As a dental practice owner, selling your practice is a major milestone that requires careful consideration of risks that could affect your value and the future of your business. It’s not just about finding a buyer; it’s about ensuring that your years of hard work translate into a successful sale that meets your goals and results in financial independence. 

The dental industry has seen significant shifts in the world of dental support organizations (DSOs). While some DSOs have successfully achieved recapitalization events—two last year and two already this year – others are struggling. Several major players have indicated plans for recaps in 2025, signaling continued positive trend for DSO-affiliated doctors and their investors.

In the midst of the positive news of recaps it is important to note that not all DSOs are created equal, and some may never reach a recap event.

The gap between thriving DSOs and those on the brink of failure has never been wider. Yet, struggling DSOs are still actively acquiring practices, often making promises they cannot keep. Many practice owners don’t realize some buyers may not survive long enough to deliver on the deals they’re offering. Without the right guidance, sellers risk making a deal with a buyer who lacks the financial strength to ensure a long-term transition.

When it comes time to sell your dental practice, your first order of business will be to understand what your practice is worth and to determine if the valuation financially meets your professional and lifestyle needs. These two crucial items are oftentimes examined by an experienced financial planner and dental broker who can help inform you of the next steps as you prepare to sell your practice. Why do you need to prepare?

The right preparation doesn’t just improve the headline price. It protects the value that actually makes it to the finish line. In practical terms, that means converting your story into defendable EBITDA, anticipating and addressing QoE (Quality of Earnings) questions before buyers ask them, and aligning on a realistic deal structure that will financially meet your needs. This guide lays out what to do in preparation to make that happen.

In truth, most of our job isn’t to ensure you get a valuation that you’re happy with. It’s to ensure the valuation you receive holds up, and that you’re protected from the other trapdoors built into LOI’s that will impact your value down the road. Unfortunately, you don’t fully understand what your offer really entails until it’s too late.

Your dental practice serves as your primary source of income and, likely, your most valuable asset. Selling a dental practice is a significant decision that goes beyond the typical real-estate transaction.

With patients, team members, and your professional reputation at stake, careful planning is essential as you are effectively swapping cash flow from the business (taxed at ordinary income tax rates) for a lump sum of 5–10 years’ worth of cash flow on which you will only pay long-term capital gains at today’s rates. You only get one chance to sell your business—make sure you make a well-informed decision.

It’s a common conversation we have when approaching prospective sellers, “How much more can you really improve my offer? Why would I pay someone to negotiate on my behalf if I already have a deal in front of me that I’m happy with?”

In truth, most of our job isn’t to ensure you get a valuation that you’re happy with. It’s to ensure the valuation you receive holds up, and that you’re protected from the other trapdoors built into LOI’s that will impact your value down the road. Unfortunately, you don’t fully understand what your offer really entails until it’s too late.

If you are a dentist that has 20% or more of your revenue attributable to implants, and over $1.5M in revenue you have one of the most valuable practices in America today.  This was not the case, a year ago…

Looking Back

20 years ago, when the consolidation of the dental industry was in its infancy, almost all the investors were focused on buying general practices.  They were plentiful, in great locations, and each year many new dentists graduated from school to join these practices as Associates. Additionally, GP practices had recurring revenue through their hygiene department.  Hygiene regularly represented 20%+ of revenue.  It helped de-risk the cashflows and the dependency on the dentists.

Congratulations! Your business survived COVID and the reward waiting on the other side of the pandemic was the Great Resignation. You weathered that storm and now you are greeted with rampant inflation. Additionally, you are being held hostage by your team for more compensation. Now, the benefit of surviving all of this is a looming recession.  It has been a hard run, and likely only going to get harder. 

Like you all, I spend a lot of time reading the financial press. Each paper, website, and author have a unique perspective on the US economy. Although the news is great, I also seek out those in the know for their opinions as well. 

PICTURE IT WITH ME: you’re enjoying a relaxing Saturday morning at home. As you sit on the front porch reading the paper, you notice that the grass needs cutting, the dead limb over the garage did not come down by itself while you were practicing dentistry all week, and although the leaves fell months ago, you still haven’t removed them from the flower beds. There’s certainly some work to do outside. Not wanting to tackle the chores today, you wander inside.

 As you walk past the fridge, you glance at the long list of honey do’s placed up there weeks ago that continues to grow. As you pour another cup of coffee and think about how to get through this mountain of work around the house, the doorbell rings.

The Mergers and Acquisitions (“M&A”) world is largely cyclical.  There are ups and downs and good times and bad to sell one’s business. Over the last 5 years, we have only seen dental practice values increase.  So, the question we are often asked is, “How much longer can they go up?”

If you spend too much time watching the news or reading the financial press, it can feel as though we are only one day away from financial ruin, but the story in the dental economy is a different one. Demand is high across all specialties and GP practices and new capital is entering the market with great regularity, keeping valuations high, for now.

As we prepare for the year ahead, I want to share a summary of conversations I’ve had in recent months with IDSO/DSO leadership nationwide, as well as our insights on the dental mergers and acquisitions (M&A) markets.

Valuations Remain High

2022 was one of our busiest years. Our clients enjoyed rich multiples and favorable deal structures with the best DSOs in the nation. We currently have more deals in the market than ever, and we’re consistently seeing bidding wars and multiple offers. Buyers are complaining that they cannot keep paying these rich multiples much longer and that they must be selective in how they spend their money, but for every buyer that bows out, two new buyers appear. There were at least 20 private equity- (PE) backed DSOs formed in 2022, and they must buy practices to grow and meet the needs of their investors. Q1 is always a fascinating time in M&A markets: fresh off the busiest M&A closing season, there are never enough sellers to meet buyer demand. Each year this results in bidding wars and premiums paid by buyers through the first four to five months of the year. The first half of 2023 will be fast-paced, resulting in excellent deals for sellers.