In the world of dental practice transitions, there is a lot of talk these days about the increasing role of corporate dentistry. If you are wondering whether you should consider these options as you put your dental office for sale, it’s important to understand what these options are, what they aren’t, and how they are different.
Dental Service Organizations
Dental service organizations (DSOs) are management companies which own and run multiple practices. Examples include Heartland, with over 800 locations across 36 states, and Aspen Dental Management, with more than 650 locations. A DSO will have their own methods, meaning they’ll have a management organization, fee schedule, staffing requirements, and other business tools that they’ll want to impose on your office. Uniformity is part of the key to success, replicating the functioning of one office across many. If they have a good model, theoretically, a DSO can smoothly run a practice from a business standpoint and not get in the way of providing quality care.
If you sell to a DSO, you become an employee. This can be a good option for a dentist looking at retirement, but not quite ready to give up the game. You can still provide treatment for your patients, receive a salary and benefits, but not have to deal with as much of the business or administrative side of things that takes up your time after office hours. If you are looking to cut back hours or responsibilities, this can be a good option.
If your concern is getting the most money out of your practice, a DSO can similarly be a good choice. A DSO will have deeper pockets and easier access to more financing than a private buyer. And, given that a DSO typically has a long term goal of expansion into additional markets, seeing the gains from their economies of scale, they may be willing to outbid private sellers.
The downside may be your legacy and possibly losing the goodwill of your patients and community. You’ve worked all of your career to build a successful business. If you use a dental practice broker, such as DDSmatch Southwest, when you put your dental office for sale, we use our expertise to help identify a buyer with a strong skill set and personality match that will carry on the practice and legacy you have worked so hard to build.
While a DSO is staffed with real people, who care about the treatment they provide, their doctors are merely employees with a limited ability to respond outside of the corporation’s practices and policies. How much this is an issue is a personal determination that will vary from practice to practice. If you want to consider offers from DSOs, you are still well-advised to retain a dental practice broker as the issues that arise in the sale to a private buyer are mostly the same as the ones involved in selling to a DSO.
Private Equity Groups
By contrast, private equity groups typically don’t buy practices, they invest in them. Private equity groups are investment management companies that provide financial backing, as an investment tool, in either startups or operating business. A private equity firm generally doesn’t have an interest in being involved in day-to-day operations. Rather, they are looking for a return on an investment.
A common mistake people make when thinking about private equity investments is believing that the investor is looking for a return from the practice’s existing cash flow: that the investment is given in return for a percentage of the current earnings. If that were the case, private equity investing would not be a good investment tool. Why would you need an investor if you already are making enough profit? Private equity investors are not satisfied with your practice’s status quo. Rather, the investor sees an opportunity for growth and wants you to expand your practice with their equity.
Therefore, rather than selling your practice, you are, in effect, becoming a manager of the private equity group’s investment. Their investment gives them leverage over you to expand your practice. If you are looking to expand, this can be a good way to do it, rather than financing through a bank and increasing your debt load. You can greatly increase the value of your practice, the return on which you will reap when it does come time to sell. If you aren’t interested in becoming a business manager over a group of practices, then private equity investing is not a good way to go.
Currently, there is a merging of DSOs and private equity, with investors seeing DSOs as a field ready for harvest. In March 2018, Heartland Dental announced that a private equity firm had acquired a 58% stake in the company, in which it was valued at $2.8 billion. Other private equity groups have made investments in DSOs, but the jury is still out on whether Heartland Dental will be “a kind of Walgreens for the dentistry business” or whether the company is overvalued and overleveraged.
Is it a Good Idea to Sell to a DSO?
Again, this comes down to some very personal choices that must be carefully considered when you put your dental office for sale. While the ADA put the number of doctors working in DSOs at about 7.4% in 2017, it noted that for younger doctors (ages 21-34), that number jumped to 16.3%. Doctors are leaving dental school with unprecedented amounts of student loan debt, which can make banks worry about financing for the purchase of a practice, especially when the doctor is lacking hand speed and production capabilities that only come with time and practice. The bank wants to make sure it gets its return, too. Young doctors are finding a safe bet is to join an existing practice to gain that experience, and DSOs can give them that time while offering a potential to build equity in the practice.
On the other hand, DSOs have gotten themselves into trouble with practices that indicate they may be more concerned about their bottom line than responsible treatment and ethical practices. Earlier this decade, a U.S. Senate investigation determined that some DSOs were providing unnecessary treatment to children to collect more from Medicaid. Also, early last year Benevis LLC, which operates Kool Smiles clinics in several states, settled with the U.S. Department of Justice and paid a fine of $23.9 million plus interest for submitting false Medicaid claims.
DDSmatch Southwest Can Help You Get What You Want When You Put Your Dental Office for Sale
At DDSmatch Southwest, we take the experience of hundreds of successful dental practice transitions from all across the country and put it to work for you. As seen here, there are a lot of tough questions about how to get to where you want to be when you put your dental office for sale. We can help you review your options, look at the benefits and drawbacks of each, and offer unbiased advice about what choice is most likely to get you to your goal. Our definition of a successful deal is not just one where papers are signed and money changes hands. It’s one where the parties walk away happy, feeling like they got a good deal. Contact us today and find out what we can do for you.