Due to the ongoing consolidation across the dental industry, there has been a dramatic shift from a buyer’s market to a seller’s market. However, in just five short years, DSOs may no longer present the same lucrative opportunities, such as equity rolls and other high-value investments that are currently on the table. So the question may be not should I sell my dental practice to a DSO, but when?

This market evolution highlights the urgency for dentists to act now and take full advantage of the unique benefits DSOs provide. With over 375 DSOs available, the perfect fit is out there waiting. Let’s dive into even more compelling reasons why selling your dental practice to a DSO is the smartest, future-proof decision you can make today.

What’s My Dental Practice Worth to a DSO?

Equity arbitrage, a financial strategy, gained prominence with the entry of private equity into the dental sector. Essentially, it involves the difference between the current value of equity in a dental practice and its value post-sale.

In transactions with DSO’s, dentists often achieve significantly higher financial outcomes compared to selling to private buyers. This is primarily due to the lower risk and the ability to capitalize on equity arbitrage. DSOs find dental practices particularly attractive due to their stable cash flow and loyal customer base. This makes them highly profitable for investors. To accurately assess the value of a dental practice, an appraisal is essential. This process determines the enterprise value by evaluating earnings before interest, taxes, depreciation, and amortization (EBITDA), and estimating the multiples that potential buyers are willing to offer.

However, the window for equity arbitrage is narrowing as the dental industry moves towards consolidation. Younger dentists and entrepreneurs are increasingly opting to sell to DSOs to capture these opportunities before they diminish. To maximize the value of your practice and capitalize on potential recapitalization events over the next five years, taking action sooner rather than later is advised.

DSO’s Create More Competitive Options for Dentist

The trend of fewer dental practices being sold to individual buyers is becoming increasingly evident. The rise of Dental Service Organizations (DSOs) has introduced more competitive options for dentists seeking to sell their practices. Unlike individual buyers who often rely on bank financing, DSOs are backed by private equity, enabling them to offer higher purchase prices. This advantage is due to access to private equity funding, economies of scale, and cost structure optimization.

When selling to an individual, banks typically evaluate the practice based on collections and seller’s discretionary earnings (SDE). DSOs, however, use a more comprehensive valuation method based on EBITDA, which takes into account profitability and future growth potential. This aligns with the long-term financial objectives of DSOs, driven by private equity investors.

So when you ask yourself should I sell my dental practice to a DSO it results in a higher valuation for your practice but also a significantly better price compared to selling to a solo practitioner.