs, pointing out that the risk profile is very slim, especially in an industry with a 0.3% failure rate. As for who to transition ownership to, ask yourself: Do the groups end up doing what they say they’re going to do for the doctors? What is the track record of that group? How easy was it for the doctor to exit? What is the retention rate? Francis elaborates that PTS presents potential buyers on a scorecard that narrows down the top options based on the seller’s goals and get offers from there.

What are the key attributes that make a dental practice more salable?

Francis said PTS lays out the factors that contribute to the risk analysis, noting it could take as long as five years to come up with the right type of transaction structure. Age and replicability of provider, payer mix, and PPO versus Medicaid are all taken into consideration. Buyers also want to see the growth trajectory of the dental practice — ideally 5% to 10% year over year. Is the dental practice located in a larger metropolitan area where it’s easier to recruit or a smaller rural area that already has another person on staff to take over in the long run?

What’s next?

“It’s never too early to jump in and have those conversations, beginning with the end in mind,” Francis said. “The important part is to have someone in your corner. Just like you have a financial advisor, a dental practice broker with expertise can walk you through all the options, especially new options on the table, like joint ventures.” Contact the experts at PTS to get the process started.

Should I Sell My Dental Practice by Myself?

microphone in front of a computer

With consolidation in the dental industry expected to jump from 25%–30% to 60%–70% in the next 10 years, it’s important to leverage the equity in your businesses correctly during this all-important arbitrage event. Professional Transition Strategies (PTS) Founder and President Kyle Francis recently sat down with Dr. David Phelps of  Dentist Freedom Blueprint Podcast to discuss the window on equity arbitrage events in the dental industry. Here are some key takeaways from their conversation.

What is 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. Equity arbitrage occurs during a consolidation wave, such as the one occurring now with dental service organizations (DSOs). DSOs can offer more money for the same practice because they’re backed by private equity and, therefore, not beholden to the same debt ceilings that private owners have to deal with.

What is the state of the economy?

“A lot of what’s going on in the dental state isn’t new,” Francis says, noting private equity is leveraging buyouts and use of low-cost capital. “[Dentistry] isn’t the first part of medicine that has been consolidated.” Francis points out that most mom-and-pop dentistry shops are valued at less than $5 million, making them notoriously hard to consolidate, but thanks to competition and the emergence of DSOs, arbitrage opportunities are increasing.

What opportunities are being presented?

DSOs currently present some of the biggest opportunities in the dental industry since they can grow your dental practice faster than an individual practice can. Arbitrage is based on the lower cost of federal funds capital, and as competition increases, private equity investors emerge. “Dentistry is just one of hundreds of industries going through consolidation,” Francis said. “But dental practices are undervalued compared to every other industry out there.” Francis noted that as competition ramps up, that increases the multiples that can be paid, resulting in dental practices possibly going public or becoming nonprofits over the next seven years or so, while 30% to 40% will stay as “mom-and-pop shops.”

What insights and tips are there regarding dental practice transitions?

Francis emphasizes there’s no wrong time to know the worth of your dental practicing, adding that just because you consider a transition option, it doesn’t mean you have to take it. “Ultimately, you have to do what is the best fit for you and your dental practice,” he said. That could mean selling to a DSO sooner rather than later due to retirement, selling to an individual and rolling that money into a stock program, partnering with a joint venture or some hybrid of those options. “Competition is very high, and private equity companies are willing to give up part of their return because it’s more important for them to grow,” he added.

What are the key indicators of success?

Francis cites the 97% success rate of DSOs, pointing out that the risk profile is very slim, especially in an industry with a 0.3% failure rate. As for who to transition ownership to, ask yourself: Do the groups end up doing what they say they’re going to do for the doctors? What is the track record of that group? How easy was it for the doctor to exit? What is the retention rate? Francis elaborates that PTS presents potential buyers on a scorecard that narrows down the top options based on the seller’s goals and get offers from there.

What are the key attributes that make a dental practice more salable?

