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Saturday, November 6th, 2021 | by Thomas Wolff
Six Questions Every Dentist Should Ask if You’re Thinking of Selling to a DSO
Be Sure to Ask These Six Questions When Considering Selling to a DSO
In the first 25 years of our company’s history, dating back to 1993, 100 percent of our transitions were from one solo practitioner or partnership to another. For some buyers, this might have been their second, third, or even fourth office – but they were all dentists who would have direct involvement in the practice they were buying.
The final act of each closing was to take a picture of the selling doctor handing the keys to the buyer, smiling faces all around as one dentist passed his or her legacy on to the next buyer.
The Types of Dental Practice Sales Have Changed Over Time
The last several years indicate these types of closings will be less and less common as DSOs – dental service organizations – become a larger segment of the buyer pool. DSO penetration here in the Central Plains has lagged other parts of the country such as Texas, Florida, Colorado, and the Northeast, but it’s safe to say private equity-backed dental groups are here — and they aren’t going anywhere.
According to a recent presentation by Aligned Dental Partners, DSOs are expected to represent nearly 30 percent of all dental practices by the end of 2021, with the following breakdown by size:
Elite Groups (75+ locations): 39
Mid-Market (10-74 locations): 265
Emerging (1-9 locations): 1,239
What is a DSO?
A DSO (Dental Service Organization) is a structured organization that helps manage administrative tasks for dental practices such as billing, support, training, and more. The dental The DSO model goes back several decades, but it wasn’t until the mid- to late-1990s that pioneers such as Heartland and Aspen began to emerge at scale. It is the recent rapid expansion of the Emerging and Mid-Market groups that are now making the biggest waves and presenting more intriguing options to potential sellers. While most of these groups would still prefer for the seller to continue working, many of them are associate-driven or have local equity partners that may make it possible for the doctor to sell and not have to continue working for three to five years.
Most dentists over the age of 55 are bombarded with daily direct mail and other solicitations about how they can sell their practice to these organizations. Given the wide range of DSOs and their unique cultures, practice philosophies, support services, reputations, and financial outlooks, it is important for dentists to conduct their own due diligence as they start to go down the path of selling to a DSO.
Here are six important questions to ask if considering selling to a DSO.
Are there traditional buyers for my practice? If there is significant demand in your market for practices like yours, then you have options beyond selling to a DSO. Don’t buy into the rhetoric that young dentists aren’t buying practices anymore because they can’t get financed or any of the other reasons being thrown out there. There are plenty of eager, financeable buyers actively looking to get started as an owner operator. It is important to understand the market and know the different choices you have to exit your practice. Depending on your goals, a DSO could still be a solid choice, but certainly not your only choice.
Do I fully understand the terms within the offer? There is a perception that DSOs will pay a significant premium on the practice purchase price compared to a private buyer. While this can be the case, doctors need to look at the full picture to see if it is as great a deal as it may seem. Is the purchase price paid in full at closing or is there a hold-back or earn-out? How will you be compensated for the work you do post-closing? Will some of the purchase price be structured in stock instead of cash? There are countless ways to structure these deals, so be acutely aware of the components in the offer beyond the purchase price.
Am I required to work for any period after closing? Flexibility with your willingness to work post-closing expands the number of DSOs that may purchase your practice. The fine print in the employment agreement may be the linchpin that either makes the deal worthwhile, or a poor decision. Unless you are fully confident that you can endure the three to five years that most DSOs are looking for, you may want to pursue other options, where your payout does not have employment demands attached to it. As mentioned earlier, some of the smaller and emerging DSOs are beginning to shift away from retaining the seller as a requirement, so an increasing number of exit options may be available.
What short-term and long-term changes can I expect to see? Most DSO-acquired practices should expect to see an immediate shift into the DSO’s centralized support services, which often includes changes to practice management software, operating hours, payor mix, dental supplies, labs, etc. Expect a rebrand to happen within the first 12 months. Be sure to understand the DSO’s clinical philosophy and approach to treatment planning, as this would have the most direct impact on staff and patients.
What will happen to my staff? Most of the time, the DSO hopes to retain the staff. They are also able to offer the staff certain benefits that a solo doctor rarely, if ever, can provide. Still, you need to understand any changes to headcount or compensation.
What would previous sellers say about their experience with the DSO? Ask to speak directly to other dentists who have sold to the DSO. Find out if they had a positive experience and if their staff and patients have been treated fairly.
In today’s rapidly changing market, dentists have numerous options to sell their practices, yet most do not know where to start or what is involved. ADS transition specialists are uniquely positioned to leverage their experience in the marketplace to help sellers explore these various options to achieve the things they want most: legacy preservation, competitive pricing, staff protection and the right dentist or group to take over the practice. Whether that is selling to a DSO or finding a more traditional owner operator, your local ADS consultant can guide you through the process.
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