How Do I Compare Two DSO Offers for My Dental Practice?

DentalDex · Selling to a DSO · 2 min read · Methodology

Do not compare DSO offers using only the purchase price or EBITDA multiple. Compare cash at closing, rollover equity, earn-outs, holdbacks, doctor compensation, employment requirements, restrictive covenants and the likelihood that contingent value will actually be realized.

Start with cash at closing

This is the portion of consideration the seller actually receives when the transaction funds. If a $5 million offer includes $3.5M cash, $1M rollover equity and a $500K earn-out, the seller does not receive $5 million in cash. That distinction should be explicit.

Evaluate rollover equity separately

Rollover equity can be valuable. It can also be illiquid and uncertain. Ask:

• What entity am I investing in?
• At what valuation?
• What class of equity?
• Do I have information rights?
• Is there dilution protection?
• What happens during the next recapitalization?
• Is there a preferred return ahead of me?
• What happens if I stop working?
• When could I realistically receive liquidity?

Do not value $1 of rollover equity automatically as equal to $1 of cash.

Evaluate earn-outs based on probability

If $400,000 depends on the practice achieving future revenue or EBITDA targets, ask how much control you will have over reaching those targets after the buyer controls the business. Review:

• performance threshold
• measurement period
• accounting rules
• buyer-controlled expenses
• provider staffing
• marketing support
• payer changes

A contingent dollar is not the same as a guaranteed dollar.

Calculate post-sale compensation

This can materially change the real economics. Suppose one buyer offers 30% of collections and another offers 33%. If the selling dentist collects $1 million annually and works another four years, the difference could be substantial. Evaluate compensation together with the purchase price.

Compare required tenure

Five years may be perfectly acceptable to a 48-year-old doctor planning to continue practicing. It may be unacceptable to a 64-year-old dentist planning retirement. There is no universally correct transition period.

Compare culture and autonomy

Financial terms matter, but so do treatment autonomy, labs and materials, staffing, schedule control, branding, benefits, procurement, marketing and management oversight. A seller will live with these terms after closing.

Create an adjusted comparison

DentalDex believes sellers should be able to see headline enterprise value, cash at close, rollover equity, earn-out, holdback, doctor compensation, required tenure, restrictive covenants and clinical-autonomy terms side by side. This is the philosophy behind DexCompare.

Market ranges on this page are illustrative planning ranges, not offers. Involve qualified legal and tax advisers on any transaction.