We review financial data on about five practices per day for doctors who have requested an estimate of the value of their practices to an Invisible DSO in today’s bubble. Most doctors take the value number under advisement and continue building their practice, hoping for higher values later.
Other doctors are pleased or surprised by the value and elect to join us in the process of finding them the right silent partner. All of our clients can put millions in their pockets by selling part of their practices now and gaining a partner to accelerate growth with capital, support and unique resources. Most will find that the minority equity position they retained will be worth more than the 100% they have today, five years from now.
Values Change; Here is Why…
Surprisingly, practice values change regularly, primarily due to changes at the buyers. As recent examples in the last 60 days:
- Large buyer of orthodontic and pediatric practices over the last three years is no longer buying any orthodontic practices at all. Their Board of Directors is concerned about SmileDirect Club® type competitors
- Very large multi-specialty group has reached their borrowing limit and is thus closing NOTHING at
- Top 10 Invisible DSO is in the process of re-capitalizing and will not resume acquisitions until 2020. Their doctors however will be making 3X their money on their retained equity piece in a very short period of
- Rapidly growing GP only group is now eager to buy periodontists, endodontists and oral surgeons
- Medium sized DSO is now buying orthodontists and pediatric dentists from Texas and West.
LPS is merely a “newscaster”; we don’t set the values; we only report the reality of the current market. And values change quickly. Our value analysis of your practice is based on the knowledge of which Invisible DSO is buying what types of practices, where, when and why; TODAY, not tomorrow.
The value calculation we provide you is supported by actual transaction data from our $200,000,000+ in transactions in the last 12 months and others. We don’t make the market; we only react to it. Most of the time…
In other situations, we actually DO make the market. This is typically accomplished by advising multiple clients in a specific geography. With multiple clients in an area, we can attract more Invisible DSO bidders due to the ability to provide them with a bigger entry into a new market by acquiring multiple LPS clients. New market entrants pay more than existing DSOs in the area adding to an existing footprint.
A recent example of this strategy is in Indiana. We will complete at least $130,000,000 of transactions in the state in 2019. We have attracted multiple Invisible DSOs to Indiana due to great clients and the ability to provide silent partners with a platform of multiple practices, both GP and specialty. The doctors will achieve far higher values than would have been possible without a concentration of LPS clients in the state. Go Hoosiers!
The inverse of value creation through multiple clients in an area are the clients who turn down great offers. We had a prominent specialty client in a western state during 2018 where we had other great clients nearby. All clients in this area achieved above market value offers from a single buyer. The other clients completed transactions, but…
One client whose offer was about $10,000,000 (in our view a solid 25% above normal market value) declined the offer and decided to wait. The climate changed in that state (meaning buyers were done in that state for the moment) and today that practice is probably worth about $7.5 million, down 25% from the previous offer; assuming we could get an offer at all.
The prospective doctor clients who wait will hopefully return some day for us to revisit their numbers, measure the market and give them the new value at that time. We can only hope it is higher than the original value estimate. For some maybe, and for others maybe not. We don’t predict the future; we only react to the reality of the rapidly changing market! And as you will recall from 2008-2012, sometimes there are no buyers at any price.
- Dentistry Unmasked: Inside the world of invisible DSOs | with Chip Fichtner - February 21, 2024
- Practice Partnership Podcast Ep 9: Top 10 Attributes to Achieve the Highest IDSO Partnership Value in ’24 - February 21, 2024
- The DrBicuspid Podcast featuring Chip Fichtner - February 6, 2024