In a previous email, I talked a little bit about how your practice would likely be valued in a dentist-to-dentist transaction …
Where the bank’s capacity to loan is the limiting factor in valuation.
So let’s look at the other primary driver of practice value, especially when a DSO is driving the transaction …
Private equity!
You see, DSOs don’t need banks.
They have virtually unlimited capital to buy good practices and are incentivized to do so, as their job is to provide a return to their investors.
So, private equity investors in DSOs look at acquiring a dental practice like tey would look at buying a manufacturing business, or a distribution business … or really any business - as an ongoing enterprise.
The way a DSO with private equity backing would approach valuation of YOUR practice …
Is a Multiple-of-Profit Valuable Model.
It’s too much to into depth in this email …
But the short explanation is that your profit is measured as adjusted EBITDA, or “earnings before interest, taxes, depreciation, and amortization.”
This ultimately is a measure of free cash flow that your business generates.
DSO buyers will pay a multiple of that ultimate number.
So in a DSO buy, its not uncommon to see values of 100-150% of your topline revenue …
As opposed to the 60-80% that a typical dentist-to-dentist sale will see.
See why a DSO is such a great choice?