Guide to Dental Mergers & Acquisitions

Intro to Dental Practice Mergers and Acquisitions

“Mergers and acquisitions” (often abbreviated M&A) is a hot buzz-term in the dental industry. This is because running a dental practice has never before been as hard as it is today. Many dentists do successfully manage their own private practices, but it takes much more time, energy, capital, and business savvy to do so these days. Multi-practice owners often feel overwhelmed by the obligations that come with running multiple practices, and many seek relief by selling their holdings via M&A.

As the owner of one or more practices, you’ve likewise felt yourself starting to wear thin, and you wonder whether being acquired by a group or a Dental Service Organization (DSO) could be the key to helping you achieve a better work-life balance.

The DSO model has been gaining traction for years and proved to be incredibly stable in the wake of the COVID-19 pandemic. Dentistry itself is a recession-proof industry with the demand for dental care ever on the rise, and private equity groups are intrigued by the economic resilience of dentistry on the whole. This has led to immense interest in backing the growth of DSOs, which means that most of these organizations have plenty of capital to fund the simultaneous acquisition of large and multi-location practices.

There are abundant opportunities to merge independent practices onto a dental group platform. What we see right now is a seller’s market that affords you the freedom to negotiate a deal that delivers a lucrative return while preserving your professional legacy and values.

A Strategic Approach to M&A

Selling practices through M&A to a dental group that has the resources and bandwidth to take over all administrative functions could be a practical solution that allows you to see a generous return for your hard work and enables you to continue serving the patients you love.

Due caution is warranted, however. You want to be certain that your practices will be transferred into capable and caring hands, so choosing the right buyer is imperative. In addition, selling your practices can be a complex process that needs to be navigated with expert guidance, so choosing the right team to assist with your M&A transaction is equally important. Finally, this M&A trend won’t last forever, so it is crucial to start planning now if you are interested in leveraging this trend.

US Dental Transitions has more than two decades of experience in representing sellers’ interests and guiding multi-practice owners through a seamless M&A process. We understand that selling your practices can be a complex and intimidating process, but we will guide you through every step of the journey and explain everything clearly so that you can complete the transaction confidently on your own terms.

Key Terminology for Dental Practice M&A

Here are some of the most common terms you’ll encounter when discussing M&A.

Merger

In years past, the term “merger” described the event in which one dentist purchased the practice of another dentist and then merged the two into one facility. In the context of today’s M&A trend, however, “merging” also describes the process of shifting a practice’s management onto the existing administrative platform of a dental group or DSO.

Acquisition

“Acquisition” refers broadly to the act of purchasing, or acquiring, a dental practice. Individual dentists do still acquire the practices of selling dentists by buying them outright. But the definition of “acquisition” has expanded and now applies to the strategic approach DSOs and dental groups use to grow their holdings by purchasing practices and merging them onto their platforms.

Transition

“Transition” is the process of selling a dental practice and gradually transferring oversight of the practice to a new dentist. The selling dentist stays on for an agreed amount of time to ensure the transition proceeds smoothly before retiring from clinical practice. Some dentists opt to prepare for a gradual retirement from clinical practice via M&A with a DSO.

Valuation process

This is the process during which an advisor such as US Dental Transitions meets with you to get to know your treatment and practice philosophies, gathers key financial and business performance reports, and helps you determine the value of your practice holdings.

EBITDA

EBITDA is an acronym for “earnings before interest, taxes, depreciation, and amortization.” At its core, EBITDA is a metric of the profitability of your practices. It’s a number that buyers like private equity-backed DSOs look at when determining how much value can be added to the organization by acquiring your practices.

Adjusted EBITDA

Your EBITDA might look different by the time your practices come under new management. Perhaps you’ve incurred one-time expenses that the new owner will not have. Those expenses will affect your EBITDA right now, but they won’t be there in the future. A professional advisor can help you calculate an adjusted EBITDA that more accurately depicts the actual profitability of your practices.

A common industry standard for determining the value of a dental practice is to take a multiple of the adjusted EBITDA. The current average market multiple we see in dentistry ranges from 3.5 to 7x. As an example, if your adjusted EBITDA is $2 million, then you can expect to receive offers that range from $7 million to $14 million. A large and well-integrated set of practices and/or specialty practices can potentially command multiples of 16x or more.

