Frequently Asked Questions
The most commonly asked questions about the Large Practice Sales process.
What is an IDSO?
Invisible Dental Support Organization (IDSO). A DSO that acts as a silent partner to an owner doctor who continues to lead their practice with their brand, team and strategy for years or decades. Doctors benefit from the broad resources of the IDSO to grow bigger, better, faster and more profitably over time, increasing the equity value for both partners. IDSOs do not homogenize or micromanage their partner practices.
Let Chip Fichtner explain it to you!
How is LPS Different from Other Advisors or Traditional Practice Brokers?
Most importantly LPS is only paid by our clients, the doctor. Both the Buyers and Sellers pay other advisors. We believe this is a conflict of interest and lowers values for the doctors. This is unique to LPS and enables our client doctors to achieve the highest values in the industry by showing our clients to ALL qualified IDSOs, not just those that will pay an advisor a fee. LPS is by far the largest dental practice advisor in the U.S. We have completed $500 million of transactions in the last 12 months for general dentists and all specialties. We leverage our size by sometimes grouping our clients together to achieve higher values for groups new to an area. This tends to achieve higher values for all clients.
LPS focuses exclusively on identifying IDSO partners for larger dental and dental specialty practices. Although there are exceptions, our typical client practice has $500,000 or more after doctor compensation in practice net earnings or EBITDA. We are compensated solely by our doctor clients and LPS is paid nothing unless a transaction is successfully completed.
I Have Been Approached by Multiple DSOs, Why Use an Advisor?
You have been highly trained in teeth. We have been highly trained in completing large dental practice transactions. You deserve a specialist to advise you in the most important transaction of your life. It is critical that you consider all your partnership options. LPS clients will have six or more bidders. Bidding contests increase value and more than offset the LPS fee. Multiple bidders enable you to meet with many suitors to identify the IDSO that is the right fit for you. New IDSOs are being formed every week. Some you will want to consider, and others you should avoid. We know the good ones and the not as good ones and provide you with guidance as to which IDSO is the best fit for you. See the memo: How LPS Creates Record Values for Clients.
Why Sell All or Part of My Practice Now?
Values of businesses including dental practices rise and fall. At the moment, values of larger practices in specific areas are at historic highs, but we believe 2022 will be the best time to monetize a practice for the next three+ years given the Covid Earnouts that are available to doctors today, which will cease later in 2022. Covid Earnouts functionally pay a doctor for performance AFTER an initial closing which for growing practices can sometimes increase value over time by 10% to 40% depending upon the growth rate of the practice. LPS has achieved values of 4x+ collections in 2022 with many over 2x. The first doctor to partner with an IDSO in an area often achieves a higher value over the second. (See First Steps and Higher Values Memos) FREQUENTLY ASKED QUESTIONS
What is My Practice Worth Today?
There is no stock answer, however, the LPS value process is confidential, FREE, and easy. You can discover the value of your practice to an IDSO today through LPS. Values are impacted by the size and type of practice, growth rate, location, timing and most importantly the doctor and his/her future goals. Values are also variable depending upon the doctor’s time horizon and short vs. long term financial goals. Each buyer has different and changing objectives which may include significant consideration based upon future earnings. (See Doctor Matters Memo)
You Seem to Advocate a Sale of Only Part of My Practice Now, not 100%. Why?
We specialize in IDSO transactions where a doctor only sells a part of their practice as most of our clients have an average age of under 50. They are not ready to retire but are interested in monetizing a part of their life’s work in the current value bubble to secure their future and benefit from IDSO partnership. These doctors are interested in gaining a silent partner to accelerate their practice growth without personal risk, but with continued upside via retained equity ownership. With the right partner, their retained equity grows in value for a second liquidation event down the road but locked in at today’s high values. (See DSO Benefits Memo)
What Happens to the Doctor in a Sale of All or Part of the Practice?
In most cases, higher values are achieved with a doctor interested in remaining with the practice to execute a growth plan for five or more years. Generally, partners/buyers would like the great doctors to stay forever. However, we have completed transactions where the doctor retired the day of closing. Doctors continue to lead their practice under their brand, team and strategy and are not micromanaged nor do IDSOs attempt to homogenize practices as the branded DSOs might.
Who Runs the Practice After a Sale of All or Part of the Practice?
This is dependent upon the doctor’s and partner/buyer’s goals, strategy, and pre- transaction agreement. Most transactions require the doctor to remain leading the practice under his/her brand for at least five years.
How Are Doctors Compensated?
Again, this is negotiable, but in most cases the doctor is compensated based on a normal market rate for the area. In an orthodontic transaction, this is typically an annual salary, with GPs and other specialties often compensated by a percentage of their production or collections.
What Kind of Flexibility Does the Doctor Have in Working with a New Partner?
