If you own a successful dental practice, you have likely been solicited by DSO’s and brokers promising extraordinary valuations and/or hocking gimmicks such as “invisible DSO’s”. While partnering with or selling to a DSO is a legitimate transition strategy, much of the “noise” in the marketplace is misleading and designed to coax you into responding to an unsolicited offer without exploring your options. The truth is … deciding on whether a DSO transition is the best pathway for accomplishing your goals and determining which DSO is an ideal fit for you and your practice requires a great deal of consideration and due diligence. Not all DSO’s are created equal, as there is a wide variance when it comes to practice valuations, deal structures, culture, practice philosophy, and the level of infrastructure/support provided by the DSO to its affiliates. Therefore, you need proper representation in navigating the process and evaluating the multitude of options available in today’s marketplace.
At McLerran & Associates, we understand that partnering with or selling to a DSO is an enormous decision from a professional, personal, and financial perspective. Our focus is to educate and empower dentists with the information needed to make sound, informed decisions regarding the future of their practices. Should you choose to sell your practice to a DSO, we take on the responsibility of helping you identify THE DSO that is the right fit for your office and create a competitive environment among buyers to obtain the highest price and most favorable terms/deal structure available. We have spent years vetting and building strong working relationships with local, regional, and national DSO buyers to ensure that our clients have the best options available to them. In this article, we will explore why some dentists make the decision to sell to a DSO and the questions you should be asking when interviewing potential buyers.
Making the Decision to Sell to a DSO
There must be a compelling reason to consider selling to or partnering with a DSO buyer, as opposed to retaining ownership/control of your office long-term or selling to a private buyer. Here are several reasons why our clients have chosen to sell to or partner with a DSO buyer:
- To receive a substantial premium on the practice purchase price compared to a private buyer (as discussed below)
- To unload some or all of the management burden, thereby having less stress and a better work/life balance
- To take advantage of the economies of scale and support a DSO can provide
- To retire debt and accumulate substantial liquidity/retirement savings
- To fund future growth/expansion
Whatever your reason for entertaining offers from DSO buyers, you need to make sure that you choose the right buyer/partner that will truly enable you to accomplish your goals.
Questions for Potential DSO Buyers
Due diligence is a two-way street. Just as DSO buyers will ask an enormous amount of questions and require a tremendous amount of data in order to evaluate your practice, you should conduct due diligence regarding the culture, practice philosophy, infrastructure/support services, reputation, performance, and financial health of potential buyers. Here are the questions you should be asking during your initial interactions with potential buyers:
- Please provide some history/background for your company (i.e. location of home office, ownership
structure, geographic footprint, # of locations, growth plans, etc.).
- What type of support/centralized services do you provide to your offices? What services must be
centralized? What services can/will remain at the practice level?
- Will you rebrand my office?
- Will you assert any influence on my clinical philosophy or treatment planning?
- What is your typical doctor compensation structure?
- Do you plan to retain my staff? Will their compensation change?
- What benefits do you offer to your doctors and staff members?
- Does the DSO have a physical presence in my office? If so, please explain. If not, who will manage
the communication between my office and the parent company?
- What changes can I expect immediately following closing and down the road (i.e. practice
management software, operating hours, payor mix, dental supplies, labs, etc.)?
- How can you help me grow the practice?
- Are you partnered with a Private Equity Firm? If so, what is the name of the firm and when did
they acquire an ownership interest in the company? If not, what is your source of funding?
- Have you realized a re-capitalization event? If so, how long ago and what was the EBITDA
multiple? When are you expecting the next re-cap event to occur?
- What does your typical deal structure look like (i.e. 100% sale, partnership model, etc.)?
- If I retain equity in the practice, is the equity held at the individual practice level or at the parent
company level? Am I eligible to receive net income distributions and/or participate in future recapitalization
- Do you charge a management fee to each affiliate office in exchange for the centralized services? If so, what is the fee?
- Can you provide me with several doctor references who are willing to openly discuss their
experience in selling to and working with your company?
- What does the process look like from this point forward?
As you can see, selling your practice to a DSO is a dynamic process that requires careful consideration and a tactful approach on behalf of the seller. Therefore, it is imperative that you refrain from responding to unsolicited offers, understand/explore your options, and have proper representation. As a result of engaging McLerran & Associates as their advocate and by following our proven process for navigating DSO transactions, we are proud to say that our clients have partnered with the right DSO for their offices and attained an average premium of 25% on the sales price of their offices. We look forward to achieving these same results for you!