Whether you’re a dentist considering a DSO partnership, a healthcare business owner exploring an MSO, or a business owner thinking about a strategic transition, the conversation often starts with “What is my business worth?”
Another common situation is when owners hear the value another owner received or see headlines about the current market, they understandably want to know, “Can I get that same number?”
However, the valuation is only one part of the decision, and it rarely should be the first. The more important question is “What am I trying to solve for?”
Before evaluating an offer or going down the path of exploring options, owners should understand what they want to accomplish and if pursuing a strategic partnership ultimately meets these goals.
The Value Isn’t the Starting Point
Pursuing a transition based solely on achieving a particular multiple can be a mistake. The highest valuation on paper does not necessarily create the best outcome for you, your family, your team, or your future.
“It’s common for owners to lose sight of why they started the conversation once the numbers get in the way, which can complicate the process,” Madi Little, Director of Transaction Success of 7 Pillars, said. “Understanding their ‘why’, beyond the multiple or headline value, helps ensure the decisions made throughout the process remains aligned with the goals they originally set out to achieve.”
A DSO, or any type of private equity-backed partnership, can help solve a specific challenge in an owner’s business or personal life. Here are five of the most common problems owners are looking to solve through a DSO or M&A transition.
Problem #1: Financial Security and Wealth Planning
The Problem: “I’ve built significant equity in my business. How do I turn that into financial security while continuing to work?”
Strategic partners can help take risk off the table. While many owners have their net worth tied up in a business, these partnerships provide the opportunity to turn it into cash and potential rollover equity. They also allow owners to diversify wealth away from a single practice or business.
Pursing an M&A partnership potentially creates an opportunity to monetize value while continuing to earn income.
Keep in mind: Equity is not the same as cash, and the future value of rollover equity is uncertain. It’s important to evaluate how the transaction fits into the owner’s overall financial plan.
Bringing your financial advisor into the conversation early can help ensure the deal structure, liquidity, tax considerations, and investment strategy all work together to support your goals.
Problem #2: Staffing, HR, and Operational Support
The Problem: “I don’t want to spend my time constantly dealing with staffing, HR, systems, compliance, and the day-to-day challenges of running a business.”
Business partnerships can help centralize HR resources, recruiting, payroll, marketing, purchasing and many of the administrative and operational burdens on practice owners. This transfer of responsibility allows the doctor to focus more on the clinical piece and patient care.
Keep in mind: What is not often included in this list is the team management aspect.
“One of the biggest misconceptions we see is that bringing on a DSO or MSO means you no longer have to manage people,” Madi said. “They can help with recruiting, HR infrastructure, and processes, but you’re still leading a team. It’s important to understand what support you’re getting and what responsibilities will still be yours after the transition.”
When evaluating a partnership, acknowledge where you might need help and identify a partner that will provide exactly the help you need.
Problem #3: Stress Relief and Quality of Life
The Problem: “I don’t want the business to consume my life anymore.”
Doctors are trained to be clinicians, and many learn how to run and grow a business along the way. For some, partnering with a DSO or MSO means reducing the number of business decisions sitting on their shoulders. This comes with less operational stress, better work-life balance, and the ability to step away from certain business functions.
Keep in mind: This does not mean stress is automatically eliminated. New pressures may emerge, like production expectations or performance metrics. The owner may also lose control over decisions they previously made independently.
When pursuing a partnership for this type of solution, make sure the transaction works to create the freedom you desire.
Problem #4: Growth Support
The Problem: “I know my practice or group has more potential, but I don’t have the capital, infrastructure, or expertise to get there on my own.”
The appeal of a partnership for some isn’t the idea of walking away, but instead of continued growth. They see a partnership as an opportunity to add locations, acquire other practices, recruit additional doctors, expand services, or build a larger organization.
Keep in mind: The goal shouldn’t be to find the DSO or MSO with the most resources, but to find a partner whose resources are aligned with the growth you want to pursue. An owner may have more capital and resources after a transition, but they may also have less autonomy over where the capital is deployed, which practices are acquired, and how the organization expands.
“For some younger dentists, ownership doesn’t necessarily mean owning and managing an entire practice on their own,” Madi said. “They are looking for a way to build equity, reduce their amount of debt, and be part of a like-minded community.”
It’s important to not only understand what you are signing up for when partnering, but also finding the right partner to help you build your business.
Problem #5: Succession Planning
The Problem: “I want to transition out of ownership, but I don’t have a clear successor or plan for what comes next.”
One of the most common reasons for partnering with a DSO or MSO is to ease out of ownership. This solution creates a potential succession path and provides continuity for employees and patients. By partnering with a DSO, it allows the owner to transition gradually and provides a defined exit plan.
The right transition should address not only how you exit ownership, but what happens to the practice, your team, your patients, and your legacy afterward.
Define Your “Why”
Exploring a transition involves a lot more than just having a conversation about the multiple or headline number. Having the right people around you to help navigate that process is critical.
“It’s important to know your ‘why’ and stay grounded in it throughout the journey,” Madi said. “It’s easy to get distracted by the numbers or the excitement of a deal, but the right team will help you stay focused on what you ultimately set out to accomplish.”
The team at 7 Pillars helps healthcare practice and business owners evaluate transition options through their financial and professional goals, personal priorities, and long-term vision, so they can determine whether a transaction is the right solution for them.
Schedule a confidential call with one of our advisors today.