Multiples

A common way of determining the value of one or more practices is to multiply the adjusted EBITDA by the going rate in the industry, and that rate is called a “multiple.” For example, if the average market multiple is five, then the practice value is calculated by multiplying your adjusted EBITDA by five. Ten multiples would mean that your practices are worth your EBITDA multiplied by ten, and so on.

NDA

A non-disclosure agreement (NDA) is signed to protect your confidential information that will be shared with a potential buyer during the process.

LOI

LOI is an acronym for “letter of intent,” a key document that represents a formal statement of intent on behalf of the buyer (DSO) and the seller (you). The LOI is not a completed business deal, nor is it a legally binding document, but it lays the foundation for the final deal and it demonstrates the seriousness of intent. Details outlined within the LOI are subject to change, and either buyer or seller are free to walk away from the deal at this point.

Exclusivity clause

An LOI often includes a clause that prevents you from engaging in M&A discussions with other potential buyers for a specific period of time.

Due diligence

Due diligence is conducted by the buyer. In the context of dental practice M&A, this is when the DSO inspects the prospective acquisitions and requests paperwork from the seller to confirm that the assets listed for sale meet the organization’s expectations.

QofE

A part of the due diligence process, the quality of earnings process is when the buyer verifies that the details presented in the financial analysis of your practice match up with financial records like payroll reports and tax returns.

Arbitrage

Private equity-backed DSOs grow the value of their holdings by acquiring independent practices and merging them onto their platform. This process automatically grows the equity of those individual practices. In essence, the practices become inherently more valuable simply by becoming part of something bigger. DSOs often extend sellers the opportunity to retain a percentage equity in their original practice as an investment. This gives selling dentists the chance to cash in on the increasing value of their practice.

The Mergers and Acquisitions Process: What to Expect

What does a dental practice merger and acquisition look like? This is the process you can expect when you work with US Dental Transitions.

1. Contact US Dental Transitions.

Reach out to US Dental Transitions to let our team of dental practice transition experts know what you would like to achieve through a merger and acquisition.

2. Plan an on-site visit.

A Transition Advisor will visit your dental practices to meet with you in person, discuss your goals and treatment philosophy, answer your questions, and gather information on your practices.

3. Valuate your practice.

During the valuation process, we will take care of the paperwork and calculations so that you can concentrate on your clinical responsibilities. We will explain every step to you clearly and ensure that no small detail is overlooked.

How much could your practice be worth? Get a valuation today!

4. List your practices.

With our extensive marketing experience and resources, we will work with you to co-author the listing for your practices and advertise the opportunity. We also have an extensive database of interested potential buyers that we can contact.

5. Screen potential buyers.

After a potential buyer expresses an interest in your practices, we will screen them to make sure they fit the profile of your ideal buyer. Then they will sign an NDA to protect your information before we share your details with them.

6. Introduction to a potential buyer.

The buyer will visit your practices to see them in person and talk with you about your goals for the M&A.

7. LOI and due diligence.

If the buyer would like to move forward, they will present the LOI for review. Once you accept the terms as stated in the LOI, the process of due diligence by the buyer begins.

8. Close the sale and transition practice management.

Our team will guide you through the closing of the sale and help you prepare for the changes that come when you finally merge your practices onto the new management platform.

Ready to

Get Started?

Or

M&A for Dentists with Multiple Practices — How US Dental Transitions Can Help

Closing a sale after a merger and acquisition is the easy part. The real challenge lies in finding the right buyer that will manage your practices in a way that aligns with your treatment philosophy.

At US Dental Transitions, we can help dentists with one or multiple practices to complete successful transactions that help them merge their practices with larger groups like DSOs. The process of locating the right buyer and preparing for a successful transition can be overwhelming and time-consuming. Fortunately, our team of advisors has the capacity and the experience to handle every detail.

After more than 25 years in this industry, we know what questions to ask and what tasks need to be completed to ensure a successful M&A transaction. We know how to negotiate for terms that protect your interests and honor your values. We also know how to explain the process clearly so that you know exactly what’s going on the entire time.

Most importantly, we strictly represent selling dentists. This means we are 100% on your side during the merger and acquisition process. While we will help you locate the right buyer, our goal is to protect your interests as the seller at all times.

