Hundreds of Invisible Dental Support Organizations Now Partnering with Larger Practices at Record Values

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Written by Chip Fichtner, Co-Founder and Principal of Large Practice Sales (LPS)

Inflation, interest rates, bank crashes and an ever-looming recession should all be reasons to slow the accelerating consolidation of U.S. dental practices and result in lower practice values. But they are not. Growing practices are attracting a record number of qualified, eager bidders and achieving new high values.

Invisible Dental Support Organization (IDSO) partnerships are becoming more attractive to doctors in their 30s, not just to those in their 50s and 60s planning an exit. In 2022, LPS completed over $100 million of IDSO partnerships for doctors in their 30s. Young doctors are more valuable to an IDSO due to their long chairside horizon and desire for growth.

Just in the month of May, LPS achieved a record number of bidders for clients who all signed partnerships with IDSOs at record values. Some examples: Eighteen bidders for an OMS practice, signed at 11x EBITDA. Thirteen bidders for a Pedo practice, signed at 9.5x. Nine bidders for a $4.0 million in collections GP practice in the rust belt, signed at 10.1x. Nine bidders for a large ortho practice, signed at 12x.

Like all LPS clients, these were all great doctors with growing practices. But in our $612 million of completed IDSO partnerships in 2022, not many achieved these values. What is going on in 2023? The answer is new money and young doctors’ new understanding of the IDSO model which ensures that doctors have full autonomy.

IDSOs have been quietly partnering with practices for over 35 years. There are hundreds of them in all 50 states. Keep in mind that every IDSO is different and some are better than others. Some will succeed phenomenally and actually deliver the mythical huge multiples on doctors retained ownership. And more than a few will fail. You must choose wisely.

IDSOs are active in every segment of dentistry. Hundreds of GP focused IDSOs have been joined in the last seven years by 15 OMS only IDSOs, 13 Ortho only, eight Endo, five Perio, dozens of Pedo/Ortho, several Surgical Trifectas interested in OMS/Perio/Endo in the same communities, six Implant and all in X focused IDSOs and now ten or more Dental Trifecta IDSOs which partner with only Pedo/Ortho/OMS.

Some IDSOs have grown from a single platform practice to over 200+ partners in the last three years.  Most of these groups are well financed and very eager to add new partners. They can also be fierce competitors when they quietly come into your community.

Notably, the financial sponsors of IDSOs are not just Private Equity. Investors in dental consolidation include Family Offices, traditional money managers with trillions in assets, Small Business Investment Corps, and recently, even Sovereign Wealth Funds. One of the largest IDSOs is backed by a Swiss Family Office which made their fortune in of course, chocolate. Another top 10 IDSO is now controlled by the Sovereign Wealth Fund of Abu Dhabi, the third largest national fund in the world after China and Norway. Dozens of investors globally are eager to join a very lucrative trend which began decades ago.

But I digress. What exactly is an IDSO and why did sophisticated investors, new to U.S. dental consolidation, pour $5.0 billion dollars into just a few IDSOs (not DSOs) in late 2022? Each IDSO may call themselves something different…a dental partner organization, a doctor-led management partnership…there are dozens of other catchy descriptions. In reality, the good IDSOs are all following the same playbook.

IDSOs become a doctor’s silent, supportive partner. They buy 51% to 90% of a practice for cash up front. Doctors retain ownership in the balance, either at the practice level, the parent level or a combination of both. Doctors continue to lead their practice with their brand, team and strategy for years or decades with full autonomy. Yes, full autonomy with the right IDSOs.

Doctors benefit from the resources of a larger silent partner to grow bigger, better, faster and more profitably. They are not micromanaged and there is no attempt by the IDSO to homogenize their partner practices to fit some corporate standard. They want doctors to maintain their unique success formula, local brand, and great team.

However, without micromanaging a practice, IDSOs can be very helpful and deliver doctors more time and money. In almost all cases, the IDSOs will handle the following items: Banking, accounting, payroll, benefits/administration, compliance, credentialling, legal, tax, IT support and payor and vendor negotiations. Doctor’s headaches and time commitments to minutiae are reduced.

Doctors who join an IDSO access technology, supplies, team benefits and marketing at lower costs. They also benefit from the leverage that an IDSO with 100 or 500+ partners have with payors. Many IDSO partner practices are reimbursed at higher rates than independent dentists. And in today’s world, the IDSOs are better recruiters than you are, as they can offer equity ownership to existing and new associates.

Why would a doctor want to join an IDSO? Besides enabling doctors to operate better practices with fewer headaches, IDSO partnerships have and can create generational wealth for doctors. Doctors in IDSO partnerships have achieved returns on their retained ownership of billions of dollars over the last several years.

When doctors choose the right IDSO partner, their retained piece of ownership can grow by 2x to 20x or more over time. Doctors partnering with an IDSO at a $5.0 million initial value, with $3.0 million in cash up front and $2.0 million of the value received in equity could potentially see the value of that $2.0 million grow to $20 million or more in a span of 10 years or less. You will not do that on your own.

What are the risks of IDSO partnership? The primary risk is choosing the wrong IDSO partner and/or structuring a partnership that leaves you miserable and without the equity upside. Doctors are being approached weekly by IDSOs eager for you to join them. Naïve doctors are regularly persuaded to sell a part of their life’s work after only considering one or two suitors. Doctors have no idea what their real options are if they attempt to complete a life-changing transaction without professional advice. Would you do your own root canal? Doctors who attempt an IDSO partnership alone inevitably do not get the highest values, with the right transaction and tax structures and without really knowing the future with their new partner.

Doctors who choose the right advisor will have six to ten or more qualified IDSO bidders from which to choose their future partner. Multiple bidders not only increase initial values, but more importantly empower a doctor to choose the right IDSO partner fit for them. Each IDSO is different in how they operate, their culture, the support resources and most importantly, the future value of the doctor’s equity. Not considering all of your options is foolish!

Understand the Value of Your Practice in an IDSO Partnership

At the moment, only larger specialist practices with at least $1.5 million in collections and $1.8 million for GPs are of interest to the great IDSOs at exceptional values. Every doctor should understand the potential value of their practice in an IDSO partnership. At no cost or obligation, LPS can determine your practice value and explain all of your options.

Schedule a no-cost, no-obligation valuation meeting
with Chip Fichtner, Co-Founder and Principal of LPS, today.

Chip Fichtner is the Co-Founder and Principal of LPS which completed $612 million of practice transactions in 2022 with 31 IDSOs for clients in 29 states. He has built, bought and sold multiple companies, both public and private, in a variety of industries for 40+ years. He has been featured in numerous media outlets including The Wall Street Journal, Forbes and CNBC. His tolerant wife of 32 years allows him to live on airplanes visiting clients every week.