August 1, 2022

How to Get the Most Out of Your Dental Practice Transition

man examining dentures

Recently, Professional Transition Strategies (PTS) Founder and President Kyle Francis sat down with Dr. Victoria Peterson for her “Investment Grade Practices” podcast to talk shop. They laid out the reasons for understanding your options when it comes to getting the most out of your dental practice transition. Here, we outline the highlights from their conversation.

What’s the right way of doing a transition?

“Options are key,” Francis said, noting dentists should understand those options sooner rather than later. “It’s a simple but effective concept: begin with the end in mind.” Whether it’s bringing on a partner or affiliating with a dental service organization (DSO), it’s always better to have time on your side. The best way to do this is to start with a practice appraisal so the selling dentist can understand what’s the right way to move forward. Rather than thinking of it like a real estate–based transaction in which the seller finds a buyer that will offer the best price, you’ll be able to pick the best option for you, your patients and staff.

How do I get multiple offers?

Private equity in the industry opens up all new avenues to a seller, from selling to one of the more than 350 DSOs currently out there to entering a joint venture. Maybe it’s the competition that’s driving you to grow faster than what you can handle. No matter the situation, if you put your practice out there to all the different groups and individuals, there will be a bidding process. “You’re not going to get top dollar if you only consider one seller,” Francis said, adding with multiple offers, your purchase price will be leveraged up to the market price it deserves.

What can a selling dentist do to prepare for a transition?

If you started your practice from scratch or bought an existing business, eventually, you will have to transition the ownership when you’re ready to retire or release managerial responsibilities. Francis pointed to “founder’s syndrome” in which a business owner can get tied up in the emotions of selling their dental practice, which is why hiring a dental practice broker makes financial and emotional sense. Deciding whether you want to work three, five or 10 years then working backward will help evaluate which transition options will be available to you, as well as what improvements need to be made to your practice in order to get it market ready.

What about this consolidation wave?

“Fifteen years ago, dentists didn’t have the option to consolidate,” Francis said. “Fifteen years from now, the industry will be consolidated and not have this option … since we’re at 30% consolidated now. After that, it won’t be as dramatic of an exit.” Thinking in terms of risk and reward, a dental practice typically sees growth and provides a return on investment, but you’re still betting on one company and need to weigh the options of diversifying, which is easier to do now that you don’t need to be tied to an investor geographically. Rather than being on the same equity platform, sellers are able to align with buyers that support the same company culture.

What’s next?

Contact the experts at Professional Transition Strategies to learn what transition options are available to you.

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.

July 27, 2020

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.

July 20, 2020

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.

July 13, 2020

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.