November is when the unsolicited offers start showing up in Arizona. The DSO development teams are trying to close their year, the private equity groups want deals under LOI before the holidays, and your front desk starts forwarding you emails that open with “We are actively acquiring practices in Scottsdale.” If you own a practice with collections over $1 million, you have probably had three of these this quarter.
So who are the companies that buy dental practices, and what do they actually pay? Here is the straight version, from someone who has sat across the table from all of them.
The Four Kinds of Buyers Calling You
1. Large DSOs
These are the national and regional groups with 50 to several hundred locations. They are usually backed by private equity and they buy on EBITDA, not collections. A typical structure is a cash payment at closing for a majority of the practice, with the rest paid in equity of the parent company that you cash out later, if and when the parent sells. The headline number is often the biggest you will see. The catch is that 20 to 40 percent of it may not be cash, and you will usually be asked to keep working for 3 to 5 years at a set salary.
2. Emerging groups
These are the 5 to 20 location groups, often started by a dentist who bought a second office and kept going. They pay closer to private-buyer pricing, move faster than the big DSOs, and are less likely to change your staff or your brand. Many of them are the best fit for a $1.5 million practice in the East Valley. They do not have the marketing budget of the large groups, so you rarely hear from them unless a broker brings them in.
3. Private practice buyers
Associates, existing owners buying a second location, and dentists relocating from California. They pay with SBA or bank financing, which means a lender has to approve your practice, and they pay 100 percent cash at closing. They buy on a multiple of collections adjusted for profitability. There is no equity rollover and no five-year employment contract. In Arizona this is still the most common buyer for practices under $2 million in collections.
4. Specialty and platform buyers
Pediatric, ortho, oral surgery, and perio practices get calls from specialty-only groups. They pay specialty premiums and they know your numbers better than a general buyer would. If you are a specialist, expect fewer buyers but sharper ones.
What They Actually Pay
Every buyer will tell you their offer is the strongest. Compare them on three things instead of the headline:
- Cash at closing. A private buyer’s $1.4 million is all cash. A DSO’s $1.8 million might be $1.2 million cash and $600,000 in parent equity you cannot sell for years. Those are not the same offer.
- Your post-sale income. A DSO salary of $250,000 for 4 years is part of the price, whether the buyer says so or not. A private buyer usually wants a 6 to 12 month transition and then you are done.
- What happens to the practice. Your staff, your name on the door, and your patients. Some sellers care about this more than the last $100,000. That is a legitimate position, but you should decide it on purpose.
One more thing on the unsolicited offers. When a company calls you directly, you are the only seller in that conversation and they know it. The number they open with is not their best number. A practice marketed confidentially to all four buyer types at once gets a market price, not an opening bid.
Which Buyer Is Right for You?
It depends on three answers. How many more years do you want to work? Do you need all the cash now or can part of it wait? And how much do you care about what the practice looks like after you leave? Answer those honestly and the right buyer type usually picks itself.
If you have an offer in hand from any of these companies that buy dental practices and you want a second opinion before you sign, call Karl. The conversation is confidential and there is no pressure. Frye Practice Sales & Healthcare Real Estate has closed more than 300 transitions in Arizona, and the commission is paid at closing, not before.
Related: dental practice valuation in Arizona, working with Frye Practice Sales as a seller, and buyer resources.
Karl Frye | 480-599-6958 | karl@fryepracticesales.com | www.fryepracticesales.com
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