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Maximizing the Value of your Dental Organization in the Age of DSO’s

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Presentation on theme: "Maximizing the Value of your Dental Organization in the Age of DSO’s"— Presentation transcript:

1 Maximizing the Value of your Dental Organization in the Age of DSO’s
AADGP Presented by Brian A. Colao

2 Mission Statement of the Dykema DSO Industry Group
Develop Regulatory Compliant Business Structures Nationwide Defend All Manner of Regulatory Actions, Issues, or Investigations Assist Investors in Buying, Selling, Lending or Making Investments in DSO’s/Large Group Practices

3

4 Dykema, The Leading Law Firm in Dental Services Presents:

5 Dentistry is Undergoing a Business Revolution

6 What is Happening? Mature Regulatory Compliant DSO Startup DSO
Dentist Owned Group Practice Dentist Owned Single Practice

7 What is a DSO? A DSO provides non-clinical administrative services to dental practices that are owned and controlled by licensed dentists. A DSO does not have a dental license and cannot practice dentistry. A DSO can provide non-clinical services to a dental practice. A DSO can be owned by non-dentists and can be bought and sold by non-dentist investors.

8 Why is the Revolution Happening?

9 Fast Facts About The Dental Industry
The Dental Market continues virtually recession resistant growth. CMS reports dental market was $117bn in 2014 and expected to reach $192bn by U.S. population growth from 2013 to 2033 is expected to outpace dental practitioner growth by 13%. Specialty Services such as orthodontics, pediatric and oral surgery are growing at a faster pace than general dentistry. Increasing regulatory and administrative burden discourages the sole doctor business model. DSO’s are positioned to capture market share due to the increasing regulatory and administrative burdens. Creates a substantial need for efficient delivery of dental services.

10 Why DSOs? Allows for Industry Participation of Non Dentists.
Allows for Industry Participation by Specialists in Business and Economics. Allows for Business Innovations. Allows for Clinical Innovations. Allows for Economies of Scale. Allows Greater Access for Patients. Allows for Above Market Returns.

11 Significant Opportunities For DSOs
The dental market is still dominated by small single dentist practices. The top 20 DSO’s account for 4% of the market (over affiliated practices). Explosive M&A Environment with EBITDA approaching 18X and double digit common place. Payer Mix Directly Impacts Returns. Greater than 60% Medicaid 8.5. Less than 10% exceeded 15X.

12 The Top 20 DSO’s Account For 4% of the Market

13 What Does it Mean to Convert to a DSO?
Convert from a dentist-managed model Move to a DSO/Corporate-managed model Remain dentist owned and clinically controlled Value no longer resides at the practice level Value moves to the DSO level

14 The Players Dentists Investors Business People

15 What does this have to do with us?

16 Opportunities to Maximize the Value of your Dental Organization

17 How? Reorganize from a Group Practice to a DSO
Reorganize from a non-compliant DSO to a compliant DSO Affiliate with an established DSO Accept Private Equity Investment Accept other investment (Family Funds/Credit Facility/Minority Investment) Affiliate with an alternative DSO

18 DSO Business Agreements
Reorganize as a DSO DSO DSO Business Agreements Practice Practice Practice

19 Key Considerations Who owns the IP? Who owns the equipment?
Who holds the leased premises? Who employs the nonclinical employees? Are the dentists independent contractors or employees? What are your fees and how are you charging them? Are you protected if there is a dispute between the PC owner and the DSO? Do you have a succession plan if you lose the PC owner?

20 Do you have a plan to attract and retain talent?

21 Reorganize from a Non-Compliant DSO to a Compliant DSO
DSO Business Agreements Practice Practice Practice

22 Affiliate With an Established DSO
Relevant considerations: Lower multiple Lower risk Less reinvestment by seller Less involvement by seller Safe and conservative investment

23 Accept Private Equity Investment
Relevant Considerations: Higher return Higher risk More seller involvement Required reinvestment (rollover) by seller Between 20% and 49%

24 Accept Other Investments
Non Dentist Investors (Private Equity) Family Funds Minority Investments Debt to Equity

25 Affiliate with an Alternative DSO
Breakaway Tralongo CDA “DuckTape” Affiliation

26 The Hitchhiker’s Guide to the DSO Galaxy
Glossary of Terms

27 DSO DSO DPMC MSO MGMT Company Sub DSO

28 EBITDA Multiple Earn Out Roll Up Roll Over Reps & Warranties Clawback Box Around Holdback Equity Phantom Equity Option Due Diligence LOI Sub DSO Quality of Earnings

29 Consequences of Not Converting to a DSO Model

30 Inability to Effectively Compete in the Marketplace
Failure to achieve economies of scale. Failure to achieve competitive reimbursement rates. Failure to achieve volume based discounts. Failure to achieve preferred vendor relationships. Failure to utilize business specialists.

31 Conclusions A DSO is an entity that can be owned by non-dentists and provides nonclinical services to affiliated dental practices. Converting to a DSO transfers the value of the business from the practice level to the DSO level. Creating a DSO achieves economies of scale, provides greater access for patients, and allows for above market returns. Virtually all states and the federal government regulate the relationship between a DSO and its affiliated practices; it is critical that the DSO structure and all business agreements comply with these regulations. Any dentist looking to expand should consider creating a DSO as soon as possible.

32 Questions?

33 Contact Information Brian A. Colao Director of Dykema’s Dental Service Organizations Industry Group Resident in Dykema’s Dallas, Texas office Phone Number: (214) Address: Website:


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