Selling your dental practice to a Dental Support Organization (DSO) can be a rewarding decision when handled properly. By following a structured process and understanding the key steps involved, you’ll be well-prepared to get the best outcome for your practice. 

Shedding Light on the DSO Letter 

Receiving a letter from a DSO is exciting! It likely includes promises like, “We pay over 100% of collections” or “Everyone loves partnering with us.” Before proceeding, it’s crucial to research the sender thoroughly. 

• Verify their identity: Look up the DSO’s name online and find out which private equity firm backs them. 
• Research recapitalization events: Check when the DSO last underwent a “recap event.” If it’s been more than three years, they may be approaching another, which could change the ownership terms of your deal. 

This background information ensures you fully understand who you’re partnering with. 

Preparing for the Interview Period 

Once you’ve contacted the DSO, they’ll collect basic information about your practice. Be ready to answer questions like: 

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

Having these details prepared demonstrates that you understand your business, making you more attractive to buyers. 

Additionally, identify key players during the negotiation process. Request meetings with: 

• The manager who will oversee your practice locally post-sale. 
• The current owner of the company. 
• Other local sellers who have transitioned to this DSO. 

The Letter of Intent (LOI) 

After initial discussions, the DSO may issue a Letter of Intent. This document outlines their proposed terms, but it’s not final or binding. Proceed with caution, as major details can change during the analysis process, including: 

• Price (it often decreases during due diligence). 
• Closing timeline (typically longer than 60 days). 
• Post-sale terms (such as work commitments or non-compete clauses). 

Before signing an LOI, always compare offers from at least three other DSOs. Review references, understand each DSO’s differences, and ensure the proposed non-compete clause is reasonable. Lastly, have your practice professionally evaluated to determine its open market value so you can negotiate from a position of strength. 

Avoiding “Death by Analysis” 

The due diligence process is incredibly detailed and time-consuming. Without proper preparation, you can feel overwhelmed by endless data requests and requirements. To manage this effectively: 

• Confide in a trusted staff member or spouse after the LOI is signed, so they can assist with pulling reports, organizing data, and reviewing requests. 
• Dedicate about 10–15 hours a week to handling these tasks. 
• Ensure your assistant has access to your financial and bank records. 

If managing this independently feels daunting, consider hiring a professional to guide you through the process. 

Building the Right Professional Team 

Negotiating with a DSO requires specialized expertise. Assemble a team that includes trusted advisors familiar with DSO contracts and practice transitions. Key team members should include a CPA, a practice broker, and an experienced legal team. 

Your team should provide support in critical areas like tax planning, asset allocation, equity agreements, and final sale negotiations. They’ll help you avoid potential pitfalls, ensuring the terms are in your best interest. Specific issues to review include: 

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

If the transaction includes equity agreements, ensure your team evaluates factors like recap events, fair market value, and repurchase triggers. 

Wrapping It Up 

Selling to a DSO can be highly profitable and seamless if done correctly. By following these steps and assembling a qualified team of professionals, you’ll set yourself up for success. 

If you have questions or need guidance, we’re here to help. Contact us for personalized support, and let us simplify this important transition for you and your practice.