Record Values

Growing practices are setting new record values. If you are a younger doctor with one or more partners or associates and have collections in 2024 above 2023, values are still high.

Record Number of IDSO Bidders

Many IDSOs have stopped new partnerships due to capital constraints caused by higher interest rates. However, over $3.0 billion of new capital has been invested into existing and new IDSOs in Q1 2024. The new capital and credit lines have actually provided a net increase in the number of qualified IDSO bidders for certain practice types in a broad range of geographies. (See The Blacklist for the definition of qualified.)

Age is a Growing Issue

As the number of younger doctors in their 30s and 40s grasp the benefits of IDSO partnership, older doctor values are impacted. Young associates cure this problem in most cases, but age matters more than ever. LPS completed $1.0+ billion in IDSO partnerships in the last 24 months, with over $150 million for doctors under 40.

Practice Growth is Critical

Collections in Q1 2024 will be compared to Q1 2023. Growing practices will have the most options and achieve the highest values. Shrinking practices need to have a specific explanation for their decline, or value will be impacted.

Higher Reimbursement Rates

Many of the larger IDSOs leverage their size and coverage to achieve higher reimbursement rates from payers. We have seen some examples of 20% higher reimbursement rates for IDSOs vs. for independent dentists.

Cash vs. Equity Changing

In a typical transaction, a doctor is entering into an IDSO partnership with a portion of the initial consideration paid in cash and a portion in equity. Equity is retained either at the practice or parent level or a combination of both. While some bidders are still offering 80% in cash, many are reducing the cash component of their offers and increasing the equity held by the doctor.

Earn Outs Not Gone Yet

LPS just completed its first transaction without an Earn Out in over four years. The final bid was 11x+ EBITDA, so not all bad, but Earn Outs are changing. They are especially valuable for growing practices to harvest their increased values in the two years after an initial partnership. You use the IDSOs’ resources to grow your EBITDA and get paid for growth; one of the elements which has attracted younger doctors to IDSO partnership.

Closing Times After Signing a Letter of Intent (LOI) are Increasing

While partnerships were closed in 60-75 days from LOI in 2022, in 2024 it can take 90+ days. Investor and lender scrutiny of transactions has increased due to higher interest rates and perceived risk.

Recruiting Talent

Most IDSOs will create a path to ownership for your existing associates as a part of your partnership. Many are also using equity ownership as a tool to recruit new associates and in some cases for retention of key team members. Some of the larger IDSOs have dozens of full-time team members focused solely on recruiting all positions for their partner practices.

Marketing Power

Orthodontists and “All on X” focused practices are especially eager to access the superior, lower cost digital marketing resources of an IDSO partner. Most of the IDSOs have internal, expert marketing teams driving new patients to their partner practices. IDSOs are better at marketing at lower costs than independent dentists.

Lower Costs

The IDSOs are paying less than you are for everything, especially for team benefits. In one recent bidding process for a very large LPS client ($25 + mill in collections), one IDSO bidder estimated they could reduce supply costs by over 25%.

Technology Adoption

The largest DSO in the U.S. is implementing AI into their diagnostic and case acceptance process across 1700 offices now. If you have not looked at the impact of AI on patient care and collections, you should. Your competitors are adopting it now. Superior patient care, higher collections and a new standard of care required to compete effectively.

Chip Fichtner