The Practice Buyer's Corner - Random Musings from the Buy-Side

The purpose of this blog is to share current, real world, experiences on the topics of practice valuation, practice transition, retirement planning, and building equity value - over time - in your dental practice.

Blog By:
seanepp

Modeling School

Ah, group dentistry.  As new groups spring up, existing groups nose dive.  The circle of life.

You may hear the question, “Which model is right for you?”  TopCo, JV, Parent, Hybrid, SubDSO, DPO, LOL, DMO, AKA, WTF.  So many folks go to such great lengths to relabel themselves.  

Why not just own it?  Are you a group practice or not?  All that is required to be a “group” is a single associate, non-owner doctor.  Bingo boingo, you’re cooking with nitrous.

Every model or group style has its pluses and minuses and there is no singular “right” way to do any of it.

TopCo/Parent

Pros:  

KISS - Keep It Simple Stupid.  Simple, clear, and egalitarian.  What’s good for the goose is good for the gander.  Capital pursues the best growth opportunities for the platform.  Full stop.

Cons:  

Equity growth tied to overall enterprise value, not a single practice or market.  What happens if your practice flourishes but the overall platform languishes?

JV/SubDSO

Pros:  

Can be a good fit for ramping businesses and those with existing 4-wall “headroom”.  Often an interesting fit for mid-career doctors about to embark on a steeper section of their growth curve.

Cons:

Equity growth tied to a single practice or market, not the overall enterprise.  What happens if the rest of the business flourishes and your practice or market languishes?

Hybrid/Etc.

See above.  Integrate and stir.

What Happens To Rollover Equity at the Next Recapitalization Event?

The $64,000 Question.  

Be sure to ask suitors for a detailed walkthrough of the “waterfalls” upon a future recapitalization.  

Ask them to use their financial results as of today.  Actual debt, actual EBITDA.  Not year 5 of some convoluted projections.  Today.

Is your equity investment at a pre-money or post-money valuation?  How often does the platform mark its equity to market?  Have there been any equity “down rounds”?  If so, why?