For several years before I joined TUSK, I worked for a regional DSO where my job was to acquire dental practices at the lowest possible price. To the dentist running their own deal, the offer on the table looked hard to beat, and they were eager to sign on the dotted line. However, when the DSO’s team was up against a dentist with representation from a broker, we knew that doctor wouldn’t take a low offer because they were informed and we were not the only buyer at the table. That was if the broker was truly knowledgeable and an expert.
There have never been more resources available to doctors looking to sell their practice. With the rise of the DSO and the speed of consolidation picking up, many people have decided to enter the world of dental deal-making. This has made for a very murky environment for doctors looking to find proper representation to sell their dental practice.
We are regularly seeing new DSOs emerge, as well as new professional and support service companies enter the space. Working in a rapidly changing and maturing environment can be challenging. Choosing the wrong accountant, the wrong practice management software, or the wrong supplier can be detrimental to you as the practice owner/operator. The same is the case with choosing the right broker to represent the sale of your dental practice.
Historical
Up until the early to mid 2000’s, dentists had one option in selling their business, and that was to another dentist. Generally, a selling dentist would rely on a regional practice broker that had very specific knowledge of all the doctors in the market. Or, who was looking to purchase a practice or become an associate with the intent of buying out the existing doctor.
There is a very large number of experienced dental brokers out there. There are some brokers best suited for doctor-to-doctor transactions because they understand the landscape of the region. Selling a practice in a doctor-to-doctor deal is very different than selling to a Private Equity-backed DSO. DSOs have teams of financial analysts and attorneys to evaluate deals, provide offers, and create complex structures. With the rise of DSOs, many of the traditional brokers have had to pivot to adjust their services to the new buy-side.
Asking The Right Questions
The skills and qualifications required to properly represent a dentist in the sale of their dental practice are not easily obtained, and there are plenty of bad actors out in the space.
It is important to consider the following when choosing an advisor:
- What is your experience with selling practices to DSOs?
- How many deals have you closed?
- How many different buyers have you worked with?
- Do you have an in-house analytics team working for your clients or do you outsource?
- Analytics team (outsourcing analytics is not in sellers’ best interest)
- How familiar are they with Private Equity firms backing DSOs in the space?
- Are you compensated by DSOs for bringing your clients to them?
- How many past clients that sold to DSOs can you introduce me to?
To read more about the many risks in DIY dental practice sales, visit: Assessing Risks When Selling Your Dental Practice
State of the (M&A Advisor) Union
Every year, we have dentists come to TUSK after they’ve had a failed deal with another broker. Those brokers each did some form of overpromising and underdelivering. Some dentists come to us after a broker promised them a 12x multiple on their EBITDA, without ever looking at a profit and loss statement, just to get them signed up. The dentist doesn’t realize how unrealistic that is until it’s too late and they’re in market. Other brokers have financial ties with DSOs and will shop your practice to a handful of buyers who will pay them a finder’s fee, significantly impacting the deal terms in your sale.
We have also seen attempted “roll-ups” where a group of dentists piece together their practices to maximize their valuation. These individuals possess zero experience in the buying or selling of businesses in the PE environment. The C-Suite of these groups has left a wake of unfulfilled promises to doctors.
Additionally, there are many consultants in the space who are simply trying to monetize their rolodex of clients. Often, they’ll ask you to sign up for a specific program or to sign a contract with several promises around purchasing your practice or partnering with their “DSO.” They promise equity in their organization, and often it is never realized. Hiring an advisor who exclusively focuses on representing dental practice owners in a sale is your safest and most rewarding option.
There is only one way to maximize the value of your business, and that is to run a professional, marketed sales process to fully explore the market. The number of buyers has never been greater, and the range of quality of representation has never been broader. It is easy to get caught up in the feverish pace of consolidation, but a formal process will require a substantial time commitment from the seller. It will also require an experienced advisor to navigate the process. Hiring the correct representation to sell your dental practice means more today than it ever has. Ask the right questions. Do your due diligence. Make the best decision for the business you’ve spent your life building.
