Who Buys Your Practice Matters More Than You Can Imagine
A REAL-WORLD EXAMPLE (THIS IS WHERE IT GETS INTERESTING) Consider a single-site practice in the Mid-Atlantic with $2,374,003 in trailing 12-month revenue. When evaluated by a DSO, the practice sold for $7,275,000. By contrast,
Most dentists make the same costly mistake when they begin thinking about selling their practice. They focus on when to sell, worry about taxes, and debate whether they can time the market correctly. What they often overlook is the single variable that can swing the outcome of a transaction by hundreds of thousands, or even millions, of dollars: who the buyer is. Yes, the specific DSO or individual dentist matters. Culture matters. Terms matter. Chemistry matters. However, it helps to step back and look at the larger picture. The category of buyer you choose, another dentist versus a DSO, largely determines how your practice is valued, how the deal is structured, and how much money ultimately ends up in your pocket. The differences between those two paths are not subtle; they are significant. A SHORT HISTORY LESSON (THAT EXPLAINS TODAY’S MARKET) Not long ago, selling a dental practice was straightforward. There was essentially one type of buyer: another dentist. That was the entire market. Today, the landscape looks very different. DSOs are acquiring practices at a rapid pace, fueled by private equity capital and a strong appetite for scalable businesses. At the same time, privately owned practices still make up the majority of the profession. This combination has created a more active and competitive environment for sellers. The practical result is that dentists now have options, and options, when understood and used properly, create leverage. WHY DENTIST BUYERS ARE STRUCTURALLY LIMITED When you sell to another dentist, the transaction typically depends on bank financing. Unless you are willing to finance the sale yourself and “hold the paper,” the buyer is limited by what a lender is prepared to provide. Historically, banks cap loans at roughly 60%–80% of topline revenue, regardless of the practice’s profitability, growth potential, or operational upside. In rare situations, they may stretch higher, but in today’s higher- interest-rate environment, that is the exception rather than the rule. The dentist buyer generally focuses on whether the practice will generate enough income to support personal compensation and service the debt. The bank’s concern is even narrower: predictable cash flow that ensures repayment. There is no strategic premium for future growth, no credit for efficiencies, and no valuation arbitrage. The price is largely constrained by what the bank considers safe. WHY DSOS PLAY A COMPLETELY DIFFERENT GAME A DSO evaluates your practice through a very different lens. They are not simply purchasing a job; they are making a capital allocation decision based on return on investment. Because of that perspective, DSOs can often justify paying more. They are not capital-constrained in the same way an individual dentist is, since they are backed by private equity or institutional funding. They also benefit from valuation arbitrage, where a single practice is worth one amount on its own, but significantly more when integrated into a larger platform. In addition, they typically expect to improve performance through centralized systems, stronger procurement, professional management, and economies of scale. Whether those improvements are fully realized or not, the expectation alone supports higher valuations.
a traditional dentist buyer, even assuming an unusually generous bank loan equal to 100% of revenue, which is more favorable than most deals, would likely be limited to approximately $2,374,003. More commonly, financing would fall below that figure.
Even after accounting for healthy margins, the difference is striking. The seller realized nearly $5 million more by choosing the DSO route. This is not theoretical modeling or marketing math; it reflects how transactions are actually being priced in today’s market.
KEY DIFFERENCES AT A GLANCE When selling to a dentist buyer, the purchase price is typically dictated by bank lending limits, often tied to a percentage of revenue. The seller usually exits quickly, receives cash at closing, and pays a traditional broker commission. When selling to a DSO, valuation is generally based on EBITDA multiples, which can translate into materially higher prices. These deals commonly include a multiyear employment agreement, a combination of cash and rollover equity, and some level of centralized operational control by the DSO.
(Read This Twice)
Who the buyer is matters a great deal.
That said, a DSO transaction is not appropriate for everyone, and not every practice qualifies. Most DSOs have minimum requirements related to revenue, margins, and facilities. If your primary goal is to sell and walk away immediately, a traditional buyer may be a better fit, regardless of price. But if your objective is to maximize enterprise value, create flexibility, and potentially participate in a second, larger liquidity event in the future, ignoring DSOs is not conservative. It is simply expensive. The prudent approach is to understand your options well before you need them, while you still have time, leverage, and the ability to choose the path that best aligns with your goals.
Stan Kinder - (703) 298-1690 · 15
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