Selling Your Dental Practice: Some Dentists Will Fall Short

Dentists often find themselves approached by Dental Service Organizations (DSOs) or Private Equity Groups (PEGs) looking to acquire their practices. These entities have extensive, highly skilled business development teams whose primary goal is to secure acquisitions at favorable terms for their investors and current doctor partners. They typically initiate contact through direct outreach methods such as email, direct mail, or phone calls. More cunningly, they may use warm introductions from existing doctor partners or sales representatives who have established relationships with the target practice. DSOs and PEGs allocate substantial budgets to incentivize these intermediaries, who need only to set up a conversation to earn their compensation.

Many practice owners initially engage with DSOs or PEGs out of curiosity, wanting to “test the waters” without serious intent to sell. However, entering into such discussions about selling your dental practice without preparation is akin to playing chess with a Grandmaster. Just as dentists spend years perfecting their craft, these business development teams are masters of negotiation and sales tactics.

The Pitfalls of Unsolicited Offers from DSOs

DSOs and PEGs prefer to approach dentists directly, offering to evaluate their EBITDA and practice value. This strategy allows them to control the narrative, the financial information, and the overall process. By keeping the seller uninformed about other market opportunities, they position themselves advantageously in negotiations.

These buyers pride themselves on the number of deals closed through direct outreach. These transactions often result in the seller accepting a price well below market value. The buyer does an exceptional job at making the seller feel as if they are getting a great deal, but it’s all a part of the plan. While this is advantageous for the buyers, it represents a significant lost opportunity for the seller.

Understanding Information Asymmetry

In any transaction, information asymmetry exists when one party possesses more or better information than the other. When DSOs express interest in your practice, they ask numerous questions under the guise of understanding your business and journey. In reality, they’re aiming to reduce their information gap to gain a comprehensive understanding of your practice. This process involves gathering detailed financial and operational data, which they use to craft an offer that appears attractive but ultimately benefits them more than you.

Sellers often lack critical information about the buyer, such as the quality of their balance sheet, the equity being offered, the range of deal options, the buyer’s reputation, and whether they can be trusted to honor their commitments. This imbalance allows buyers to make offers that maximize their return on investment at the seller’s expense.

Playing by Their Rules

When a PEG-owned DSO seeks to sell, they don’t accept the first unsolicited offer they receive. With over 100 PE-backed groups in the U.S., none would consider such an offer. They understand the importance of a competitive, marketed process to maximize their investment’s value. They employ M&A advisors or investment bankers to prepare their business for sale, develop a compelling narrative for buyers, and drive a competitive process. These advisors conduct the necessary diligence, align the sellers, and prepare them for the rigorous questions buyers will pose.

The Value of an M&A Advisor

An M&A advisor is crucial in ensuring that your practice sale is conducted professionally and yields the highest possible value. Advisors help prepare your practice for market, craft a compelling story, and drive a competitive bidding process. They perform due diligence, aligning all stakeholders on the sell-side and ensuring readiness for the transaction. DSOs recognize the value of M&A advisors and use them to maximize deal value, making unrepresented selling doctors an easy target for DSOs to undermine the true value of their practice.

In conclusion, while it may be tempting to engage in direct discussions with DSOs or PEGs about selling your dental practice, doing so without professional guidance can result in significant value loss. Engaging an experienced M&A advisor ensures that you navigate the sale process strategically, maximizing the value of your life’s work. Remember, there are no shortcuts in the sale of your dental practice.