How to Evaluate a DSO Offer for Your Dental Practice

By Spiro Leunes, CPA | CEO, MRL Advisory Group, New Jersey and New York Dental CPAs

A DSO has made an offer for your practice, and the number on the first page is bigger than anything you expected. Six times EBITDA, maybe seven. Total value well above what you assumed the practice was worth.

Before you get attached to that number, understand what it is made of. In my experience the headline is the least informative number in the whole package. What matters is how much of it is cash, how much is an investment in someone else's company, how much depends on things that have not happened yet, what you will earn and how hard you will work after closing, and who is actually on the other side of the table.

If you are still deciding whether a DSO makes sense for you at all, start with Joining A DSO vs Staying Independent: How to Decide. This article assumes you have made that decision and now have a letter of intent in front of you.

Your Leverage Is Highest Before You Sign the LOI

Most dentists treat the letter of intent as a formality and save the hard questions for the purchase agreement. That is backwards. Once you sign the LOI you have usually agreed to an exclusivity period of 60 to 120 days, the DSO knows you are no longer talking to anyone else, and every term you did not nail down gets negotiated from a weaker position.

Two things should happen before you sign. First, you should know what the practice is worth independent of what the DSO says it is worth. I cover that in Dental Practice Valuation: How Much Is Your Practice Really Worth?. Second, the economic terms that matter, cash at closing, rollover percentage, earnout structure, post closing compensation, employment term and non-compete, should be in the LOI, not left for later. If you are working with a broker, this is where they earn their fee. I wrote about that decision in Should You Use a Dental Practice Broker: Benefits & Costs.

Start With the Cash You Actually Receive

Say the DSO values your practice at $4 million. You might get $2.5 million in cash at closing, $1 million in rollover equity and $500,000 tied to an earnout. That can be a very good deal. It is not $4 million at closing.

Cash is cash. Rollover equity is an investment. An earnout is money you may or may not see. Keep the three separate in your head and on paper.

Then look harder at the cash number itself. Some of it may sit in escrow for 12 to 24 months to cover indemnification claims. Your practice loan and any equipment leases get paid off at closing, out of your proceeds. And find out who keeps the accounts receivable. Some DSOs buy the AR, some leave it with you, and some use a working capital target that quietly reduces the price if the practice does not hit it at closing. On a practice collecting $2 million a year, AR alone can be $150,000 to $250,000. That is not a rounding error.

A Multiple of What?

Dentists fixate on the multiple. Seven must be better than six.

Not necessarily. One DSO offers 7x on $500,000 of EBITDA, which is $3.5 million. Another offers 6x on $600,000, which is $3.6 million. The lower multiple won.

The DSO builds its EBITDA number by adjusting your financials. They will normalize your compensation to what they would pay an associate, add back personal expenses, adjust rent to market, and sometimes deduct the cost of a manager or other overhead they expect to add. Every one of those adjustments moves the number, and every $100,000 of EBITDA is worth $600,000 to $700,000 of purchase price at these multiples.

Your tax return shows one profit. Your financial statements show another. The DSO's adjusted EBITDA is a third number, and you should be able to reconcile all three. This is where clean, dental specific books pay for themselves, which is the point of our Dental Accounting and Bookkeeping Services. If you cannot defend your own numbers, you cannot negotiate theirs.

Rollover Equity Is an Investment, Not a Bonus

Rollover equity is usually the most exciting part of the pitch. You sell, take cash off the table, and reinvest part of the proceeds in the larger organization. When the DSO recapitalizes at a higher value, your stake is worth more.

That can happen and it has happened. But if you roll $750,000, you did not receive $750,000. You made a $750,000 investment in a company you do not control, and you should evaluate it the way you would evaluate any other investment of that size.

That investment carries real risk, and it is concentrated risk. The money is tied up in one company, in one industry, that also happens to be your employer. If the DSO takes on too much debt, if a recap never comes, or if the sponsor sells into a bad market, your equity can be worth a fraction of what the presentation showed. I have seen rollover stakes marked down to zero while the dentist was still under an employment contract with the same organization. Treat the rollover as money you could lose, because you could.

Ask what entity you are investing in and what class of equity you receive. The private equity sponsor almost always holds a different class with different rights. Ask whether you can be diluted, whether more debt can be placed ahead of you, what happens to your shares if you leave, and who decides what they are worth if you need to sell.

Then look at the multiple your equity is being rolled at. Your practice was bought at 6x or 7x. The DSO's own equity is often valued at 12x to 15x. If your $750,000 buys a slice of the DSO at 14x, you have already paid double the multiple you sold at, and the recap has to happen at a premium to that before you are ahead. That arbitrage, buy the practice low and roll the dentist in high, is the core of the DSO model. It is not a reason to say no. It is a reason to understand the math.

