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Why being part of a DSO can be the right decision for you

April 24, 2020
The discussion continued about dental support organizations (DSOs), even during office shutdowns. There is a lot to consider if you've been asked to join a DSO. Group practice expert Mark A. Birner, DDS, explains some of the pros and cons.

Mark A. Birner, DDS

It’s likely you’ve read about dental support organizations (DSOs) and the recent growth of the industry. What you may not know is whether or not such an affiliation would benefit your practice. The fact is, DSOs offer significant benefits to dentists who own practices.

I have been on both sides—as a former practice owning general dentist and founder of a progressive DSO. I grew my company, Birner Dental Management Services, from three to more than 70 offices in just 10 years. It is from that point of view that I recognize this: especially in times of unrest, being part of a DSO could be the right decision for every dentist.

This year will prove to be a pivotal one. The market is hot, with strategic buyers paying top dollar and many sellers looking toward DSO affiliation. DSOs can provide many things to a dentist—growth, stability, and a strong planned exit strategy. If you’ve been considering affiliation with a DSO, now is the time to act.

The DSO industry is growing rapidly

America’s dental support industry is growing. It represents a $135 billion industry that continues to grow at a rate of 5% to 6% annually, according to the COKER 2019 Market Summary. The industry also attracts investors from private equity firms nationwide.

During the past 20 years of industry development, top private equity-backed DSOs have figured out the formula for success. The most effective business model is for the DSO to treat each affiliated practice or group as if the staff and patients are their customers. By doing this, they bridge the gap between the corporate organization and each dental practice, allowing dentists to focus on providing quality care.

What successful affiliation means for dentists

Dentists who partner with DSOs experience benefits from a very lucrative exit to an excellent work-life balance. Here’s what dentists in successful affiliations tell me they value most:

1. Potential for a lucrative exit—Even in difficult economic times, successful dental practices are attractive to DSO buyers and command five to seven times a multiple of earnings before interest, taxes, depreciation, and amortization (EBITDA). Deals usually take the form of 80% cash at closing and 20% equity in the larger entity, which allows dentists to receive a large payday both when they partner and later when they cash in their stock.

2. Freedom to practice dentistry again—Having support with payroll, accounting, collections, and operations management frees up time to practice dentistry. There is no name change on the door, no disruption of staff, and no changes in clinical protocol, just administrative support to make the practice more efficient and effective.

3. A great work-life balance—With minimal administrative burdens, doctors are able to spend more time with their families and patients, enjoying their profession more and becoming more productive.

4. A smart exit strategy—Dentists will continue to work as a partner and shareholder for a minimum of three to five years. Since the doctor retains at least a 20% equity position alongside the DSO, the value of that equity continues to grow as the practice and DSO grow.

5. Opportunity to invest in growth—The dentist has an administrative partner with deep pockets that has his or her best interests in mind. When the DSO decides to recapitalize (or sell) within a two- to five-year period, the dentist could participate in a second bite of the apple from the equity partnership.

The key to successful affiliation with a DSO

There are many benefits to partnering with a private equity-backed DSO. However, all DSOs are not the same. The key to successful affiliation is to find a DSO compatible with you and your practice. The relationship between dentist and DSO should align the mission, values, and culture to accelerate practice growth and, most importantly, to ensure patient satisfaction.

If you’re considering a partnership with a DSO, you should work with an advisor you can trust.

Mark A. Birner, DDS is the former president and cofounder of a publicly traded, 70-location DSO. He is vice president at Viper Equity Partners, the country’s leading transition consultation firm for the medical industry. He provides trusted advice and guidance to dentists who are exploring a DSO affiliation. Contact him at [email protected] or (303) 929-4027.