Dentists may be approached by dental service organizations (DSOs) or private equity groups (PEGs) that are seeking to acquire their practices. These entities have extensive, highly skilled business development teams whose primary goal is to secure acquisitions at favorable terms for their investors and current doctor partners.
DSOs and PEGs typically initiate contact through direct outreach methods such as email, direct mail, or phone calls. They may use warm introductions from existing doctor partners or sales representatives who have established relationships with the target practice.
In many cases, DSOs and PEGs allocate substantial budgets to incentivize these intermediaries. Initially, some practice owners may engage with DSOs or PEGs out of curiosity, wanting to "test the waters" without a serious intent to sell. However, entering such discussions without preparation can be akin to playing chess with a grand master. Just as dentists spend years perfecting their craft, these business development teams can be masters of negotiation and sales tactics.
The pitfalls of unsolicited offers
DSOs and PEGs may approach dentists directly, offering to evaluate their earnings before interest, taxes, depreciation, and amortization, or EBITDA, and practice value. This strategy can place them in a position where they may control the narrative, the financial information, and the overall process.
These transactions may often result in the seller accepting a price that could be below market value. While this approach is advantageous for the buyers, it can represent a significant lost opportunity for the seller.
Understanding information asymmetry
In any transaction, information asymmetry exists when one party possesses more or exclusive information than the other party. If a DSO expresses interest in your practice, they may ask numerous questions about your business and its journey. This information-gathering process involves gathering detailed financial and operational data, which they may then use to craft an offer that appears attractive but may ultimately benefit them more than you.
Sellers can often lack critical information about the buyer, such as the quality of their balance sheet, the equity being offered, the range of deal options that are available, the buyer's reputation, and whether they have a history of honoring their commitments. Similar to any deal, it's important to do your due diligence to ensure you receive an offer that represents a fair value for your practice.
Playing by their rules
When a PEG-owned DSO seeks to sell, it doesn't accept the first unsolicited offer it receives. They understand the importance of a competitive, marketed process to maximize their investment's value.
They would likely employ merger and acquisition (M&A) advisers or investment bankers to prepare the business for sale, develop a compelling narrative for buyers, and drive a competitive process. These advisers would then conduct the necessary diligence, align the sellers, and prepare them for the rigorous questions buyers would likely pose.
The value of an M&A adviser
An M&A adviser can be crucial in ensuring that your practice sale is conducted professionally and yields the highest possible value. Advisers can help prepare your practice for market, craft a compelling story, and drive a competitive bidding process. They also perform due diligence, helping align all stakeholders on the sell side and ensuring readiness for the transaction.
In conclusion, while it may be tempting to engage in direct discussions with DSOs or PEGs, engaging an experienced M&A adviser can help you navigate the sale process strategically, helping to maximize the value of your life's work. Remember, there are no shortcuts in the sale of your dental practice.
Ryan Mingus is managing director of Tusk Partners and has more than 12 years of sales and leadership experience in the dental and healthcare industry, most recently as the business development director for strategy and optimization at Align Technology Inc. Mingus earned his bachelor's degree in economics and business from the Virginia Military Institute and his Master of Business Administration from the University of San Diego. He also held the rank of captain in the U.S. Army National Guard.
The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.