Perform Due Diligence on the DSO

The DSO will spend weeks going through your tax returns, production, collections, payroll, leases and payer mix. You should do the same to them, and most dentists do not.

I would focus on three things.

The management team. Have they actually run dental organizations, integrated acquisitions and built systems across dozens of providers? How long have they worked together? A team assembled last year to spend a fund's money is a different bet than one that has been operating together through several cycles.

The balance sheet. How much debt does the DSO carry, and how comfortably does it cover the interest? How much of its EBITDA growth came from buying practices versus improving the ones it already owns? Has it needed additional capital just to keep operating? Bigger does not mean stronger, and a DSO that looks like a success because it keeps closing acquisitions may simply be a company that has not stopped buying yet.

The operating history. A DSO that grew fast when money cost 3 percent has not been tested the same way as one that operated through 2008 and the years after. If it was around then, ask how it performed. Did it stay profitable, keep its liquidity, meet its debt obligations, and keep investing in its practices? That does not guarantee the future. But being tested means something.

Ask for dentist and staff turnover too. Acquired practices that lose their doctors and their front desk do not stay profitable, and turnover is the fastest way to see how a DSO actually treats the offices it buys.

If Private Equity Is Behind the DSO, Research the Sponsor

The DSO management team runs the business day to day. The private equity sponsor controls the capital, which means it controls how much debt is used, how fast acquisitions happen, whether more money is available if things get difficult, and when the company is sold.

Find out who the sponsor is and how long it has been around. How much capital does it manage, what else has it done in healthcare, and what happened to those companies? Has it managed businesses through a recession and a tight credit market? Has it had portfolio companies go into restructuring? What is its typical hold period, and where is this fund in its life cycle? A fund in year seven of a ten year life needs an exit on a schedule that has nothing to do with your career plans.

You may be putting a third of the value of a business you spent 25 years building into an organization controlled by people you have never met. Know who they are. For context on how these deals have been structured recently, see DSO Private Equity Trends 2025: What Every Dentist Should Know.

Do Not Plan Your Retirement Around the Second Bite

You will hear about the second bite of the apple. The DSO grows, gets sold or recapitalized in a few years, and your rollover equity is worth two or three times what you put in.

It can happen. I would not build a retirement plan around the best case in somebody else's PowerPoint.

Read the documents that govern the equity and understand what happens in a sale. Are you forced to sell, or can you roll again? Do other investors get paid first? Are there preferred returns, management fees or transaction costs that come out before your class of equity sees anything? What happens if the DSO sells for less than the last valuation, or if there is no sale at all?

You May Make Less and Work More After Closing

This is the part dentists most often underestimate.

Today you earn two ways: as the dentist producing, and as the owner keeping the profit. After closing the ownership income is gone and you are compensated for production. On many practices that is a six figure drop in annual income. At the same time the employment agreement will likely require a minimum number of clinical days, a production target, and a commitment of three to five years.

Put those together. You may earn less and work more than you do today, with less control over your schedule, your staff and your vacation. That is not automatically a bad trade. You received a large payment for the business. But if you are a dentist who works four days a week and decides for yourself when to slow down, you should know that arrangement may not survive closing.

Three questions before you sign. How much will I make after closing? How much will I have to work to make it? Is that how I want to spend the next five years?

Read the Employment Agreement as Carefully as the Purchase Agreement

The purchase agreement gets the attention. The employment agreement determines what your life looks like.

If it says you earn 30 percent, 30 percent of what? Production, collections or adjusted production? Are lab fees deducted before or after your percentage? How are refunds, write-offs and insurance adjustments handled? Who pays malpractice, CE, health insurance, and what happens to your retirement plan? I break down the standard structures in How to Structure a Dental Associate Compensation Plan, and you should know which one you are being offered and what it does to your number.

Small differences compound. If you earn $100,000 less per year on a five year commitment, that is $500,000. Put it next to the purchase price. The economics of the deal do not end when the wire lands.

The Non-Compete Outlives the Deal

Somewhere in the package is a restrictive covenant, and it deserves its own conversation with your attorney. How many miles, how many years, and does it apply if the DSO terminates you without cause? A ten mile, five year non-compete in northern New Jersey or Long Island can mean you cannot practice anywhere you would want to. If you own the building, the lease the DSO signs matters too, both the rent and the term. I discuss the real estate side in Buying vs. Leasing a Dental Office in New York City, the NY Metro, and New Jersey.

An Earnout Is Not Guaranteed Money

An earnout means part of your price depends on something happening after closing. Collections stay above a threshold. EBITDA hits a target. You remain employed.

The question is who controls whether it happens. After closing, the DSO decides on staffing, marketing, vendors, scheduling, insurance participation and the management fee allocated to your office. All of those hit EBITDA. If your earnout is tied to EBITDA, the people who decide whether you get paid are the people who owe you the money. Negotiate the earnout on collections or production if you can, and understand exactly how the management fee and corporate allocations are calculated before you agree to any profit based measure.

