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When it’s time to sell your dental service organization (DSO), you have options. If you are selling to private equity or another DSO, they will be looking for scalability and good infrastructure.


Two major things affect the sale of your DSO to private equity or a dental service organization: scalability and infrastructure. The infrastructure and scalability of your DSO will impact whether your DSO is an attractive purchase, the buy-out price, and the exit terms.


Grow your DSO with the end in mind.

The mergers and acquisition experts at TUSK Partners help dental practice owners understand the value of their practices and negotiate favorable exit strategies. They say knowing what investors are looking for will motivate you to properly build your infrastructure, maintain consistent operations, and add on locations with the resources and strategies necessary to not miss a beat.

What does it mean to be scalable?

In business terms, if your dental service organization performs well under an expanding workload, you have a repeatable business model in place that is scalable, meaning your DSO can continue to expand and perform well for investors. When investors look at DSOs on the market, their criteria for performance and expansion include four characteristics. They do deep evaluations to make sure:

  1. You have good leadership and systems in place.
  2. Your same-store sales are consistent. 
  3. Your infrastructure can be maintained while growing.
  4. Your infrastructure can support the addition of locations at a rate of 3 to 4 a year while simultaneously maintaining consistent operations.


The M&A experience of TUSK Partners indicates that equity investors are looking for DSOs that successfully add a location about every 90-to-120 days. If you are doing this while simultaneously maintaining consistent operations across all your locations, you have developed your practice into a scalable business.

When you have developed your practice into a scalable business, you can continue to grow or sell it. The choice is yours. The profitability of the DSO and the size of the DSO obviously play a role in its valuation.


Should you look for a private equity investor?

Whether you decide to go the private equity or dental support organization route depends on your preferences. What do you want the exit process to look like? Is there a number you are thinking of? If so, why that number? Are you looking to stay on post-sale, or are you looking to exit within a year to two years? Do you want to grow your DSO with a strategic financial partner? Or do you want a total buyout?

The experience of TUSK Partners indicates that when it comes to final negotiations, DSO owners should focus on the terms of the sale over price. For example, an offer of 10 times earnings and 50% cash may not be as good as a deal that gets you eight times earnings and 80 cents on the dollar.


Is a strategic partner a better investor for you?

While private equity investors seek out scalability, strategic partners may be ideal for smaller DSOs with three to 15 offices that show consistent growth. A strategic partner can help you improve your infrastructure and become scalable for later buyout.


Learn best practices for scaling your DSO.

It’s best to begin with a vision that covers all aspects of scaling and then exiting your dental service organization at your preferred time on your preferred terms. The advice of industry experts will help you perform better as you build your DSO infrastructure and expand your DSO to demonstrate scalability. TUSK Partners is one of the country's leading dental mergers and acquisitions advisory firms and can help you understand your goals before or during the expansion of your dental group or DSO. 

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