DSOs & Transition Services Webinar: Part 2

Introduction

Moderator: Blake
Speakers: Dr. Thomas Snyder (Senior Director of Transition Services), Scott Crow (Attorney, Dickinson Rights), Mike White (Principal, CLA)
Note: No CE credit for viewing or attending this presentation

Definition: Dental Service Organizations (DSOs) manage non-clinical operations of dental practices;
Growth: Significant trends in dentistry moving from solo practices to larger group practices.
Stats:
- In 2021, 46.2% of dentists were solo practitioners
- 1 in 4 dentists under 35 was in Solo practice in 2019.
- Large group practices (>50 locations) - 5.9% of practices.
- Small group practices (2-49 locations) - 25.7% of practices.
Trends: Younger dentists less inclined to own practices; 20% dentists under 35 affiliated with DSOs.

Legal Structure: Differentiates management company and professional corporation
Centralized Management: Key characteristic; includes non-clinical management services
Variety: Different structures and partnerships with doctors
Importance: Often required for better large-scale management and achieving premium pricing

Definition: Earnings Before Interest, Taxes, Depreciation, and Amortization
Importance: Key metric for buyers and sellers in determining the profitability and value of a practice
Differences: Variations in adjustments (add-backs) and perception of EBITDA between buyers and sellers.
Recommendation: Sellers should have quality earnings analysis before selling.

Quality of Earnings: Different from audits; tests for revenue, payroll, and non-recurring expenses
Legal Diligence: Necessary to ensure the transaction doesn't lower the sale price unexpectedly
Importance: Sellers should prepare by having legal and financial diligence for accurate valuation.

Current State: No significant impact on valuations so far; due to private equity (PE) funds
Future Risk: Rising costs and interest rates might affect valuations differently
Consolidation: Likely to continue if PE funds remain significant
Contracts: Ensure providers fulfill production and profitability targets to avoid clawback.

Nomenclature: Different names but fundamentally similar in function, relating to involvement and equity.
Understanding Terms: Focus on actual services and structure rather than names.

Depends on Intent: Evaluate long-term goals and whether a DSO structure aligns with them
Debt and Structure: Practice loans and current structure might restrict forming a DSO without restructuring debt
DSO Light: Test approach by managing employee relationships before fully transitioning

Financials: Clean and accurate financial records are essential for taking a practice to the next level
Operational Awareness: Understand and manage through service agreements and centralized management

Considerations: Based on growth goals, practice size, patient base, and staff resources
Investment: Assess if the significant investment in centralized services is matched by the growth strategy

Consider Consolidation: Clean and consolidate debts to present a stronger financial position before expansion or acquisition.

Integrated Systems: Helps in managing multiple locations efficiently and preparing data for due diligence
Reporting: Real-time, accurate data for financial decisions

Definition: Roles to manage expanding practice structures and operations
Timing for Hire: Based on the number of locations and complexity of the operations

Necessary for Expansion: Key roles to understand financial metrics and facilitate growth
Value Increase: Effective leaders can manage more practices and integrate acquisitions more smoothly

Contact: Reach out with questions or for more information through various contacts provided
Next Webinar: April 18th, deeper dive into topics covered today
Feedback: Participants encouraged to fill out the post-webinar survey.