Finding the Right Representation for Your Practice

As with any maturing industry or market it is common to see new entrants coming into the space. In the dental market new DSOs are regularly emerging and new professional and support service companies are continually entering the arena. In what is becoming a rapidly changing environment practice owners need to be astute when selecting partners for their business. When deciding the next phase of practice it is important to understand the landscape of resources available.

Until the early to mid 2000s dentists essentially had one option for selling their business, and that was to another dentist. Generally, a selling dentist would rely on a regional practice broker that had highly specific knowledge of all the doctors in that market, including those who were looking to purchase a practice or become an associate with the intent of buying out the existing doctor. There are many experienced dental brokers out there who are well-suited for doctor-to-doctor transactions because they understand the landscape of the region and can craft compatible connections.

With the escalation of DSOs many traditional brokers have had to sell practices to a new type of buyer (ie, the DSOs). Selling a practice in a doctor-to-doctor deal is very different than selling to a private equity-backed DSO. Private equity-backed DSOs have teams of financial analysts and attorneys to evaluate deals, provide offers, and create complex structures.

Acquiring the skills and qualifications needed to properly represent a doctor who is interested in DSO partnership is not easily done and requires time and experience. Doctors should consider asking a whole host of questions when choosing an advisor, such as: What is their experience with selling practices to DSOs? How many deals have they closed, and how many different buyers have they worked with? Do they have an in-house analytics team working for their clients, or do they outsource (outsourcing analytics is not in the seller's best interest)? How familiar are they with private equity firms backing DSOs in the space? Are they compensated by DSOs for bringing their clients to them? How many past clients that sold to DSOs can they introduce you to?

With new entrants flowing into the space, doctors looking to transition need to be wary of who they are dealing with and do their due diligence. Not all of the new players will have the seller's best interests in mind. Some may attempt to "roll up" a group of dentists to maximize the valuation or the "multiple" that they would receive in the sale to a DSO. Such individuals likely have minimal experience in the buying or selling of businesses in the private equity environment and could potentially leave a wake of unfulfilled promises to doctors. Additionally, some consultants in the space may simply be trying to monetize their rolodex of clients. They might ask doctors to sign up for a specific program or ask them to sign a contract with several promises related to purchasing their practice or partnering with the consultant's DSO. They might promise equity in their organization that is never realized. A doctor's safest option is to hire an advisor who exclusively focuses on representing dental practice owners in a sale.

The best way for a doctor to maximize the value of their business is to run a professional marketed sales process to fully explore the market. The number of buyers has never been greater than it is now, and the range of quality buyers has never been broader. While it is easy to get caught up in the feverish pace of consolidation, a formal process requires a substantial time commitment from both the seller and an experienced advisor to navigate the process.

Having the correct representation to sell a practice is more critical today than ever before. Sellers need to ask the right questions, do their due diligence, and make the best decision for the business they've spent their life building.

Josh Swearingen
Director, Mergers & Acquisitions, TUSK Practice Sales, Charlotte, North Carolina (TuskPracticeSales.com), a dental M&A advisory firm for large practices and DSOs