The dental industry is rapidly consolidating, with predictions indicating that 75% to 80% of dental practices will be affiliated with dental support organizations (DSOs) within the next decade, said Brian Colao, director of the Dykema DSO Industry Group. This trend, which began around 2010, accelerated in 2015 due to favorable financing conditions and increased investor interest. Although higher interest rates have slowed the pace since 2021, approximately 30% of the dental market is currently affiliated with DSOs.<\/p>\n
Understanding this context is crucial for both practice owners and DSO executives considering mergers and acquisitions (M&A). Knowing the market trends and the factors influencing them can help make informed decisions.<\/p>\n
Navigating the world of mergers and acquisitions in the dental industry can be tricky, especially with various myths and misconceptions clouding judgment. It’s important to address these myths head-on to make well-informed decisions.<\/p>\n
One common fear among private practice owners is losing clinical autonomy. However, Duff Bourassa, Managing Director at E78 Partners, reassured that this isn’t the case.<\/p>\n
\u201cOne of the biggest fears of private practice owners is the concern they will have to give their clinical autonomy. That\u2019s not what happens,\u201d said Bourassa.<\/p>\n
In reality, DSOs often sought to maintain the clinical practices that made the acquired offices successful in the first place.<\/p>\n
Another misconception is that DSOs want the selling dentist to leave immediately. In reality, DSOs typically prefer the dentist to stay for at least two years, with longer commitments often resulting in better offers.<\/p>\n
\u201cMost DSOs want you to work for at least two years. The more time you commit to staying, the more likely you\u2019ll get a better offer from a potential buyer,\u201d explained Bourassa.<\/p>\n
This continuity helps ensure a smooth transition for patients and staff, preserving the practice’s value.<\/p>\n
Knowing how long you want to continue working is crucial. If you’re looking to exit within two years, a 100% buyout might be preferable. For longer commitments, equity deals are more beneficial.<\/p>\n
\u201cIf you\u2019re trying to get out within two years, then you may want to get a 100% buyout,\u201d explained Bourassa. \u201cBut if you\u2019re willing to work longer, then you want a deal that has more equity.\u201d<\/p>\n
When considering selling to a DSO, it’s essential to ask the right questions to ensure you fully understand the deal and its implications. Rondi Michaux, former director of corporate development at 42 North Dental and Dental Care Alliance, suggested asking the following questions:<\/p>\n
\u201cThese questions help ensure that you fully understand the implications of the deal and can negotiate terms that align with your goals,\u201d Michaux\u00a0 advised. Also consider:<\/p>\n
Preparation for selling a dental practice involves several important steps:<\/p>\n
Utilize AI for diagnostics, automate revenue cycles, and employ procurement solutions to cut costs. \u201cLeverage all of the technologies available to you,\u201d recommended Colao. \u201cThese include adding artificial intelligence to aid in diagnostics and automation that can streamline and shorten the revenue cycle.\u201d<\/p>\n
Optimize your payor mix and prepare for future equity events.\u201cEvaluate your overhead to ensure it\u2019s as low as possible,\u201d advised Colao. \u201cReview and optimize your payor mix and add the appropriate infrastructure.\u201d<\/p>\n
Ensure your accounting practices are solid and your financials are in order.\u201cReview your accounting practices and ensure you have properly-prepared financials,\u201d Colao added. \u201cPotential buyers are going to want to see them.\u201d<\/p>\n
Kevin Cumbus, Founding Partner at TUSK Practice Sales, emphasized the importance of hiring experts to guide you through the sale process. \u201cYou only get one chance to sell your life\u2019s work,\u201d said Cumbus. \u201cWe help identify potential buyers, handle non-disclosure agreements, and drive up interest and enterprise value.\u201d<\/p>\n
A typical sale process, from initial meetings to closing, takes 60 to 90 days but can extend to six months. \u201cFrom \u2018coffee to close,\u2019 the sale process can take anywhere from 60 to 90 days,\u201d said Michaux. \u201cSome deals take up to six months.\u201d<\/p>\n
Ensure you have the necessary documentation ready for the sale process:<\/p>\n
The sale timeline typically involves several key steps:<\/p>\n
Selling a dental practice can be complex, and both buyers and sellers need to be vigilant about potential issues that could derail the process. Understanding these red flags can help prevent costly mistakes and ensure a smoother transaction.<\/p>\n
Rondi Michaux and Duff Bourassa identified several potential red flags for buyers, including:<\/p>\n
\u201cFamily relationships and salaries that may not be market value are red flags,\u201d noted Michaux. \u201cDiscrepancies between the profit & loss statement and tax returns are also concerning.\u201d<\/p>\n
Sellers should also consider potential issues with buyers, including workplace culture, employee benefits, training opportunities, and compensation structures.<\/p>\n
\u201cThe seller should ensure that their clinical and operational values align with the buyer,\u201d advised Samantha Strain of Healthstream Ventures. \u201cOverlooking operational and business integration capabilities can have devastating consequences.\u201d<\/p>\n
Despite a slowdown in M&A activity due to high interest rates and compressed margins, industry consolidation is expected to continue. Strategic preparation now can position dental practices for successful partnerships in the future.<\/p>\n
\u201cThe industry consolidation is still on track to increase from about 30% now to 75-80% in the next 10 years,\u201d predicted Colao.<\/p>\n
Preparing for a dental practice sale involves careful planning, understanding market conditions, and addressing potential red flags. Whether you’re looking to grow your practice or prepare for a sale, ensuring efficiency and leveraging technology can help you achieve your goals.<\/p>\n
\u201cWhether you\u2019re thinking about partnering with a group this year, next year, or a decade from now, you can put yourself in the best possible position by preparing now,\u201d concluded Colao.<\/p>\n
Ready to find out how Planet DDS can help you increase same-store growth, improve EBITDA, and run more efficiently? Schedule a demo today.<\/p>\n","protected":false},"excerpt":{"rendered":"
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