In the last nine months, LPS clients have become the platform practices for two NEW IDSOs. Two young and growing LPS clients were eager to help build an IDSO from scratch. After 10+ qualified bidders each, we partnered each of them with two very experienced IDSO investors. They joined on the “ground floor” to create massive value for both the doctors and the investors. We believe this was a low-risk, high reward partnership for the doctors.

The investors in these new IDSOs were part of the $5.0 billion dollars of new capital and financing invested in IDSOs so far in 2024. (Not DSOs, IDSOs!) Our unique GP clients both achieved initial values in excess of 11x EBITDA. But more importantly, the potential gains in the value of their retained ownership can result in the creation of generational wealth. Both of these doctors have a high probability of an equity value increase of over 500% or more in the next three to five years.

In theory, this approach to IDSO partnership comes with a higher risk/reward profile than by joining a larger, mature IDSO. However, the “big money” for doctors has historically been made by joining relatively new IDSOs which then executed a controlled, but rapid growth plan.

We have seen many doctors who joined IDSOs early in its development achieve 1000% (10x) returns on their equity value in less than 10 years. These returns are, in part, why over $150 million of LPS created IDSO partnerships in the last 24 months have been for doctors in their 30s!

Large equity gains are less likely when a doctor chooses a 10+ year old IDSO with hundreds of practices. But also in theory, bigger and older is safer, albeit with a lower upside in the equity ownership retained by the doctor.

The Risk/Reward Reality of New & Small vs. Old & Big is More Nuanced Than Just Age and Size

Many larger, older IDSOs will provide respectable doctor equity gains of 20% per year, compounded, and some will also fail. The key is to understand the investors, management, strategy and partner practices of each IDSO individually. The investors and strategy are far more important than the age and size of the IDSO.

The investors in the two new IDSOs created around the LPS clients had each successfully started, built and most importantly monetized multiple IDSOs over the last 10 years. One of them has already created over $3.5 billion in value for investors and doctors from their multiple IDSOs. The other investor has returned slightly less in dental, but over $10.0 billion in multiple other provider-based healthcare consolidation strategies, for over a decade.

In our view, this was the perfect “opportunity storm” for our clients. Proven investors and management with a defined strategy and ultimate exit plan. Who would not want to be shoulder to shoulder partners with the best IDSO investors in the world?

Not every doctor gets these opportunities, but choosing the right advisor is how you get to consider ALL of your options, not just a few. When using the little advisors or attempting to partner with an IDSO without an advisor, doctors will miss out on considering ALL of their options in partnership. They will also miss out on dealing directly with the best IDSO investors in the industry!

NOTE: My next Blog Post will discuss why I predict 2024 will mark the peak in individual practice values.

Chip Fichtner