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