This is 100% negotiable depending upon the doctor’s goals and the particular transaction. We have completed transactions where the doctor chose to work only three days per week and others where the doctor’s time commitment decreased over the ensuing years. It is an important part of the early planning and negotiations. In a typical transaction the doctor commits to working as hard in the future as they have been in the past.
What Happens to My Team Members?
This is buyer/partner specific, but in most IDSO transactions, the team members are still 100% managed by the doctor, and typically receive better benefits. You will not be told who to hire, who to fire and what to pay your team members.
Who Makes the Clinical Decisions After a Partnership or Sale?
In theory and by law, the doctor makes all clinical decisions. However, there are certain buyers, who we do not work with, which may have other views of this important element.
Will I be Forced to Use Certain Brands of Products and Vendors?
This is buyer/partner dependent, and something discussed up front early in the process, but usually the IDSO volumes can decrease costs on the same brands of products and vendors doctors are using now. The IDSO partners goal is to assist your practice in growth, not attempt to break something they just spent millions to buy.
Under What Brand Will My Practice Operate?
The primary groups LPS works with are IDSOs which value the local brand and goodwill of the doctor. Their goal is for the community to see no change or know that the doctor now has a silent partner. Other, buyers, typically in 100% transactions, believe their nationally consistent brand is most valuable. LPS works with very few of the branded groups. (See Invisible DSO Memo)
Do Buyers Pay Cash or Will I Get Equity in the Buyer or Get Paid Out Over Time?
Purchase consideration can be paid in multiple forms including primarily cash plus retained equity in the practice, equity in the parent, or a combination of both. A typical IDSO transaction involves the doctor selling 51% to 90% of their practice for CASH up front and retaining a partial interest in their own practice and/or equity in the parent. Each transaction is customized for the doctor’s goals and needs. However, we counsel our clients to have a guaranteed exit option on any non-cash consideration and to understand both the upside and downside of certain equity consideration structures. (See Structures Memo)
What is the Tax Treatment of a Transaction?
Please consult your tax advisor on this important topic. However, in the $500,000,000+ of transactions LPS initiated in the last 12 months, over 94% of the initial consideration has been treated as Long-Term Capital Gains for the doctor. The tax allocation between goodwill and tangible assets is negotiable in most transactions and is critical to providing doctors with the highest after-tax net yield in a transaction. The tax savings in this one element alone often exceeds the LPS fee. Doctors who attempt transactions alone or with the CONFLICTED discount advisors often miss this key, negotiable item.
What is the Process to Initiate and Complete an IDSO Partnership?
It starts with a confidential discussion between you and an LPS principal and the signing of a mutual non-disclosure agreement. We will want to understand the basics of your practice including rough financial performance and practice metrics over three years, your general goals and future practice and area potential. From that discussion and a review of preliminary financials, we can give you an idea of the value potential for your practice.
If this value range is of interest, we will then present an engagement proposal outlining the steps of a sale in detail and the LPS compensation structure. There is no obligation or fee for this process.
What is a Dental Trifecta?
Some IDSOs focus solely on partnering with pedo, ortho and OMFS practices in the same area. When LPS can provide an IDSO with all three of these clients in the same region, we can often achieve higher values for all client doctors. We have proven this theory dozens of times. In addition, the Dental Trifecta groups tend to pay higher values for LPS Dental Trifecta clients as the IDSO will achieve higher exit values due to the captive referral sources. Doctors are never required to refer to other practices in the IDSO group.
What is a Dental Surgical Trifecta?
There are now several groups interested in acquiring only Endo, Perio and OMFS practices in the same regions. They believe there is referral synergy in this structure, similar to that of the Dental Trifectas.
How is LPS Compensated?
LPS has a very unique compensation structure which ties our interests directly to the doctor’s. First and foremost, LPS is paid nothing unless a transaction is completed. LPS fees are only paid when you get paid. There are no valuation fees, retainers, expense reimbursements or compensation other than a percentage of the consideration you receive, when you receive it. The fee varies based upon the size of the transaction. LPS is paid zero on your future compensation for providing care. Knowledge of the buyer/partners and multiple transaction experience is LPS’ most valuable currency. We close transactions or we do not get paid a dime.
How Long Does the LPS IDSO Partnership Process Take?
From the time we receive the data from you that is necessary to properly market your practice to closing is typically about six months. Some transactions take longer and some less
What is Included in the LPS Engagement Agreement?
The LPS Engagement Agreement is simple and only three pages. When engaging LPS to assist to find you a qualified IDSO partner, doctors give LPS a six month exclusive period to introduce you to prospective IDSO partners. If we complete a transaction, you will pay us a percentage of the total value of the transaction, payable at closing. If we cannot find you a great partner at or above the value we have initially quoted, you may decide to do nothing and owe us nothing. You are never obligated to complete a transaction in any scenario.