The dental industry is undergoing a transformative evolution, complete with new forces and powerful trends. Money is the primary driver. In the past, a retiring dentist sold the practice to a young graduate looking to establish themselves quickly and learn from a mentor. In the 1980’s entrepreneurial dentists emerged, and they bought multiple locations. They were the formative DSOs but to be clear, they were dentist-owned and dentist-centric. The business model shifted when private equity learned that dentistry enjoys high margins. The DSO business model synthesized and is now primarily operated by investors who do not have a dental degree. It is estimated that about 25,000 dentists now report to and work for a DSO. Not to mention the thousands of dental team members on private equity payrolls. To be clear, non-dentists control ~25% of the practices in America.
Selling:
Your spouse, financial planner, accountant, and all your other invested parties would encourage you to seek out a profitable way to transition out of ownership. The DSO market penetration is poised for continued growth throughout 2024. As the DSO presence expands further, we can expect many new DSOs to enter the market, and for the existing ones to broaden their services to address the changing needs of the dental sector. At Encompass Dental Practice Transitions, we continue to facilitate an increasing number of partnerships between dental offices and DSOs, providing the best deal structures, identification of the big players, and maximizing sale prices for the seller. Not only do DSOs hire and train dentists, but they also provide patients with affordable dental treatment. Additionally, DSOs offer dentists advantages such as financial stability, administrative support, and access to cutting-edge technology. This appeal makes DSOs an attractive option for dentists contemplating selling their practice or planning for retirement. However, the process of establishing a partnership with a DSO demands due diligence, and Encompass Dental Practice Transitions is well-equipped to guide sellers in the proper direction
Weighing the Pros and Cons of Joining a DSO
Like any major decision, there are many potential benefits and drawbacks to selling a practice to a DSO.
Pros:
- DSOs provide dentists with a stable paycheck, offering an advantage over independent dentists who are susceptible to income fluctuations.
- DSOs offer administrative and marketing support, allowing dentists to focus more on patient care. • DSOs often have access to the latest dental technology.
- DSOs are willing to pay a premium for practices, providing a substantial retirement income for dentists.
- Selling to a DSO ensures the practice continues to operate for dentists without a clear succession plan.
Cons:
- Selling to a DSO means relinquishing control of the practice.
- DSOs may implement changes to patient care that may not be agreeable with the dentist.
- Cultural misalignment between a DSO and dental practice culture can create conflict.
- Selling a practice to a DSO may cause staff turnover.
- DSOs may require dentists to work longer hours, potentially leading to burnout.
This is a big decision that has many potential implications. The right choice can pave the way for a comfortable retirement, while the wrong one may result in frustration and lost financial gains, making it extremely important for dentists to meticulously consider all the pros and cons before making a commitment.
Navigating DSO offers
Dentists with reputable, profitable practices may receive unexpected DSO offers which, while tempting, require caution. Accepting such offers without representation could be a very bad idea. A professional review of the deal structure is essential to protect one’s best interests. Encompass Dental Practice Transitions, with its expertise and resources, can provide guidance, ensuring dentists don’t evaluate the DSO options alone. As the demand for dental care continues to increase, the market for dental practice sales is expected to expand even further, and DSOs are well-poised to intensify their operations and acquire more dental practices. Regardless of the market’s trajectory, dentists focusing on exceptional practices, marketing, and financial management will have multiple options for an exit strategy. Encompass Dental Practice Transitions stands ready to assist dentists in evaluating options, negotiating favorable DSO deals, and capturing the practice value they deserve. For those eager to explore possibilities for their practice, patients, and staff, starting a conversation with Dr. Kyle Roth at Encompass is a proactive step forward.
