Demystifying Private Equity: When is PE Investment Right for Me? Part 1

As I mentor the CEOs of DSOs, share wisdom at DSO-focused conferences, and assist DSOs to source growth capital from investors, a recurring theme of my conversations is confusion about PE. When does partnering with private equity (PE) investors make sense for me? Is my DSO developed enough? And what is the window of opportunity for high valuations and investor interest?

Through my experience working with PE firms and DSOs seeking investment, I have a unique view into both sides of this equation. My goal in this article is to address all of these questions to help you decide if you and your business are ready to take the next step into working and partnering with investors.

When might partnering with PE investors make sense for you?

The bottom line with PE investors is this: they exist to make money as abundantly and swiftly as possible by injecting growth capital into a business and exiting the business within a defined period (usually 3-5 years). This allows them to return the invested capital to their investors with a high return on investment. PE seeks to partner with motivated leaders and owners of DSOs willing to invest alongside them to build wealth for all investors in the business. Understanding these basic facts will help you determine if seeking an investment from PE is right for you.

Partnering with PE investors is an important decision that should align with the goals of the business, as well as your personal goals. Most or all of the following situations should exist for you when choosing to partner with PE:

• You require growth capital to expand your business
• Less expensive bank debt is not available or you are timing a window of opportunity
• A clear path to rapid growth exists and you are confident in your ability to achieve it
• You are interested in remaining actively involved, leading and running the company day-to-day
• You desire some liquidity now, but see an opportunity for greater wealth creation in a future transaction
• You are willing to forego sole control of the company and work with a Board of Directors/Managers
• A clear exit strategy exists

If these items describe your current situation, it may make sense to seek investment from PE.

Is my DSO developed enough?

Once you have cleared the hurdle of being a general fit for PE investment, the next question you should be asking yourself is related to the maturation and development of your DSO. To understand the level of development required for investors to be interested in partnering with you, as well as to maximize your valuation in an initial transaction, you will want to ensure that your DSO has the characteristics investors are seeking in a platform DSO investment.

I prefer to group DSO’s into three general buckets corresponding to their stage in the developmental process of the business:

1) Pre-scale:
o A simple collection of practices, limited organizational cohesiveness
o Systems deficient
o No defined growth strategy or an opportunistic growth strategy
o Single owner (or partnership) with no legal DSO formation

2) Emerging:
o Some organizational cohesiveness
o Some systems and processes, but immature
o Solid growth strategy
o Reactive approach to issues
o Limited management
o Legal DSO formation in process and possibly completed

3) Sustainable:
o Clear organizational cohesiveness
o Scalable systems and processes in place
o Specific and achievable growth strategy (+ organic)
o Proactive approach to issues
o Operating management team and built-out departments for non-clinical services
o Legal DSO formation completed

To become attractive to PE as a potential platform DSO investment, the ideal is to have already created a sustainable, investable DSO platform. Due to the current dental investment climate, which includes many more interested investors than good platform DSOs to invest their capital into, some emerging DSO’s are receiving interest from investors. However, it remains a best practice to build your organization to include as many of these sustainable characteristics as possible for optimal positioning and higher enterprise valuations.

What is the window of opportunity for high valuations and investor interest?

Multiple experts and industry mavens believe that we have at least a 5+ year window of historically high DSO enterprise valuations, coupled with robust consolidation of the dental market. I absolutely agree. PE has historic levels of dry powder (uninvested capital) ready and waiting for deployment into your DSO. This confluence of events only happens once in an industry, and dentistry’s time is now.

Understanding when a PE investment may be right for you, whether you decide to partner with PE or not, will allow you to be well informed regarding the options for you and your business. In Part 2 of the Demystifying PE series, I will share with you insider information directly from several of the PE firms I work with answering the question, “What are investors looking for in a DSO investment?”

Read part 2:
Demystifying Private Equity: What are
Investors Looking for in a DSO Investment?

Written by Jeromy R. Dixson, DMD, MBA, CEO of The DSO Project and DSO Project Advising. Dr. Dixson was chosen by Group Dentistry Now as one of the ‘DSO Influencers‘ of 2019. You can contact Dr. Dixson at or connect with The DSO Project ecosystem at and Read Dr. Dixson’s other article here: Building your DSO or Group Dental Practice House


Looking for a Job? Looking to Fill a Job? can help:Subscribe for free to the most-read and respected
resource for DSO analysis, news & events:Read what our subscribers & advertisers think of us: