Why DSO’s Pray You Don’t Hire a Broker

You have been approached by a DSO. They want to buy your practice. If you are the average general dentist, this is happening to you several times per week. If you decide to respond and explore the idea, the DSO will likely try to convince you that you do not need to hire a broker to represent you in the process. "You will save a lot of money by not paying a broker fee," is their primary argument. That is partly true, but what they know--and what they hope you don’t find out--is that, on average, dentists who are represented by a broker in the sale of their practices to DSOs get a much higher price and better terms. They benefit by having an advocate on their side, representing their interests, and negotiating on their behalf. In fact, in most cases, the higher the price a broker is able to negotiate more than covers their fee.

Let’s look at this first from the DSO’s perspective. Among other things, they are seeking to leverage your practice to increase the equity value of their company with the least amount of hassle possible. They prefer to deal directly with the seller, without the interference of a practice broker, because that way, they stay in the "driver's seat," i.e., they get what they want as easily as they can. Although they prefer a seller not to know this, DSOs generally have three different price points and terms to offer: “good,” “better,” and “best.” Once a DSO decides your practice meets what they are looking for, they will submit a “good” offer. They hope you will just accept the “good” offer right out of the chute, but they are willing to make a "better" and even a "best" offer, if needed, and if you know how, where, and when to negotiate for it, you can get a "better," or even a "best," offer. Practice brokers with experience will have seen many different offers from many different DSOs for many different practices and will know how to negotiate for "better" and "best" offers. Accordingly, a competent practice broker will add value that often exceeds the price of their fee.

In many cases, a broker will create a spreadsheet to help a seller compare offers and determine how the offers really pencil out, with the objective of deciding if they are complementary to the seller's financial, personal, and professional objectives. Many times, enthusiasm for what appears to be a great offer on the surface overrides objectivity. Often the amount the seller thought they would be receiving over time doesn’t match up to their expectations, especially when they realize later that there was a “best” option that was never discussed when it came to the price, terms, and the work-back arrangements.

Aside from all the numbers, each doctor pursues a practice transition for different reasons. When considering a transition of your practice to a DSO, it is helpful to ask the following questions, among others, before accepting an offer and entering into any agreement:

Does the outcome of the arrangement fit my short and long-term career objectives?

Can I uphold the obligations imposed on me with this arrangement?

What are my expectations of the DSO after the sale? How will they measure up to those expectations?

Can I deal with the potential loss of income, decision-making, and autonomy after the sale, as well as the shift in practice culture/philosophy?

In summary, make sure the numbers work in your favor. Do your due diligence on the DSO. See if your culture, expectations, and values are complementary to theirs. And finally, seek professional advice from a practice broker who is looking out for your best interests. Doing these things will increase your likelihood of a successful outcome.