Every week I speak with dozens of dentists interested in learning about the IDSO partnership opportunity. The prevailing belief by doctors in the last 90 days has been that there are fewer bidders and practice values are declining. THIS IS NOT TRUE!
While several formerly active IDSOs have stopped or reduced their activities in seeking new partners, they have been replaced by multiple new and recapitalized legacy IDSOs with literally billions do invest. Multiple IDSOs with capital and capacity (debt & equity) are eagerly bidding for LPS clients at record values.
But I believe activity will change in the coming months as the impact of high interest rates, political uncertainty and global conflicts temper investor’s risk appetite. I hope I am wrong.
An interesting value creator for IDSO partner doctors is the success IDSOs are having in negotiating higher reimbursement rates from payers. As an example, we have a $3.5 million collections GP practice which is almost 100% dependent upon insurance. Their new IDSO partner is getting reimbursed at a rate 20% higher than the independent doctor. This will result in an increase in EBITDA of about $700,000 in the first 12 months after partnership. The Earn Out structure we negotiated will add millions in value for the doctor.
Recent Value Comments:
General Practice
Growing practices in desirable geographies continue to see six to eight qualified IDSO bidders. Multiple doctor practices are as usual the most popular. While desirable geography is typically defined as growing states including FL, TX, TN, AZ, ID, UT, CO, NC, SC and NV, we completed a transaction for a $4.0 million in collections GP in Michigan at 10+x EBITDA and practices in MD and NJ may come close this month.
Orthodontists
Some of the larger Ortho-Only IDSOs (14 of them) have reduced their bids for practices by 15% to 20%. A couple of the Ortho-Only IDSOs have stopped all new partnerships. Fortunately, these groups are competing with newer Ortho-Only, multi-specialty and most actively, the Dental Trifecta and Pedo/Ortho IDSOs. LPS is still achieving a record number of qualified bidders and values for growing ortho practices. Many independent ortho’s are experiencing new case start declines, while several of the IDSOs are seeing growth due to digital marketing prowess.
Pediatric Specialists
The growing number of IDSOs pursuing the Dental Trifecta strategy continue to drive up the values of Pedos nationally. Larger Pedos are still the most valuable of all practice types nationally. Pedo/Ortho are even more valuable than pedo-only if the ortho compensation is structured correctly, which it is often not.
Oral Surgeons
OMS is the fastest consolidating segment of dentistry as doctors are now grasping the recruiting challenges they face for new resident graduates. Aspen proudly displayed their $750,000 first year guarantee promise at the AAOMS conference last month. However, the IDSOs are offering signing bonuses long before graduation, large first year guarantees and most importantly equity interests in the IDSO on start date. I expect the 16 OMS-only and the ten Dental Trifecta IDSOs will hire well over half of the 250+/- OMS grads in 2024, perhaps more.
Periodontists
Historically, Periodontists’ primary choices in IDSO partners were the multi-specialty groups eager for specialists to receive referrals from their regionally concentrated GP practice partners. In the last two years, a Periodontists’ IDSO options have increased dramatically to include the Perio-only, Perio/Endo and the Surgical Trifecta IDSOs eager to partner with Perio, Endo and OMS in the same regions. In addition, any Perio practice with at least 30% of their collections in IMPLANT related care now have six new bidders in the form of the new Implant and All on X focused IDSOs. We completed a Perio IDSO partnership with a multi-specialty group at 10x+ earlier this quarter.
Endodontists
A couple of the Endo only IDSOs are preparing for recapitalizations in 2024 and are bidding aggressively for exceptional practices with younger doctors. They are bidding against the multi-specialty IDSOs eager for referral destinations, as in Perio. Age matters across all practice types more than ever as young doctors can still achieve record values while older doctor values are softening. Having a six in front of your age (as I do) is not good for value.
Implant Specialists
OMS, Super GP and Periodontists which are focused on implant care have several new options in IDSO partnership. A couple of these are backed by very experienced investors with an amazing track record of recapitalization success. The IDSOs are paying less than half of what you are paying for implants and some will soon be getting implants for FREE.
Summary
Doctors who are waiting for EBITDA growth to achieve a slightly higher value in the future do not understand the value of the Earn Outs available today. Doctors can get paid for FUTURE performance and lock in today’s high multiples on that future growth. I expect many doctors will regret waiting as their EBITDA is impacted by rising costs and static fee schedules, reducing values in 2024.
- DEO Growth Secrets EP 213: 2025 M&A Trends Every Dental Entrepreneur Must Know - November 22, 2024
- Practice Partnership Podcast Ep 13: IDSO Performance in 2024 - November 20, 2024
- Largest IDSO Recapitalization Ever and Post Election Comments - November 13, 2024