Selling your practice: Some dentists will fall short
Dentists often find themselves approached by dental service organizations (DSOs) or private equity groups (PEGs) looking 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 partners. They typically initiate contact through direct outreach methods such as email, direct mail, or phone calls, and may use warm introductions from existing doctor partners or sales representatives who have an established rapport with the targeted practice. DSOs and PEGs allocate substantial budgets to incentivize these intermediaries, who need only to set up a conversation to earn their compensation.
Many practice owners initially engage with DSOs or PEGs out of curiosity, wanting to "test the waters" without serious intent to sell. However, entering such discussions unprepared is akin to an average person playing chess with a grand master. Just as dentists spend years perfecting their craft, these business development teams are negotiation and marketing experts.
The pitfalls of unsolicited offers from DSOs
Often, DSOs and PEGs offer to evaluate dentists' EBITDA and practice to surreptitiously control the narrative, financial information, and overall valuation process. By keeping the seller uninformed about other market opportunities, they position themselves advantageously in negotiations.
These buyers pride themselves on the number of deals closed through direct outreach, allowing the seller to accept a price well below market value. Although it may seem like they're getting a great deal, it results in a significant lost opportunity for the seller-which is all a part of the buyer's plan.
Understanding information asymmetry
In any transaction, information asymmetry exists when one party possesses more or better information than the other. When DSOs express interest in your practice, they ask many questions to understand your business and journey, but don't be fooled. They just want to reduce their information gap to gain a comprehensive understanding of your practice. This process involves gathering detailed financial and operational data, which they use to craft an offer that appears attractive but ultimately benefits them more than you.
Sellers often lack critical information about the buyer, such as the quality of their balance sheet, the equity being offered, the range of deal options, the buyer's reputation, and whether they can be trusted to honor their commitments. This imbalance allows buyers to make offers that maximize their return on investment at the seller's expense.
Playing by their rules
When a PEG-owned DSO seeks to sell, they don't accept the first unsolicited offer they receive. With over 100 private equity-backed groups in the US, none would consider such an offer. They understand the importance of a competitive, marketed process to maximize their investment's value. They also employ M&A advisors or investment bankers to prepare their business for sale, develop a compelling narrative for buyers, and drive a competitive process.
These advisors conduct the necessary diligence, align the sellers, and prepare them for the rigorous questions buyers will pose.
The value of an M&A advisor
An M&A advisor is crucial in ensuring that your practice sale is conducted professionally and yields the highest possible value. Advisors help prepare your practice for the market, craft a compelling story, and drive a competitive bidding process. They align all stakeholders on the sell- side and ensure readiness for the transaction. DSOs recognize the value of M&A advisors and use them to maximize deal value, making unrepresented selling doctors an easy target for DSOs to undermine the true value of their practice.
In conclusion, while it may be tempting to engage in direct discussions with DSOs or PEGs, doing so without professional guidance can result in significant value loss. Engaging an experienced M&A advisor ensures that you navigate the sale process strategically, maximizing the value of your life's work. Remember: there are no shortcuts in the sale of your dental practice.
