The ultimate driver of value in a doctor-to-doctor sale is: how much a bank will loan. 

In a doctor-to-doctor transaction, a profitable practice will typically sell for 60% to 80% of top line revenue.  Selling for more may happen in rare circumstances, but not often.

The ultimate driver of practice value in a DSO transaction, has nothing to do with what a bank will loan.  DSOs don’t need banks, they have virtually unlimited capital at their disposal to buy good practices.

In a DSO sale, bottom line profit (EBITDA) determines how much the buyer is willing to pay.   Certain DSOs may pay 3-times to 4-times bottom line profit for a good practice. 

Say your practice grosses $5 million with a 30% or $1.5 million profit. 

In a doctor-to-doctor transaction, (with the bank willing to lend a maximum of 60% to 80% of top line revenue), your $5mm practice would sell for a maximum of $4 million. 

With a different factor driving value, the right DSO may realistically offer you three to four times the $1.5mm bottom line profit, (EBITDA), or $4.5 million up to $6 million. 

This is a hypothetical example, but there is nothing hypothetical about the math.  This is how DSOs value practices – and if your practice turns a nice profit – this gives you a ballpark-idea of the kind of offer you may receive from a potential DSO buyer. 

The Multiple-Of-Profit Valuation Model versus the How-Much-A-Bank-Will-Lend Valuation Model, makes a massive difference in how much you’d net in a sale.

Another Example:  If your practice grosses $7 million, with a 35% or $2.45 million bottom line profit, the right DSO may offer you $7.35 million, (3 x $2.45mm), up to as much as $9.8 million, (4 x $2.45mm), or more.  (The higher the profit, the higher the multiple a DSO may be willing to pay.)

That same practice in a doctor-to-doctor sale, would sell for a maximum of about 60% to 80% of $7mm gross – or $4.2 million to $5.6 million – instead of the $7.35mm to $9.8 million the right DSO may be HAPPY to pay – and YOU may be HAPPY to accept. 

• If your bottom line profit is $3mm, the right DSO may offer you up to $9mm to $12mm.
• If your bottom line profit is $5mm, the right DSO may offer you $15mm to $20mm.
• If your bottom line profit is $9mm, the right DSO may offer you up to $27mm to $36mm or more, because the higher the bottom line profit, EBITDA, the more a DSO may be willing to pay. NO TRANSACTION IS TOO BIG FOR THE RIGHT DSO.

Multiply your bottom line profit by 3 or 4, and ask yourself: if you had an offer ON THE TABLE that put that much, or near that much CASH with RETAINED EQUITY in your hand, along with an employment agreement that lets you earn unlimited income chairside, with little or NO management responsibility… would you at least consider the offer? 

If your answer is YES…

…You may be as little as 6-months away from having the cash in the bank, with you enjoying your EMPIRE OF DENTISTRY, with freedom from running the business side of the practice and lucrative employment agreement that gives you the opportunity to earn as much as you like chairside.

It all comes down to this, DSOs are READY, WILLING and ABLE to pay FAR MORE for a profitable dental practice than another doctor ever could, because;

• DSOs are in the business of buying practices;
  
• Large DSOs pay small DSO bundlers even higher multiples for all the work they do buying and bundling a basket of high-performing practices together, which means small DSO bundlers work TIRELESSLY to pull those practices together, and;
  
• The value discrepancy makes it possible for the DSO bundler to pay FAR MORE for a profitable practice than another doctor ever would or could, and still make a big profit when they sell the bundle of practices to a larger entity.

Bottom line: dentistry is a GOOD business. That is why private equity firms are buying profitable dental practices as fast as they can.  And, why they are often willing to pay FAR MORE than any doctor in a doctor-to-doctor sale ever could.