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When the future value of your practice is uncertain (link needed)

Nov 16, 2022 3:09:27 PM / by Everything DSO

There’s one more category which DSO’s sometimes use in their deal structures …

It’s called “Contingent Earn Out”

This category is used when there is some ambiguity around the expected future performance of your practice is fast-growing.

The point is that the DSO wants to avoid penalizing you by giving you a pathway to full value IF certain benchmarks are achieved.

(This also protects the DSO if those benchmarks aren’t achieved)

This has become much more popular since the pandemic disrupted business.

Uncertain about if and when a practice will return to pre-covid performance levels they use contingency based earn-out providing for additional purchase price if benchmarks are reached.

If the targets ARENT reached, then the price they paid is fair.

So don’t shy away from contingency earn out, it can be a great way to get more value out of your sale than you otherwise might.

There are details you’ll want to be aware of. Some contingency earn outs are structured to prorate based on the goal - meaning if you hit 90% of the target you get 90% of the payout.

But sometimes it’s an all or nothing type deal.

You also want to be mindful of the time frame.

Ultimately it’s another tool available for both you and the DSO to establish and get the best value out of a deal, where both sides win.

If you’d like to read in more detail about deal structures and other aspects of selling your practice to a DSO, I recommend my book …

“Everything DSO” - grab it here: {link}

Everything DSO

Written by Everything DSO

 Stan Kinder

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