Francis said PTS lays out the factors that contribute to the risk analysis, noting it could take as long as five years to come up with the right type of transaction structure. Age and replicability of provider, payer mix, and PPO versus Medicaid are all taken into consideration. Buyers also want to see the growth trajectory of the dental practice — ideally 5% to 10% year over year. Is the dental practice located in a larger metropolitan area where it’s easier to recruit or a smaller rural area that already has another person on staff to take over in the long run?

What’s next?

“It’s never too early to jump in and have those conversations, beginning with the end in mind,” Francis said. “The important part is to have someone in your corner. Just like you have a financial advisor, a dental practice broker with expertise can walk you through all the options, especially new options on the table, like joint ventures.” Contact the experts at PTS to get the process started.

How to Get the Most Out of Your Dental Practice Transition

microphone in front of a computer

With consolidation in the dental industry expected to jump from 25%–30% to 60%–70% in the next 10 years, it’s important to leverage the equity in your businesses correctly during this all-important arbitrage event. Professional Transition Strategies (PTS) Founder and President Kyle Francis recently sat down with Dr. David Phelps of  Dentist Freedom Blueprint Podcast to discuss the window on equity arbitrage events in the dental industry. Here are some key takeaways from their conversation.

What is 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. Equity arbitrage occurs during a consolidation wave, such as the one occurring now with dental service organizations (DSOs). DSOs can offer more money for the same practice because they’re backed by private equity and, therefore, not beholden to the same debt ceilings that private owners have to deal with.

What is the state of the economy?

“A lot of what’s going on in the dental state isn’t new,” Francis says, noting private equity is leveraging buyouts and use of low-cost capital. “[Dentistry] isn’t the first part of medicine that has been consolidated.” Francis points out that most mom-and-pop dentistry shops are valued at less than $5 million, making them notoriously hard to consolidate, but thanks to competition and the emergence of DSOs, arbitrage opportunities are increasing.

What opportunities are being presented?

DSOs currently present some of the biggest opportunities in the dental industry since they can grow your dental practice faster than an individual practice can. Arbitrage is based on the lower cost of federal funds capital, and as competition increases, private equity investors emerge. “Dentistry is just one of hundreds of industries going through consolidation,” Francis said. “But dental practices are undervalued compared to every other industry out there.” Francis noted that as competition ramps up, that increases the multiples that can be paid, resulting in dental practices possibly going public or becoming nonprofits over the next seven years or so, while 30% to 40% will stay as “mom-and-pop shops.”

What insights and tips are there regarding dental practice transitions?

Francis emphasizes there’s no wrong time to know the worth of your dental practicing, adding that just because you consider a transition option, it doesn’t mean you have to take it. “Ultimately, you have to do what is the best fit for you and your dental practice,” he said. That could mean selling to a DSO sooner rather than later due to retirement, selling to an individual and rolling that money into a stock program, partnering with a joint venture or some hybrid of those options. “Competition is very high, and private equity companies are willing to give up part of their return because it’s more important for them to grow,” he added.

What are the key indicators of success?

Francis cites the 97% success rate of DSOs, pointing out that the risk profile is very slim, especially in an industry with a 0.3% failure rate. As for who to transition ownership to, ask yourself: Do the groups end up doing what they say they’re going to do for the doctors? What is the track record of that group? How easy was it for the doctor to exit? What is the retention rate? Francis elaborates that PTS presents potential buyers on a scorecard that narrows down the top options based on the seller’s goals and get offers from there.

What are the key attributes that make a dental practice more salable?

Francis said PTS lays out the factors that contribute to the risk analysis, noting it could take as long as five years to come up with the right type of transaction structure. Age and replicability of provider, payer mix, and PPO versus Medicaid are all taken into consideration. Buyers also want to see the growth trajectory of the dental practice — ideally 5% to 10% year over year. Is the dental practice located in a larger metropolitan area where it’s easier to recruit or a smaller rural area that already has another person on staff to take over in the long run?

What’s next?

“It’s never too early to jump in and have those conversations, beginning with the end in mind,” Francis said. “The important part is to have someone in your corner. Just like you have a financial advisor, a dental practice broker with expertise can walk you through all the options, especially new options on the table, like joint ventures.” Contact the experts at PTS to get the process started.

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.