Doctors functionally have three ways to monetize their dental practice.
- Sell part or 100% to a doctor or associate
- Sell 100% to a Dental Support Organization (DSO)
- Partner with an Invisible Dental Support Organization (IDSO) and monetize part of your practice now, but remain as an owner for years or decades.
The options offer a variety of value levels and some monetization strategies may not be available for all practices. Smaller practices may only have the doctor-to-doctor sale option, while only larger practices ($1.5+ million in collections) will qualify for a high value IDSO partnership.
While Dental Support Organizations are becoming more popular, here are five things to know before selling your dental practice to a DSO.
1. Assess Qualification for Lucrative IDSO Partnerships Before Selling Your Practice to a DSO
Is your dental practice qualified for a more lucrative invisible Dental Support Organization (IDSO) Partnership vs. 100% Sale to a DSO?
While a 100% sale to a DSO is an option for many practices, it will not result in the highest values. If your practice qualifies for IDSO partnership in which you sell 51% to 90%, for cash up front and remain as an owner for at least three years, you will achieve a higher value.
An IDSO partnership is not, however, a short-term exit unless you have a multi-doctor practice. IDSOs are eager for partners with a longer time horizon to continue to autonomously lead their practice as owners with the IDSO acting as a silent, supportive partner.
2. Create a Competitive Bidding Process (at Least Six Bidders) to Drive Up Values
Whether you choose to sell your dental practice to a DSO or an IDSO partnership, you should have six or more qualified bidders in the process. Some larger practices will have 10+ in a properly managed bidding contest.
Multiple bidders drive up values and give you more options to consider as to who will honor your patients and legacy in a 100% DSO sale. It is even more important in an IDSO partnership as you will be “married” to your new partner for years or decades. Understanding what will change in your practice after a sale or partnership is critical.
With a DSO in which you sell 100% of your practice, you will become an employee doctor. Your new owner will dictate just about everything in your practice except for clinical decisions. This may be a relief for many doctors, but it is far different from an IDSO partnership in which you retain ownership and complete autonomy for both business decisions and clinical care.
3. Timing and Your Age are Important to Value
Your age has a direct impact on the value of your practice in an IDSO partnership, less so in a 100% sale to a DSO. In a single doctor practice, if you are 55+, you should understand your options today…not five years from now. In a multi-doctor practice, the ages of all of the owner doctors and associates will be relevant to value. In short, younger is more valuable.
Of LPS’ $612 million in completed IDSO partnerships in 2022, over $100 million of these were for doctors in their 30s. Young doctors with larger practices are not usually interested in a 100% sale to a DSO. However, in an IDSO partnership they remain as owners and continue to have the equity gain upside of ownership, not just paid as an employee. Their longer-term chairside horizon adds value to their practice in an IDSO partnership.
Doctors in their sixties are becoming less attractive to IDSOs and thus the number of bidders and values are not as high as for younger doctors. However, a lower value sale of 100% of their practice to a DSO is still possible for older doctors. Given the value differential between a DSO sale and an IDSO partnership, doctors of all ages should at least understand their practice value in an IDSO partnership at a young age. It may influence your timing.
While age is important, timing in general is also critical. At certain points in time, specific geographies and practice types can become more valuable to a DSO or IDSO. As a recent example, Pediatric, Orthodontic and OMS practices are more valuable in 2023 vs. 2022 due to the high value recapitalization of a large Dental Trifecta IDSO in late 2022.
This event created multiple IDSOs eager to follow the Dental Trifecta strategy, increasing the number of bidders and values for the three specialties in 2023. Whether this will continue into 2024 is unknown. Values have increased the most in areas of population growth vs. decline.
4. Get on a Large Advisor’s Radar Now for Higher Values Later
Doctors can often achieve the highest values when LPS has other clients in a particular area or state. LPS can attract IDSOs to enter a new geography at higher values when we can provide multiple quality clients at one time.
A good example of this is LPS’ Pedo and OMS clients in Orlando, which will drive up values for Ortho clients in the same area. The bidders for all three practice types will increase from the multispecialty and single specialty IDSOs to include the Dental Trifecta IDSOs eagerly expanding nationally.
Another example is a single east coast state in which we have six larger clients. These clients will likely choose the same IDSO partner and any other clients in that state may get a boost in their value of between 10% and 30% as a part of this group if their timing is right. Size adds value.
5. Current Growth and a Plan for Future Growth Increase Value
As of the summer of 2023, one of the most important factors driving record practice values is the rate of practice growth both in collections and in profitability. A shrinking practice will be hard pressed to achieve an exceptional value unless they have a very well- defined plan to start growing immediately.
Growth in collections is not as difficult today thanks to inflation. However, inflation has a direct impact on a practice’s profitability. Practices with growing collections yet shrinking profitability have a problem which can often be resolved with a laser-like focus on expense reduction.
Practices with a definitive growth plan for the next one to three years will achieve the highest values. Definitive is the key word. Do you have a written plan and strategy for the growth of your practice? If so, great. If not, LPS will work with you to develop a realistic plan for growth utilizing your new partner’s resources.
Contact Large Practice Sales Before Selling Your Dental Practice to a DSO
Doctors can contact Large Practice Sales to schedule a call to learn more about all of the options above. You can discover the current value of your practice without cost or obligation.
- 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