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Just Say No to the DSO: Anatomy of a Modern Dental Practice Acquisition Offer
In a recent eye-opening episode of “Just Say No to the DSO,” hosts Bob Spiel and Nate Williams pulled back the curtain on what initially appeared to be a dream acquisition offer for a thriving dental practice. Their detailed analysis reveals important lessons for dental professionals considering similar proposals.
The Case Study
The offer came from a well-known figure in the dental industry who had leveraged their reputation to enter the DSO space. The target practice was impressive: a single location with one owner under 40 years old, supported by three full-time and two part-time associates, generating $1.48 million in EBITDA. By all measures, this was a successful operation with strong fundamentals.
The headline number was attention-grabbing: $12.6 million for 60% of the practice, with promises of future growth to $26-33 million. As Williams noted during the episode, “When somebody comes to one of your clients and says they’ve got an offer between $26 and $33 million for your practice, how many would listen to the rest of that?” The answer, naturally, is all of them.
Peeling Back the Layers
However, careful analysis revealed troubling details beneath the surface. The actual cash component was merely $2.66 million. Perhaps most startling was that $5 million of the offer price represented shares the dentist already owned in his practice – essentially, as Williams colorfully described it, like reaching into someone’s wallet, taking out $1,000, and offering it back to them as part of a purchase price.
The remaining $4.88 million came in the form of parent company equity, a company that financial statements showed had lost $13 million in 2022 and continued to show negative operating cash flow, primarily sustaining itself through new debt.
The Devil in the Details
The employment terms attached to the deal were particularly restrictive. The owner would need to increase his clinical hours from 32 to 40 per week, require permission for vacations longer than a week, and commit to a five-year work agreement. More concerning were the “clawback” provisions that could rescind equity if the practice failed to meet aggressive growth targets of 2% plus inflation annually.
The profit-sharing arrangement heavily favored the DSO, starting with a 5% management fee ($190,000 annually) for basic services that typically cost around $1,000 monthly. The DSO would receive their full 60% share of profits before the dentist saw any distributions beyond their clinical compensation.
Lessons for Dental Professionals
This case study illustrates several crucial points for dentists considering DSO offers:
First, headline numbers can be misleading. The structure of these deals often obscures the actual value being offered and the strings attached to that value.
Second, understanding the details matters immensely. As Williams pointed out, many dentists approach these complex financial arrangements with the same level of understanding their patients have about dental procedures – they know something’s happening, but they don’t fully grasp the mechanics.
Third, promised future equity values should be scrutinized carefully, especially when the acquiring company shows concerning financial performance.
The Path Forward
For dental professionals considering such offers, the episode underscores the importance of seeking qualified, independent analysis. The practice owner’s regular CPA had reviewed the deal and encouraged acceptance, missing the concerning elements that a specialized analysis revealed.
As Spiel and Williams emphasized throughout the episode, if an offer sounds too good to be true, it probably is. The modern DSO acquisition model often relies on complex structures and impressive-sounding numbers to obscure terms that effectively transform independent practitioners into employees with reduced autonomy and potentially lower long-term earnings.
The episode serves as a valuable reminder that in the world of practice acquisitions, as in Las Vegas, the house usually wins. For dental professionals considering such offers, understanding this reality could be the difference between maintaining their independence and becoming, in the hosts’ words, “an indentured servant” to a corporate entity.
The best defense against unfavorable deals remains education and careful analysis. As this episode demonstrates, what glitters isn’t always gold, and sometimes the best deal is the one you don’t take.
podcasts.apple.com
Season 3 Episode 3 - DSO Deal Case Study
Podcast Episode · Just Say No To The DSO · 02/17/2025 · 45m
I am a general dentist and founder of Proximal Contact, LLC where we operate:
American Dental News, Embrasure Space, DentWoo. -
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