Private Equity Dental Practices: A Cautionary Tale

5/21/2020 2:24PM

The previous “big thing” before COVID-19 was the unprecedented number of Private Equity groups buying dental practices. The appeal is no surprise. The partnership will allow you to focus only on dentistry. After all, they have lots of business experience and your degree is in dentistry. Just think of it! No more managing staff. No more researching the best lab or taking out expensive loans for equipment. No more gathering financial data or answering directly to your CPA. 😉 Or maybe it allows you to get out of dentistry entirely. The pros are obvious—less responsibility and a big payout.

Not so long ago, only bigger multi-location practices were in the sight line of Private Equity groups. But now they’re finding ways to roll up several single-location practices into a desirable portfolio. And why is PE so interested in dental practices that they’re finding more creative ways of doing deals? Well it’s simple…dental offices are profitable and lucrative. And PE wants a piece of that pie.   

Those of us serving the consulting and financial needs of the dental industry see the trend very clearly. It’s going the way of the medical profession, where you now find very few privately owned practices. But owning a dental practice is about more than just doing dentistry and more than just making a living. Do you have an entrepreneurial spirit? Do you want to determine the direction of your practice—its personality and quality level? Do you want to keep your profits or share those profits with investors? And most importantly, do you want to be told how to care for your patients? Private Equity gives lots of assurances of not directing how your practice will provide dental care, but that often is a bait and switch job

Bloomberg had a good article this month about the effect of Private Equity on the medical field.

bloomberg businessweek

This is one of many tales we’ve heard of the affect non-medical owners have on practices. It’s not a paranoid perspective, but what has been demonstrated time and again. We’re not here to lecture you about the evils of Private Equity owners. And when you’re offered that big payout, we understand you have to think about your family and your financial needs. But we do want you to go into any transaction with your eyes wide open to all matters under consideration, which include more than total dollars. 

  • Will I really continue to be in control of my dental care decisions?
  • What long term effect will this have on my industry? On my colleagues? On future dentists? On my child that planned to follow me into this field?
  • Could a private dental buyer give me a competitive offer as an alternative? 
  • Could I bring in a partner to relieve some administrative burdens?
  • What future revenue will I forfeit by doing this deal?

It’s a seller’s market right now. Both Private Equity groups and individual buyers are looking for valuable practices. Younger dentists are searching for practices that will afford them the entrepreneurial opportunity you’ve had, and they’re motivated to compete against big players in the industry. And lenders are willing to make the loans to help them. Our point in all this? Your decision whether to sell to Private Equity will affect far beyond yourself.