In the current market environment, dental practices have more options than ever when choosing a dental service organization (DSO) to partner with. These opportunities for solo and group practices, many extremely favorable, begin with a decision that results in a potentially lifelong commitment.
“I always like to say it’s like marriage,” Colao said. “You have to pick the right partner and someone who’s a match and a good fit, someone you’ll be able to get along with.”
Similar to marriage, there are distinct stages of courtship a dental practice should consider before committing to partnering with a DSO. Although a few select practices are perfectly happy with partnerships that are equivalent to a Las Vegas shotgun wedding, the ideal scenario comes from doing adequate research to find your best match.
One of the first factors to consider when partnering with a DSO is whether it’s the right time for such a commitment. As an owner of a solo or emerging group practice, the type of multiples the dental industry is seeing from acquisitions is unprecedented.
It’s not uncommon for owners to see four to six times a multiple when partnering with a DSO and even higher when a private equity group acquisition is on the table. While price isn’t the only factor to consider, the industry is currently ripe with opportunity.
Owners should also consider what stage of life their own practice is in. Whether a young owner wants to capitalize on his or her emerging practice’s profitability and the industry’s multiples, or an owner close to retirement wants to lessen the responsibility of running a practice, each presents favorable opportunities and timing.
“Really, anyone who wants to expand beyond one or two offices should be reorganized as a DSO in this marketplace, because it’s the only structure that will allow for non-dentist participation as an investor,” advised Colao.
Regardless of age, practice owners should ensure they invest in their business to put their best foot forward prior to entertaining offers from DSOs. A practice should have a growth plan that can be easily replicated across offices, as well as the infrastructure in place to support such growth.
Investing in leading technology for operational solutions, such as scheduling software, phone management systems, and billing systems, can heavily influence the type of offers practices see from DSOs. If a practice has invested in itself and is effectively running its business to provide patients an optimal experience, it’s an indicator to DSOs of the practice’s success and future growth.
“If you were a house, are you move-in ready, or are you a fixer upper?” Calao asked. “If you’re a fixer upper, you’re going to get a lower return. But if you make some investments and you’re move-in ready and you modernize everything, you’re going to get a higher return.”
Imagine a potential investor mystery-shops your office with a phone call and is greeted by a phone menu that quickly routes to a receptionist who intelligently answers his or her questions and guides the conversation to booking an appointment. That provides a clear picture of the optimal experience your patients commonly receive.
On the other hand, if that same investor calls your practice and is rudely answered by a receptionist who places the call on hold for more than three minutes just to route it to voicemail, that paints the picture of a much poorer experience. It’s in the practice’s best interest to invest in such operational solutions and training before entertaining offers and committing to a DSO.
Once a practice decides it’s the right time to consider offers and potentially enter into a DSO acquisition, the courtship process begins. The length of that courtship depends solely on the individuals involved and varies greatly from one acquisition process to the next.
“Imagine you just asked me how long it takes to marry someone from courtship. What would your answer be?” Colao asked.
“Your answer would be some people do it in two weeks in Vegas. Other people could be engaged for years. And it’s funny, the same applies to the dental industry,” Colao said.
“I’ve seen courtships where it’s love at first sight, and within 30 to 60 days after the people are introduced, we’re doing some type of transaction. And then I’ve seen folks who talk to each other on and off for a couple of years before we ultimately close the deal,” said Colao.
The success or failure of the impending partnership also typically does not correlate with the length of the courtship process. Whether that courtship is a single month or takes years, there are many perfectly happy partnerships at both ends of the spectrum. The factor that most accurately determines success is whether you’ve done the research to choose the right DSO partner that shares the same goals and priorities as you do.
Throughout the courtship process, practice owners must consider several factors before agreeing to move forward with a partnership:
- What is the DSO’s management philosophy, and how involved will you stay in the operational decisions of the practice?
- How does the DSO view and prioritize patient experience? Is the optimal experience easily replicated and maintained as the DSO continues to grow?
- How much flexibility are you looking for in daily operations, and what DSO size will best fit that expectation?
- What type of experience will your patients have when calling into your practice? Will calls still be handled at the office level, or will they go to a corporate call center?
- What type of ongoing phone training and feedback will your staff or call center staff receive, and what type of phone management solutions has the DSO invested in?
- How will the marketing and advertising of your office be handled? How are you going to track the return on investment for those efforts?
- What is the multiple the DSO is offering you, and is a high price worth potentially sacrificing other priorities and control?
Once you’ve gone through the courtship process and have decided to enter into a commitment with a DSO, ideally this partnership will continue to grow and reap benefits for both parties. Whether it’s only three to five years, or 15 to 20, owners hope to have found a match and culture that suits them well.
That said, many practices still enter into agreements hastily and are left with a situation they want out of; the DSO’s management style does not fit the image they have for their practice, thus the work environment becomes toxic.
“Many folks, quite candidly, do not do their diligence on this and figure it all out post-closing and sometimes find themselves in undesirable situations and they wish they never did the deal,” Colao said.
Last year, Colao saw two transactions unravel post-closing out of the 83 total transactions he worked on. These partners simply were not a fit, and the best possible outcome was to break the agreement. Even the best courtships and marriages can fall apart. However, the best method to prevent this is doing your research beforehand and fully understanding the agreement you’re getting into.
Solo and emerging group practices have more options than ever when it comes to selling their practice, and the types of multiples the industry is currently seeing are unprecedented. Many owners are quick to jump at the first or highest offer on the table. But just like a marriage, an ideal DSO partnership isn’t something that just happens. It’s something that takes time and effort to create.
Mr. Johnson is Top Problem Solver at Call Box. Doctors and owners call Corey to increase their bottom line through enhancing the patient experience over the phone and converting more opportunities. Corey earned his MBA from the University of Delaware and graduated from the University of North Carolina, where he studied how the power of data can affect organizational change. To learn more about Call Box and our innovative tools to help your practice leverage the phone, visit callbox.com/dental or call (833) 259-9484.