One of the hot topics in dentistry today is the onset of corporate dentistry or Dental Service Organizations (“DSOs”).  It is estimated that nationally, 15-20% of all practicing dentists are affiliated with DSOs.  That number is closer to 4-7% in the New York area but growing.  Corporate investors such as private equity firms realized that the field of dentistry was ripe for their involvement because of such things as (i) rising practice costs related to staff and health insurance expenses, (ii) a growing supply of available labor (namely 50% of graduating dentists being female, many looking for part-time employment), and (ii) economies of scale resulting from negotiating insurance fees and marketing for new patients. 

When you are ready to sell your practice, you may have to decide whether to sell to a DSO or an individual dentist.  Let’s take a look at the pros and cons.  To start with DSOs are generally looking for practices with annual gross revenues of more than $800,000 and which have 5 or more operatories.  In some cases, if you have a very high-grossing practice, a DSO buyer may be your only option. On the surface, it also may look like DSOs are paying premiums for dental practices; however, sellers must realize a few common attributes of a DSO sale:

• The DSO will require you to stay for a minimum of 1 year and more likely 2 to 5 years to work for them at a reduced compensation of 28-35% of collections.  
• The DSO will most likely want a hold-back of 20-30% of the purchase price for 1 to 2 years after the closing.  
• The DSO will include your account receivables in the purchase price.  That is easy for bookkeeping as the transition starts but it represents a loss in dollars for you the seller.  
• DSOs are not interested in buying real estate.  If you own the building or condo your practice is located in, they will want to rent the space from you.  
• On the positive side, you no longer have the responsibility of practice management.  The DSO will have economies of scale to market the practice for future growth.  

It is recommended to get references for past sellers that the DSO has purchased to inquire about how the transition worked.  Were they happy? Did the DSO change the staff, the practice management software, the dentist’s schedule and hours, the payor mix, and/or the philosophy of practice?

The alternative is to sell your practice to an individual dentist.  The transition will most likely be 2 to 6 months and you will be paid the full purchase price at closing.  You will keep your account receivables after the closing and you will be paid 35-37% of any work you perform after the closing. You may feel better about handing off your “baby” to a dentist you handpicked, rather than a DSO buyer that may have various associates rotating in and out of your office.

DSOs or individual buyers can come in very handy on “Tuck-in Sales”.  Maybe you have a home/office that is undesirable to the millennial buyer, or your office rent has become exorbitant as your practice revenues have declined.  In those cases, a “Tuck-in Sale” may be the perfect solution for you.  An individual dentist or a DSO can purchase your practice and merge the patient base into their office.  The buyer often will keep you as long as you want and compensate you fairly.  Remember, you have to be at the end of your office lease to make this move or get permission from your landlord to terminate the lease early.  An office lease is a legal contract and I haven’t met many landlords willing to release their tenants from leases early.

To summarize, there are plenty of options available when you are ready to sell your practice.  It is best to consult with a reputable practice broker who knows your local market and works with the players in that market. Often there is a perfect buyer or solution readily available.