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When making you an offer, DSO's will pull out all the stops. But how do you know it's real, not just smoke and mirrors?

Welcome to the DSO smoke and mirror show

Dec. 20, 2023
When making you an offer, DSOs will pull out all the stops. But how do you know it's real, not just smoke and mirrors?

Horror stories. You’ve heard them, maybe even experienced them. Whether through hearsay or in your personal life, negotiating with a DSO can feel like the greatest ever smoke and mirror show … and not in a good way.

DSOs that promise autonomy, then dictate every clinical decision.

DSOs that suggest a certain monetary offer, then deliver half of it.

DSOs that guarantee your team will stay, then demand you fire a percentage.

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The list could go on and on about predatory, unethical, and downright shifty practices that many DSOs employ to entice doctors to sell. How do you protect yourself? 

Get your house in order

When you’re approached by a DSO, especially in an unsolicited manner, you’re going to get a lot of amazing offers thrown at you. Autonomy! Percentages! Services! Signing bonuses! One thing they don’t mention, though, is their internal criteria.

Not every practice qualifies for all of the fantastic offers. DSOs are looking at earnings before interest, taxes, depreciation, and amortization (EBITDA), diversity of services, number of doctors, number of active patients, and more. If your practice doesn’t meet their thresholds, your offer is going to take a hit. All the things they originally offered will magically vanish, and you’ll be left with a deal that pales in comparison.If you want to get the best offer on the best terms, you need to make sure your practice is in tip-top shape.

Work with the right broker

Working with a broker who is on your side is an absolute must to clear the smoke and remove the mirrors. Here are a few questions to ask when you’re looking at options.

Whose side are you on? In the industry, there are seller-brokers and buyer-brokers. If a DSO tells you they already have a broker you can work with, that’s a huge red flag. A buyer-broker will be looking out for the best interests of the DSO, not for you. Seller-brokers, on the other hand, are people working with your best interests at heart.

How big is your firm? Here you want to look for a sweet spot. If they’re brokering too few deals, it might mean that they are less successful, or it’s not the main aspect of their business. On the other hand, if they’re doing too many, you could easily end up just a number to them, and not get individualized attention.

What is your process? Is the firm hands-off, or hands-on during the process? Do they outsource their valuations? How long and how often will they meet with you? Can they connect you with past clients so you can see what working with them is like?

Dig in to the DSO

The more you can learn about the DSO in advance, the better. Ask similar questions to the ones I gave for the brokers. If you can understand the depth and breadth of the organization, you’ll be able to get a clearer picture of what your experience will be like.

Watch out for startups—you don’t want to be the guinea pig while they figure out how to do things (and change terms on you left and right). Also watch out for massive organizations that have no incentive to honor your requests.

Look at the type of offer the DSO usually gives. I always suggest deals that are joint ventures, as they allow you more autonomy and the opportunity to recapitalize. Full buyouts are more likely to remove any autonomy and make you much more vulnerable to burnout and production pressures that could even be ethically compromising.

I understand this can feel overwhelming. But the more you educate yourself before entering negotiations, the more successful you’ll be. Selling to a DSO can be an incredible opportunity to create generational wealth and provide freedom for you and your team. You just need to do it right.

Author’s note: Schedule a one-on-one meeting with our DSO expert to get your questions answered and get direction before you head out into the marketplace. 

Editor’s note: This article appeared in the December 2023 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here. 

Gary Kadi, founder of NextLevel Practice, is on a mission to help dentists beat the odds. While most dentists now don’t retire until age 69, and 96% of them aren’t financially free, Gary has developed the strategies and methods to empower dentists to retire on their terms. The more than 6,000 practices he’s worked with generate over $1 billion in combined collections. Gary has helped them discover true freedom—becoming time-free, debt-free, and frustration-free.