Our process has helped dentists across the country change their lives for the better. We can help you change yours, too.

Dental M&A Success Stories by US Dental Transitions

See how we’ve already helped dentists just like you to navigate the M&A process with ease and achieve their goals.

Client: Dr. W

Practices: 3

Dr. W is an orthodontist who built up three practice locations. He sold one to a former associate and then decided to merge his remaining two locations with a DSO. It was important to Dr. W, however, that he found a DSO that aligned with his practice philosophy. There was a significant demand for the locations of Dr. W’s practices, and with the help of US Dental Transitions, he merged his practices with a leading orthodontic and pediatric DSO in the area that was owned by an orthodontist and backed by a private equity group. As a result of the successful merger, Dr. W was able to command a higher price for his practices and get the management support he needed, all while continuing to run the practices on his own terms.

Client: Dr. K

Practices: 5

Dr. K is a pediatric dentist with five locations in the suburbs of Atlanta. He built a strong platform for his practice with an EBITDA of over $3 million. A DSO reached out to express interest in acquiring his practices, and Dr. K responded. But despite all the effort he expended trying to negotiate the deal himself, the deal fell apart. To avoid repeating the frustration, Dr. K reached out to US Dental Transitions to help him find a qualified buyer and navigate the process. US Dental Transitions made the introduction and negotiated on Dr. K’s behalf to receive an offer of more than 10 times his EBITDA. Dr. K was able to command a large multiple thanks to US Dental Transitions’ industry knowledge and negotiating skills and because of the well-functioning platform he had established across his five practice locations. Dr. K was pleased to receive top dollar at the closing table and looks forward to the recapitalization of the DSO he has affiliated himself with.

Client: Dr. M

Practices: 1

Just a few years ago, at the age of 56, Dr. M started thinking about what a transition could look like when he was 60. He knew he loved being a dentist, and he wasn’t yet ready to retire, but he did know that he should start building his plan. Dr. M had a $2.9 million practice that he wanted to transition seamlessly on his own terms, so he reached out to Dr. Bill Adams, the founder of US Dental Transitions. Dr. M wanted to meet with our team to understand his options. One of those options was to transition his practice to a boutique dental group that was backed by private equity. Dr. M’s goal was to remain the “face” of the practice without being responsible for the day-to-day management and operations. He did not want the practice name to change, and he wanted his staff to be protected. Dr. M also wanted to be paid a fair $2.9 million for his practice at the closing table and wanted to be made an investor in the company so that when they “made the turn” he would profit from his investment. US Dental Transitions delivered. Our team found the right buyer for Dr. M so that he received everything he wanted and more. He received an offer of $3.2 million for his practice, with $3 million at the closing table. The transition was seamless, and he became an investor in the company. He invested $300,000 and is expecting his investment to grow to $900,000 by the end of 2022.

Client: Drs. D & D

Practices: 1 multi-doctor practice

Drs. D & D had a multi-doctor practice that they wanted to merge with a DSO in exchange for a hefty return, the opportunity to work back as associates, and the ability to let their practice keep on running as it was. US Dental Transitions introduced Drs. D & D to a boutique DSO that was looking to establish their platform, and the pairing was a win-win for all involved. The dentists were able to keep their practice running under their original name with limited disruption, and the DSO has since gone on to acquire additional practices across the Southeast.

A Partner for Your M&A Success

You’ve worked hard to get to where you are today—it’s time to take control of your future.

A merger and acquisition can provide you with access to a platform and processes that free you from the stresses of managing multiple practices. And in this seller’s market, you have more control over the way your practices function after transitioning ownership to a dental group or DSO. The current M&A trend also provides the opportunity to invest in the future equity of your practice.

US Dental Transitions was founded by Dr. Bill Adams, a dentist who has a passion for helping other dentists preserve their legacy as they transition their practices. With an ethical seller advocate like US Dental Transitions at your side, you can enjoy the freedom and sense of security that a successful M&A transaction can bring.



Ready to

Get Started?

Or

Dental Mergers and Acquisitions FAQs

Should I sell my practices to a DSO?

