Most private equity firms (funding DSOs) are looking at a 5-year time horizon before they look for liquidity on their investment.

This means that 5 years after buying your dental practice, they are going to look at selling their interest - either to a larger private equity fund or a larger DSO - in order to capitalize on the value increase your practice has gained through being a part of their investment.

This is Arbitrage.

Buying an asset for a fair market value in one market and selling it for a higher price in a different market.

There is a distinctly greater value to a fully integrated practice as part of a large well-organized DSO than as a stand-alone entity, often twice the value or more.

Simply put …

A DSO may acquire your practice for 4-7 times the adjusted EBITDA, and then sell it 5 years later for 1.5-2 times THAT amount.

This is the primary driver for investment returns to the private equity fund.

So it’s important to know this dynamic if you decide to sell to a DSO.