Discover the Value of Your Practice without Cost or Obligation
Dental practice values vary widely based on a range of factors including size, geography, specialty, doctor age, growth rate, payer types, procedures performed, and a number of other tangible and intangible metrics. There are basically three options for selling all or a part of your practice. Some doctors will have all of these options and others only one or two.
1. Doctor-to-Doctor or Associate Sale or Partnership
The traditional transition or sale of a smaller practice (under $1.5 million in collections) has been by the doctor selling part or all of the practice to an associate or to another doctor.
As a very general rule, dental practice sales in this type of transaction range from 50% to 100% of collections. The purchasing doctor or practice broker often arranges bank financing for the purchase or the selling doctor may provide seller financing. The majority of U.S. practice transactions are still conducted under this formula.
Challenges to the above transition structure are growing as more dental school graduates are not eager to become practice owners and are instead seeking the security and lifestyle of a position in a DSO or Invisible Dental Support Organization (IDSO). This is reducing the number of bidders for smaller practices and thus potentially overall practice values for smaller practices. Part of this cultural shift is exacerbated by the realities of the student loan debt load carried by many young doctors. As interest rates rise, this challenge will become even more acute.
2. Doctor Sale to a DSO (Dental Support Organization)
Doctors may elect to sell to a DSO and will achieve similar values of 50% to 100% of collections in a 100% sale to a DSO as they might in a doctor-to-doctor transition. However, the DSOs will be able to finance larger transactions where no traditional doctor financing would be required. A DSO sale is an option for practices with more than $1.5 million in collections that do not qualify for a high value IDSO partnership due to size, profitability or doctor age.
3. IDSO Partnership: Sale of Only a Part of Your Practice, Not 100%
IDSO partnerships will generally achieve the highest practice values, but not all practices will qualify. As a general rule, IDSOs are only interested in practices with $250,000 or more in annual operating profit (EBITDA), after doctor compensation. But the higher the profit, the higher the value.
IDSOs value practices as a multiple of EBITDA, not a percentage of collections. Smaller practices might achieve values of 5x EBITDA, while those with $500,000 or more in EBITDA can expect 6+x EBITDA in most cases; those with $2,000,000+ in EBITDA may command 10x EBITDA or more in a properly managed bidding contest with multiple bidders.
When practice values in an IDSO partnership are calculated based upon collections, some LPS advised IDSO partnerships have exceeded 500% of collections, and very few are under 150% of collections.
IDSOs have been operating in the U.S. for 35+ years. Hundreds of IDSOs are in all 50 states, and as a group, they are larger than the traditional DSOs. IDSOs are growing dramatically faster than the DSOs and include those which are GP focused, multispecialty, and dozens of single specialty-only IDSOs. The IDSOs have attracted billions of new investment capital just in the last 12 months and are accelerating their new partnership efforts at record values.
IDSOs do not purchase 100% of practices nor are they interested in doctors with a short chairside horizon. IDSOs will purchase 51% to 90% of practice for cash up front with the doctor retaining ownership and continuing to lead their practice autonomously for years or decades as an owner. Practices retain their brand, team and strategy and are not micromanaged or homogenized.
IDSOs act as silent partners to successful practices where doctors are eager to continue practicing for three or more years. IDSOs provide resources and support services to reduce a doctor’s administrative headaches and assist in growing their practice bigger, faster and more profitably. Doctor’s retained ownership in an IDSO partnership can become worth far more than owning 100% and remaining independent.
IDSO partnerships are not an option for doctors interested in an immediate exit or for practices which are declining. They are also not a solution for a doctor eager to sell 100% of their practice. However, doctors as young as their 30s are now entering into IDSO partnerships as a long-term known exit strategy at exceptional values initially and over time.
Practices with at least $250,000 in after doctor compensation EBITDA should understand the high value IDSO partnership option.
Learn Your Dental Practice’s True Worth with Large Practice Sales.
Whether you’re a young dentist exploring long-term exit strategies or an experienced practitioner planning for retirement, it’s essential to stay informed about the evolving landscape of dental practice partnerships.Take proactive steps to ensure a successful and rewarding partnership in the future by contacting us today.
- The Dentist Money Show: Understanding the Basics of Invisible DSO Partnerships - April 30, 2024
- Decoding Invisible DSOs for Dental Practices - April 25, 2024
- Practice Partnership Podcast Ep 11: The IDSO Blacklist: How to Choose the Right Partner - April 24, 2024