Model the Taxes Before the Structure Is Locked

The same $4 million offer can produce very different after tax results depending on how the price is allocated between goodwill, equipment and other assets, how the earnout is characterized, and whether you are a C corporation, S corporation or LLC. New Jersey and New York each take their share on top of the federal bill.

Rollover equity is usually structured so you do not pay tax on it at closing. That is real value, but it also means you hold a low basis investment with no cash to pay the tax when it eventually converts, and if the equity underperforms you deferred tax on money you never got. Run the numbers both ways.

The question is not what they offered you. It is what you keep. Do that analysis while the structure can still change, which is what our Dental Tax Planning and Preparation Services and Dental Practice Transition Advisory Services are set up to do together.

Know How You Get Out Before You Get In

Everyone focuses on closing. I want to know what year four looks like.

What happens if you want to retire earlier than planned, become disabled, get terminated, or simply cannot stand working there? What happens to your equity in each case, can the company buy it back, and at what price? A dentist who is 45 and plans to work another twenty years should read these provisions very differently from one who expects to retire in three. The deal has to fit your life, not just your bank account.

Talk to Dentists Who Already Sold to Them

Financial statements tell part of the story. Dentists inside the organization tell the rest, and I would not limit those calls to the reference list the DSO hands you. Ask whether their income went up or down, whether they work more or less, whether the promised resources showed up, how staffing has changed, how their rollover equity has performed, and how management responds when there is a problem.

Then ask the only question that really matters. Knowing what you know today, would you do it again?

Compare the Whole Offer on One Page

Dentist A gets a $5 million offer. Dentist B gets $4.6 million. Who did better?

You cannot tell. Dentist A may have more rollover, a large earnout, lower compensation and a five year commitment. Dentist B may have more cash, no earnout, better compensation and a three year term. To compare DSO offers, put these side by side:

1. Cash at closing, net of escrow, debt payoff and working capital adjustments

2. Who keeps the accounts receivable

3. Rollover equity, the multiple it is rolled at, and where it sits in the capital structure

4. Earnout terms and who controls the metric

5. After tax proceeds, including the tax treatment of the rollover

6. Annual compensation after closing and how it is calculated

7. Required employment term and clinical workload

8. Non-compete radius and duration

9. Management fees and expenses allocated to the practice

10. Control retained over staff, schedule and vendors

11. Experience and track record of DSO management

12. Debt and financial condition of the DSO

13. Strength, history and fund timing of the private equity sponsor

14. Realistic value and liquidity of the rollover equity

15. Exit provisions when you leave, retire or are terminated

16. What you keep, earn and control if you do not sell at all

    
    

That last line is not a throwaway. A DSO offer is not an obligation. It is one option, and it has to beat what you already have. If the cash at closing is thin, the rollover is heavy, the employment terms cost you more than the price makes up for, or the DSO and its sponsor do not hold up under scrutiny, walking away and continuing to own a profitable practice is a perfectly good outcome. Sometimes no deal is the better deal.

A DSO sale can create real wealth, diversify your net worth, and take the administrative burden off your desk. It can also mean earning less, working more, giving up control, and putting a large share of your proceeds at risk in a business run by people you barely know. None of that makes the deal good or bad. It just has to be understood before you sign. The number on page one is where the conversation starts, not where it ends.

Related MRL Resources

Still deciding whether to sell: Joining A DSO vs Staying Independent: How to Decide and Selling a Dental Practice: How Succession Has Changed.

Preparing the practice for a sale: Selling to a DSO: How to Attract Private Equity Buyers and How Dentists Should Prepare for 2026: Internal Checklist.

Building a group instead of selling to one: Dental Services Organization Structure: How to Start A DSO, How to Scale a Dental Practice Into a Multi-Office Dental Group and DSO Management Services Agreement: How to Structure It.

More in the DSO & Group Practices Resource Center and the Buying, Selling & Transitions Resource Center.

How MRL Advisory Group Can Help

At MRL Advisory Group we work on the financial side of dental practice ownership and transitions. Our Dental Practice Transition Advisory Services cover valuation, normalized earnings, financial due diligence and the economics of the specific deal on the table. Our Dental Tax Planning and Preparation Services model the after tax result before the structure is final. Our Dental Accounting and Bookkeeping Services produce the dental specific financial statements a DSO will build its EBITDA from, and our Dental Practice Advisory and CFO Services support groups and DSOs after the transaction.

If you have a DSO offer in hand, schedule a consultation before you sign the letter of intent. That is the point where the terms can still move.

Disclaimer: This article is for general informational purposes and should not be considered tax, legal or investment advice. Every DSO transaction is different. Your CPA, attorney and other transaction advisors should review the specific terms of your transaction.