“When a DSO approaches you with a deal, do your homework before taking their offer. They may not always have your best interests in mind,” Professional Transition Strategies Chief Operating Officer Rebecca Kilibarda wrote in a recent article for Dental Economics. To work with a dental service organization (DSO), you must first think like one. Here are some key takeaways to understand and work with a DSO, whether now or in the future.
Target practice
“DSOs typically target practices for acquisition via passive and proactive marketing,” Kilibarda wrote. DSOs could send out flyers and postcards, ask for referrals, or make cold calls, as well as call practices after hours to get a dentist’s home phone number or even scan “best of” issues from local and trade publications. Oftentimes, your website will answer questions, such as how many employees your practice has, to then determine your estimated financial position. Once contact has been made, a DSO will want to know what your annual collections are, your PPO/Medicaid/fee-for-service ratios, and how many operatories you have.
Offer on the table
A DSO will typically conduct an in-house valuation of your dental practice before putting together an offer. But just like you wouldn’t accept an offer from a buyer interested in your house, a dollar amount from a DSO will typically come in at a lower amount than your business is actually worth. You should look for the maximum value for your life’s work. Be sure to examine the terms of the deal during the due diligence process and ask what multiples are being used to calculate the offer to determine how they arrived at that figure.
Red flags
Ask yourself: Does this offer seem too good to be true? “If so, proceed with caution,” Kilibarda advised. “To fully understand the offer, ask the DSO rep for a list of doctors with whom they’ve completed transactions — ideally 30-, 60-, or 90-days post-transaction — so you can chat with those dentists.” What’s more, you should look at the offer from all angles, including the non-compete clause, the level of equity you’ll receive, and what projections look like, as well as the productivity terms, such as how long you will be required to stay on before exiting the practice. Also, be sure to understand the structure under which you’ll be transitioning ownership, whether that’s a joint venture, equity roll, or straight buy-out.
Maximum value
“DSOs can typically buy at a lower price than the actual value of the practice because there isn’t competition in most of these deals,” Kilibarda explained. The best way then is to put yourself in a competitive environment by bringing your dental practice to market, and working with an experienced dental practice broker will put your business in front of more potential buyers. “Thankfully, with hundreds of DSOs in the market, it’s not one-size-fits-all anymore,” Kilibarda continued. “But in all cases, look out for your own interests by working with expert partners who have no incentive to sell your practice short but rather a commitment to maximizing the value you receive.”
Bottom line
The best way to get inside the mind of a DSO is to work with a dental practice broker that has experience with the various options available to you. Contact the experts at Professional Transition Strategies to arrive at a comfortable decision that will ensure peace of mind for all parties involved.