Dental M&A is the market a practice owner enters the day a group makes an offer, whether he went looking for one or it arrived unsolicited. Most of the activity is dental support organizations (DSOs), and the private equity sponsors behind them, buying practices to add to a platform, and most owners sell once. This page explains how those deals work, from a team that bought practices for a DSO before it sold them for dentists, and knows the small details of how buyers operate because it lived them. Those details are what we use to get the most out of a sale for the owner, and they are what this page covers: who the buyers are, what an offer is made of, how the deal is structured, and what an advisor does for the seller. For the step-by-step process, read our complete guide to selling your dental practice.
Who Buys Dental Practices
Three kinds of buyers are active. Dental support organizations buy practices to add to a platform, and they are the most active acquirers of practices with strong earnings; most of the larger groups are backed by a private equity sponsor, so in dental, “selling to private equity” usually means selling to a group a sponsor backs. Individual dentists and small groups buy as well, usually to run the practice themselves. The buyer changes the price and the shape of the offer. No two groups run the same model: each gives credit for add-backs and adjusts owner pay, rent, associate production and one-time costs a little differently, on top of a different balance sheet and a different cost of capital. One offer is one group’s view of the practice, and two groups will price the same practice differently in the same month. The seller’s edge is knowing what’s market: which credit is standard, which adjustment is one group’s own, and where offers for a practice like his land.
What an Offer Is Made Of
An offer comes in one of two shapes: a fixed price that the buyer’s quality of earnings review has to verify, or a formula, a multiple of the earnings that review adjusts. Both can end in a retrade if the review finds a different number than the one the offer assumed. The price is usually paid in more than one piece. Cash at closing is the largest. Many group offers include equity in the buyer: HoldCo equity, ownership at the parent level that rides the whole platform and the debt that finances it and is paid when the platform is sold or recapitalized, or JV equity, a retained minority stake in the practice itself, which can pay distributions along the way. The equity comes out of the price, not on top of it, and an offer that says “equity” without naming which kind, at what level, with what rights, is asking a question a platform with a good equity story answers easily. Some offers also carry contingent pieces, an earnout or a holdback, that pay later and on conditions. Post-close compensation is the buyer’s number: its model sets the rate and its employment agreement pays it, so the owner compares it across offers rather than trading it against price.
How Dental Practice Deals Are Structured
Nearly every dental practice deal is an asset purchase. The buyer buys the practice’s assets out of the owner’s entity (patient records, equipment, goodwill, usually the name and the phone number) rather than the corporation itself. The documents settle the line between the sides: what is included in the purchased assets, what is excluded (typically cash and usually the receivables earned before closing), and who collects those pre-close receivables after closing, at whose cost and for how long. Supplies on hand, equipment leases and the real estate (an assignment of the lease, a new lease with the owner as landlord, or a purchase) sit behind those. After closing the selling doctor typically works for the group for three to five years under its employment agreement. The buyer prices the practice on its trailing twelve months of earnings rebuilt into EBITDA, which is why the year before a sale is the year that sets the price, and why an improvement only counts once it has shown up in those twelve months.
What a Dental M&A Advisor Does for the Seller
The group across the table has a team that has done this many times. A dental M&A advisor is the seller’s team. Ascend Strategic Partners builds the valuation the way a buyer’s team builds it, prepares the practice and its numbers before any group sees them, and runs a competitive process through an established nationwide network of DSO, private equity, and private buyers, so that offers can be compared side by side on cash, equity and terms. From the letter of intent to closing we carry the diligence, the quality of earnings review and the documents through the roughly 90 days most groups take to close. If an unsolicited offer has already arrived, that is the moment to get representation, not the reason to skip it. In our experience an unsolicited offer can be improved on, for two reasons: other groups competing for the practice, and an experienced advocate in the owner’s corner on price and on terms. Ascend is a sell-side brokerage that represents dental practice owners when they sell.
Where to Start
Start with the number. Our free, confidential practice valuation reads your practice the way a buyer’s team will, and it is reviewed personally by our founder, who built and ran the M&A team at one of the country’s largest DSOs. Request the valuation, or call 813-528-3319 if an offer is already on your desk. For the process month by month, read how long it takes to sell a dental practice; for what an equity component is worth, read the second bite of the apple; for how a group rebuilds your earnings, read how DSOs value dental practices.