How to SUCCESSFULLY Sell Your Dental Practice to a DSO

Selling your dental practice to a Dental Support Organization (DSO) can be a highly rewarding decision when approached strategically. By following a structured process and gaining a clear understanding of the steps involved, you can secure the best possible outcome for your practice. Below, we provide a detailed guide to help you through this important transition.

Understanding the DSO Letter 

Receiving a letter from a DSO is an exciting development, often filled with promises such as “We pay over 100% of collections” or “Everyone loves partnering with us.” However, it is essential to thoroughly research the sender before proceeding. 

• Verify the DSO’s Identity: Conduct an online search to learn more about the organization and identify the private equity firm backing it. 
• Research Recapitalization Events: Find out when the DSO last experienced a “recap event.” If it has been more than three years, they may be nearing another event, which could potentially affect the ownership terms of your sale.

By gathering this background information, you can make a more informed decision about the partnership.

Preparing for the Interview Phase 

Once you initiate contact with the DSO, they will begin collecting information about your practice. Be ready to provide answers to the following questions:

• What were your gross collections for the past three years? 
• How many treatment rooms does your practice have? 
• Has your practice been recently evaluated? If so, what is its estimated value? 
• How long do you plan to continue working after the sale? 
• What percentage of collections come from hygiene services? 
• Do you accept insurance? If so, what types? 
• Is your current staff planning to remain post-sale?

Preparing these answers in advance demonstrates professionalism, elevating your appeal to potential buyers.

Additionally, identify key individuals involved in the negotiation process and request meetings with them:

• The manager is responsible for overseeing your practice post-sale. 
• The current owner of the DSO. 
• Other local dental professionals have transitioned to this DSO.

Evaluating the Letter of Intent (LOI) 

The DSO may present you with a Letter of Intent outlining the proposed terms. While this document is non-binding, it is crucial to approach it with caution, as significant details may change during the due diligence process. Key factors to consider include:

• Proposed Price: Be aware that the final price often decreases during due diligence. 
• Timeline: Closing timelines typically exceed 60 days. 
• Post-Sale Terms: Carefully review commitments such as work obligations and non-compete clauses. 

Before signing an LOI, compare offers from multiple DSOs to assess your options. Ensure references are checked, non-compete agreements are reasonable, and your practice has been professionally evaluated to determine its open market value. This provides you with a stronger negotiating position.

Navigating the Due Diligence Process 

The due diligence period involves an in-depth review of your practice’s operations and financials. To manage this effectively and avoid feeling overwhelmed:

• Leverage Trusted Support: Share the responsibility with a trusted staff member or spouse who can assist in gathering reports, organizing data, and fulfilling requests. 
• Allocate Time Wisely: Dedicate approximately 10–15 hours per week to managing the process. 
• Grant Access as Needed: Ensure key individuals assisting have access to financial and banking records. 
• Consider Professional Assistance: If the process appears daunting, seek the guidance of a professional advisor experienced in DSO transactions. 

Building an Expert Professional Team 

Collaborating with a team of experienced professionals is critical to ensuring a successful sale. Your team should include trusted advisors well-versed in DSO transactions, including:

• A Certified Public Accountant (CPA) 
• A Practice Broker 
• A Legal Team Specializing in Practice Sales

This team can assist in essential areas such as tax planning, asset allocation, equity agreements, and contract negotiation. Specific issues to review include:

• Holdback/earnout terms. 
• Non-compete agreements. 
• Termination clauses. 
• Indemnification and warranty requirements. 

For transactions involving equity agreements, ensure that your team evaluates critical factors such as recap events, fair market valuation, and repurchase triggers.

Achieving a Seamless and Profitable Sale 

Selling your practice to a DSO can deliver substantial financial and professional rewards when approached strategically. With proper preparation, thorough research, and the guidance of a dedicated professional team, you can transition successfully while securing terms that align with your goals and plans. 

If you are considering selling your practice and need expert advice, our team is here to assist you every step of the way. Contact us today for personalized guidance and support in simplifying this important transition.