transition
by Frank Brown
DSOs
AND THEIR ROLE IN THE MARKET
by Frank Brown
What are DSOs ?
To circumvent laws regulating dental practice ownership , investors create separate entities – DSOs – to provide related practice management and business services such as marketing , bookkeeping , and financial services . Private equity firms dominate the DSO market ; 27 of the top 30 DSOs are private equity-owned .
DSOs are an entity responsible for acquiring dental practices . Dental Service Organizations come in all different sizes , management philosophies , and clinical philosophies . Next you need to understand they have different marketing and operational strategies from nationally branded chains to regionally branded . DSOs then arrange for the doctor / patient relationship with a dentist to meet Texas State Dental Board requirements .
Private equity and its role in DSOs
Private equity is ownership or interest in an entity that is not publicly listed or traded . A source of investment capital comprised of institutional investors such as pension funds , and large private equity firms funded by accredited investors . Because private equity entails direct investment — often to gain influence or control over a company ’ s operations — a significant capital outlay is required , which is why funds with deep pockets dominate the industry .
Private equity firms ’ reputation for dramatically increasing the value of their investments has helped fuel this growth . Their ability to achieve high returns is typically attributed to a number of factors : high-powered incentives both for private equity portfolio managers and for the operating managers of businesses in the portfolio ; the aggressive use of debt , which provides financing and tax advantages ; a determined focus on cash flow and margin improvement ; and freedom from restrictive public company regulations .
But the fundamental reason behind private equity ’ s growth and high rates of return is something that has received little attention , perhaps because it ’ s so obvious : the firms ’ standard practice of buying businesses and then , after steering them through a transition of rapid performance improvement , selling them . That strategy , which embodies a combination of business and investment-portfolio management , is at the core of private equity ’ s success .
How to get the best deal from a DSO
How many times have you heard and received solicitations from DSOs telling you they pay significantly more than selling to a private dentist ? How many times do you hear from DSOs and wonder which of their representatives you can trust ? How many DSOs are there in the marketplace ? Do you think DSOs are all the same and offer the same terms ? How do you know what ’ s the best deal for you and what terms are important ? Who is going to make the big money from the sale of your practice , the DSO , private equity group or you ?
18 NORTH TEXAS DENTISTRY | www . northtexasdentistry . com