January 16, 2020

Why DSOs Can Pay More for a Practice than a Single Practitioner

Now that you know for a fact that fewer dental practices are selling to individuals, the next natural question is, “Why?” When it comes to putting pen to paper, selling to a dental service organization (DSO) can make financial sense for both the buyer and seller. Here’s what you need to know to make sense of the process.

Private equity money

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. What’s more, you’ll get a higher valuation because a DSO won’t take hard assets into account but rather will focus on collections and other finances. DSOs also have private equity money, which is favorable to a bank over an individual buyer when it comes to securing a loan.

Economies of scale

With an increase in DSOs comes more options available to dentists looking to sell. More doctors today are affiliating with DSOs than ever before because of the variety available. Selling to a DSO makes sense when the seller is looking to stay on with the practice but wants to release managerial responsibilities, such as in a retirement situation or anyone who is looking to maintain a work-life balance.

Cost structure optimization

DSOs have gotten a negative reputation because of their seeming corporate interest. Again, a DSO is a likely buyer when the seller is looking to stay on with the practice but wants to release managerial responsibilities, such as in a retirement situation or anyone who is looking to maintain a work-life balance. Selling to a DSO allows you to focus on the clinical side and patient care without contributing the time and money associated with running a business.

Loan amount

Banks are typically not able to loan on larger practices that value somewhere around $2 million to single practitioners; however, DSOs can. Simply put, banks essentially have a set amount of how much they will loan a dental practice, while DSOs have the ability to compete in bidding wars without set limits.

What’s next?

Contact the experts at Professional Transition Strategies to see which transition option works best for you.