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The Win-Win-Win Deal That Benefits Selling Doctors, DSOs, and Patients

As Dental consolidation continues to move forward there is a natural maturation cycle that also takes place.  In the early stage of dental consolidation, it was primarily a “land grab” whereby Private Equity Groups (PEGs) were acquiring practices, each with their own respective EBITDA and once they reached a certain size, they would sell that “bundle” of practices to the next PEG.

Usually, the second PEG owner would specialize in operationalizing the “bundle” of practices and begin to optimize the platform and begin to extract out incremental profit along with continuing to grow through acquisition of new practices. The larger the DSO becomes the more important it is for there to be real operational improvements, expense management, marketing expertise and many other services that capitalize on economies of scale and centralized services.  TUSK predicts that we are approximately halfway to full maturation of the dental industry.  Full maturation does not mean full consolidation because there will always be unaffiliated practices and groups in the space.  We estimate that full maturation would result in 65-80% of the market affiliated with a DSO and the remainder being unaffiliated.

What does this mean to an owner that is interested in affiliating with a DSO?

Simply put, it means that there are more options than ever and that the landscape is much harder to navigate than in the early stages.  In the early stages ALL groups were new, however, now we have groups that were started 20 years ago as well as groups that are looking for their first acquisition!  Because there is still good runway in the industry and Dental performed well through and after the pandemic it is still attracting new PEGs.

Through our process we get to know our clients and identify what their goals and pain points are.  Some of our clients want a “hands off” partner (Invisible DSO), while others want a group with a full-service offering including boots on the ground operational support.  There have never been more options available to a seller and we strive to create partnerships that are additive to the industry and that generate a WIN-WIN-WIN for our clients, the DSO, and the patients that they serve together!

practice valuation

The Formula

The key to maximizing valuation is to find two parties that fit together perfectly and where 1 plus 1 equals 3.  This requires a seller that has “upside” in their business or value to add to the DSO and it requires a DSO/buyer that has the ability to unlock that upside.  For example, if you have unutilized operatories in your practice then you are not at full capacity at your facility.  This is a very attractive variable to the right DSO!  TUSK would highlight this to all interested parties and find the short list of DSOs that have the capability to unlock the upside.  These are the groups that would be willing to stretch on valuation as well as create seller incentives in the years post close.  We try to create partnerships that foster growth in the post partnership years because that is how Sellers, DSOs, and Patients WIN.

Through our rigorous diligence on the front-end TUSK identifies where the value and upside lives within each of our clients’ businesses.  We frame this up and highlight this to each buyer.  Our marketed process allows our clients to survey the entirety of the market to find out which DSO will be able to unlock the upside while also addressing the operational pain points they have and would like solved through a partnership.  DSOs will pay more for assets that have growth potential and it is TUSK job to show case that and to bring a large enough pool of buyers to the table to find the right one.  This takes a lot of data gathering and modeling to get buyers to buy in as well as a lot of outbound communication to bring in all the buyers.

One Size Does Not Fit All…

Tailoring the perfect match for your business involves a comprehensive survey of the entire market. With an expanding pool of potential buyers, it becomes crucial to hire and advisor who is well-versed in the operational and cultural DNA of the ever-changing buyer landscape. This strategic approach not only accelerates the partner selection process but also conserves your time while optimizing the overall value of your business. Partnering with the best partner for your business will allow you to receive the value you deserve for your life’s work.

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