Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Dental Practice Sold at 12x EBITDA with Patient Recurrence
Transcript
- Lucas: So a two-location general dentistry practice in suburban Ohio just sold for 12 times EBITDA. That's roughly double the typical multiple for a small dental office. And the buyer wasn't another dentist — it was a regional dental service organization, a DSO. Luna: Wait, 12x for a dental practice? I thought those usually trade at 6 to 8 times. Lucas: That's the baseline for a solo practitioner who's the main producer. Once you take the doctor out of the chair, the multiple usually drops. But this deal had three things that pushed it higher. First, an 82 percent patient recall rate. Luna: Remind me what 'recall rate' means in a dental context. Lucas: It's the percentage of active patients who come back for their next six-month cleaning within a reasonable window. For most independent practices, that number hovers around 60 to 70 percent. This office had built systems — automated text reminders, a dedicated recall coordinator, same-day scheduling for the next visit — that pushed it to 82 percent. That means predictable hygiene volume month after month. Luna: So it's basically recurring revenue, just not invoiced as a subscription. Lucas: Exactly. And that's the second factor — they actually had a subscription-like product. An in-house membership plan for uninsured patients. About 1,400 people paid a monthly fee — I think it was around 35 dollars — for two cleanings, exams, and a discount on procedures. That's roughly 35 thousand dollars a month in essentially pre-collected revenue. Luna: And I'm guessing that membership data is auditable, which makes a buyer more confident. Lucas: That's the third factor. The practice used Dentrix as its practice management software. Dentrix isn't exotic — it's the most common dental PMS in the US, with about 40 percent market share. But the seller had kept immaculate records: patient visit history, treatment plan acceptance rates, insurance aging reports. The DSO's M&A team could verify the recurrence numbers without taking the seller's word for it. Luna: So what was the actual production mix? Because if the owner-dentist was doing all the high-value work, that multiple doesn't hold once they leave. Lucas: Right, and that's the key. The owner was a general dentist, but the practice was built around hygiene. About 45 percent of production came from hygiene — cleanings, fluoride, sealants, periodontal maintenance. The owner only did restorative work: fillings, crowns, a few implants. And they had two associate dentists who handled most of the restorative volume. So the owner was already mostly a manager and marketer. The DSO could slot in their own associate dentists post-close without a massive drop-off. Luna: That makes the business less dependent on a single person. I've heard brokers say that's the single biggest driver of multiple expansion in small healthcare. Lucas: It's everything. In the broker's letter — this was represented by a firm called Practice Brokers, I think — they explicitly noted that the owner's clinical time was only 15 hours a week. The rest was administrative. So the buyer wasn't buying a dentist's labor; they were buying a patient acquisition and retention machine. Luna: What was the final price? Can we talk in round numbers? Lucas: The practice did about 1.8 million in revenue and roughly 500 thousand in EBITDA. At 12 times, that's a 6 million dollar enterprise value. But the deal structure matters too. The seller got about 3 million cash at close, 2 million in DSO equity, and a 1 million earn-out tied to patient retention over two years. Luna: So the earn-out is basically the buyer hedging on the recall rate holding up. Lucas: Exactly. If the recall rate drops below 75 percent, the earn-out shrinks. The seller had every incentive to train the front desk and document the processes before leaving. Luna: Did the seller stay on as an associate? I've seen that in a lot of DSO deals. Lucas: They did — for one year, at a reduced schedule. But the interesting part is the non-compete. The seller can't open another practice within 15 miles for five years. That's pretty standard, but the radius is wider than usual because the DSO wants to protect the patient base. Luna: So if you're a solo dentist thinking about selling, what's the takeaway? You need to build the hygiene machine first. Lucas: And track the data. Dentrix or Eaglesoft or whatever you use — you need clean, exportable reports that show patient recurrence over 24 months. A buyer will ask for that. Also, the membership plan is huge. Even 500 members at 30 bucks a month is 180 grand a year in predictable cash flow that a DSO can model easily. Luna: But not every practice can get to 82 percent recall. That seems like a ceiling. Lucas: It is high. But the national average for dso affiliated practices is around 78 percent. So even getting from 65 to 75 percent adds noticeable value. I spoke to a broker who said each percentage point of recall rate improvement adds about one to two percent to the purchase price. That's real money. Luna: Before we go further — you know, if this kind of concrete deal breakdown is useful to you, it's exactly why we keep this show ad-free. Listener support at buy me a coffee dot com slash fexingo is what makes that possible. No pressure, just if you've gotten something out of it. Lucas: Yeah, we don't run ads, so it's purely listener-funded. And we really appreciate anyone who throws in a coffee. Alright — back to the dental deal. One more thing I want to point out. Luna: What's that? Lucas: The buyer was a DSO, but not one of the big national ones like Heartland Dental or Aspen. It was a regional DSO based in Columbus that owns about 40 practices across Ohio and Indiana. Those mid-size DSOs are actually the most active buyers right now because they have capital but need to deploy it in smaller markets where national chains don't compete. Luna: So the seller didn't have to go through a giant corporate process. Probably a smoother integration. Lucas: That's the theory. The broker told me the whole process from initial meeting to close took seven months. That's fast for a healthcare deal. Usually it's nine to twelve months because of regulatory stuff — state dental board approvals, insurance credentialing transfers, that kind of thing. Luna: Did the practice have any digital marketing moat? Like a strong Google reviews presence? Lucas: Good question. They had 4.8 stars across 600 reviews on Google, and they were the number one result for 'dentist ' in organic search. That's partly because they'd been in the same location for 22 years and partly because they actively managed reviews. That kind of local SEO is hard to replicate quickly, and the DSO valued it. Luna: So the multiple wasn't just about the financials; it was also about the digital asset. Lucas: Exactly. And that's something a lot of small business owners overlook. They think the only value is in the P&L. But a strong online reputation, a clean patient list, and a well-organized PMS are intangible assets that buyers will pay for. Luna: What about the facility? Did they own the building? Lucas: They rented both locations. The leases had five years remaining with renewal options. The DSO assumed the leases. That's actually preferred by most DSOs — they don't want to tie up capital in real estate. They'd rather own the patient relationships and lease the chairs. Luna: So if you're a dentist listening, the checklist is: build hygiene volume, start a membership plan, keep meticulous data in Dentrix or similar, manage your online reviews, and consider a regional DSO as a buyer. Lucas: That's the playbook. And I'd add one more thing: start tracking your patient recall rate today. If you don't know it, ask your front desk to run a report. That number alone will tell you a lot about your exit readiness. Luna: It's a good reminder that even a traditional service business can command a tech-like multiple if you build the right systems. Lucas: Exactly. And it doesn't require a fancy app or a million-dollar software investment. Just discipline and a willingness to run the business like a business.