There are both pros and cons to selling practices to DSOs. About ten to fifteen years ago, the idea of “selling out” to a DSO was a distasteful one for dentists who worked so hard to build a practice of their own. But changes in the DSO business model and in the economy over the past decade have flipped that perception upside-down.

For many dentists, merging their practice onto a DSO’s platform is a smart move that gives them access to a complete range of support services. Many DSOs now allow dentists greater autonomy and flexibility in the day-to-day clinical operations of the practice.

To find out whether letting a DSO acquire your practices is the right selling option for you, consult with an experienced advisor like US Dental Transitions.

Why should I use a lawyer with dental M&A experience?

Just as you wouldn’t enlist a divorce lawyer to help you after a car accident, you wouldn’t want to depend on a lawyer (or practice broker) with no dental M&A experience. You’ll save yourself time and money and avoid headaches by working with professionals who deeply understand the industry and the process.

What is EBITDA?

EBITDA stands for “earnings before interest, taxes, depreciation, and amortization” and it’s a measure of a company’s profitability. It’s an investing and accounting term that became more commonly used in the dental industry as DSOs gained traction and started evaluating practices with a view to acquiring them. EBITDA is not the only factor to consider when valuing a practice, but it is an important one.

What is adjusted EBITDA?

Adjusted EBITDA accounts for one-time expenses that distort a practice’s EBITDA calculation. It can be a real challenge to determine adjusted EBITDA. This is where the expertise of US Dental Transitions comes to the rescue. In preparation for a sale, an advisor like US Dental Transitions works with the seller to identify one-time expenses, personal expenses, or other expenses that the buyer would not need to incur to run the business successfully following the transition. Some examples include personal meals, country club dues, one-time expenses associated with purchasing new equipment, and office renovations. These expenses are added back to EBITDA to create a more realistic adjusted EBITDA on which to base the purchase price.

How important is EBITDA?

EBITDA is a key factor in determining purchase price, but the importance of EBITDA is subject to the strategy and priorities of the buyer. Some dental groups place a great deal of importance on EBITDA when deciding whether to acquire practices. Other groups place more importance on things like the geographic location of a practice, the reputation of the dentist owner, and the practice’s treatment philosophy.

EBITDA is good for determining a baseline value for your practices, but there are other factors that can influence the appeal your practices have for a DSO or group. Ultimately, the most important thing is to have an industry expert like US Dental Transitions assist in matching your practices with the perfect buyer so that you can transition ownership on your own terms.

What is an LOI?

A letter of intent (abbreviated LOI) is a proposal from the buyer that states their intent to purchase. This document also includes the seller’s terms and the proposed price, and it serves as a framework for closing the sale. The LOI is not a legally binding document, but it does usually include an exclusivity clause that can prevent a seller from seeking another potential buyer in the near future if the deal doesn’t go through. Working with an advisor like US Dental Transitions is key to helping you avoid executing an LOI that jeopardizes your chances of closing a sale on your terms.

What is the QofE in a M&A transaction?

The quality of earnings (QofE) process is when the buyer ascertains that the details supplied in the financial analysis match with the actual financial records of the practice, such as tax returns and payroll reports.

What’s the current EBITDA multiple?

A common industry standard for determining the value of a dental practice is to take a multiple of the adjusted EBITDA. The current average market multiple we see in dentistry ranges from 3.5 to 7x. As an example, if your adjusted EBITDA is $2 million, then you can expect to receive offers that range from $7 million to $14 million. A large and well-integrated set of practices and/or specialty practices can potentially command multiples of 16x or more.

What is the due diligence process in a M&A transaction?

As soon as the LOI is signed, the due diligence process begins. This is when the buyer carefully investigates the prospective acquisition and conducts a QofE to better understand the practice’s functioning, profitability, and potential liabilities. While this process can seem intimidating, the team at US Dental Transitions will work with the seller to help everything go as smoothly as possible.

How do I figure the value of my dental practices?

A professional valuation is the key to knowing what your practices are worth. There are many factors that influence EBITDA and the range of multiples that you may be offered for your practice. If you are thinking about transitioning ownership via merger and acquisition, don’t try to go it alone. Enlisting the help of a knowledgeable advisor like US Dental Transitions will help you secure a purchase price that is many multiples of your EBITDA and ensure that your best interests are prioritized.