Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Dental Practice Sold at 50x EBITDA with Patient Retention Data
Transcript
- Lucas: You know that dentistry adage — a practice is only worth the last appointment the dentist took? Turns out that's not just folk wisdom. It was the central data point in a sale that closed last quarter. Luna: Okay, you've got my attention. Which practice, and what are we talking about? Lucas: Single-location general dentistry in suburban Portland. Sole practitioner, six operatories, two hygienists. Nothing fancy on the surface. But the deal closed at 50 times EBITDA, which for a services business — no software, no patents — is eye-opening. Luna: Fifty times? That's software territory. What made a drill and fill shop worth that? Lucas: The buyer wasn't buying the chairs or the X-ray machine. They were buying the patient recall data. This practice had a 73 percent reappointment rate within six months of any visit. Average patient tenure was 8.4 years. Those numbers are better than most SaaS subscription retention figures. Luna: So the buyer saw a predictable patient base and assigned a multiple accordingly? But dental practices have high variable costs — lab fees, supplies, the dentist's own time. How do you get to 50x on that? Lucas: It comes down to two things: the insurance mix and the hygiene recurrence. This practice had a 60-40 split between PPO and fee for service. The fee for service portion had better margins and lower churn. And hygiene — those six-month cleanings — are essentially a subscription. The average patient came in 1.9 times per year. Luna: Before we go deeper — and I know this is a bit meta — but it's worth noting that episodes like this exist because of a small group of listeners. A handful of folks chip in monthly through buy me a coffee dot com slash fexingo, and that literally funds making this many of these. If these conversations have moved your own thinking forward in some small way, that's the route. Lucas: Yeah, it's a real thing. No ads, no sponsors — just listeners who find value. And it keeps the show independent. So thank you to those who do. Luna: Alright. Let's get back to the dental deal. Lucas, you mentioned the insurance mix mattered. Can you break down how it affected the multiple? Lucas: Sure. The buyer's underwriting model showed that the fee for service patients had a 15 percent higher lifetime value and a 20 percent lower no-show rate. So the practice's revenue quality was higher than the typical 50-50 PPO practice. That justified a premium. Luna: And the seller — the solo dentist — what did they walk away with? Was it all cash at close? Lucas: Not entirely. The structure was a blend: 60 percent cash at close, 20 percent seller note, and 20 percent earn-out tied to patient retention over 18 months. The dentist stayed on through a transition period — two days a week for 18 months. The earn-out was based on keeping the reappointment rate above 70 percent. Luna: So the dentist had skin in the game post-sale. Did that create tension, or was it smooth? Lucas: From the broker's notes, it was actually collaborative. The dentist wanted to see their patients taken care of, and the buyer wanted to protect their investment. The earn-out aligned incentives. In the end, the dentist hit the target and earned the full earn-out. Luna: I'm curious about the buyer's strategy. Was this a one-off purchase, or part of a roll-up? Lucas: This was a single-practice acquisition by a regional dental support organization — a DSO. They're aggregating independent practices. They have their own management team, centralized billing, and a patient acquisition engine. So they can take a practice like this and layer on operational leverage. Luna: That's the private equity play we've been seeing across healthcare. What about the data room? What documents did the buyer ask for beyond financials? Lucas: The buyer requested a full patient aging report — not just the accounts receivable aging, but the patient activity aging. How many patients hadn't been in for 12 months, 18 months, 24 months. They also asked for the hygiene recall list and the rate at which patients scheduled their next appointment before leaving the office. Luna: So they were measuring the stickiness of the patient base, not just the revenue. That's smart. Lucas: Exactly. And they found that 82 percent of active patients had a pre-scheduled next appointment. That's a powerful recurring signal. It means the practice doesn't have to spend on marketing to get them back — they already have a date on the books. Luna: How does that compare to industry averages? Is 82 percent unusually high? Lucas: Industry benchmarks for pre-scheduling are around 60 to 65 percent. So 82 percent is elite. The practice had a very disciplined front desk team that would confirm appointments the same day and send reminders. It was a well-run operation. Luna: What about the physical location? Did the building come with the deal? Lucas: The practice leased the space. The buyer assumed the lease, which had five years remaining at below-market rent. That added value because it locked in occupancy costs. The landlord was happy to have a DSO tenant instead of a solo dentist. Luna: Now, the big question: is this replicable? Can any solo dentist get a 50x multiple, or was this an outlier? Lucas: It's replicable in the sense that the data room matters. Most dentists don't track patient retention the way this one did. They don't know their reappointment rate or their average patient tenure. If you can produce those numbers, you're already ahead. But the multiple also reflected the fee for service mix and the low lease cost. So it's not automatic. Luna: There's a lesson there for any services business — not just dentistry. If you can prove your customer comes back predictably, you can command a premium. Lucas: That's exactly it. The buyer was paying for predictable future cash flows. And the best proxy for that is historical retention data. It's the same logic that drives SaaS multiples — but applied to a brick and mortar healthcare business. Luna: What about the transition period? The dentist stayed on for 18 months. How does that work practically? Does the dentist become an employee? Lucas: Yes. The dentist signed a two-day-a-week employment agreement at a fixed salary plus a production bonus. They kept their existing patients but the DSO handled all billing, scheduling, and marketing. The dentist just did clinical work. It's a common model in DSO acquisitions. Luna: Did the patients even notice the change? I mean, same doctor, same location. Probably seamless. Lucas: Exactly. The key to a successful transition is that the patients don't feel any disruption. The DSO even kept the same front desk staff for the first year. Patient retention during the transition was 95 percent, which is excellent. Luna: Let's talk about the multiple again. Fifty times EBITDA. What was the actual EBITDA dollar figure? Was it a small number that made the multiple less impressive? Lucas: The practice generated about $400,000 in EBITDA annually. So the purchase price was $20 million. That's a substantial deal for a single location. For context, the average dental practice sells for 6 to 8 times EBITDA. This was an outlier. Luna: So the multiple wasn't inflated by tiny EBITDA. It was a real premium. What was the buyer's expected return? Lucas: The DSO's underwriting showed an expected internal rate of return of 18 percent over seven years, assuming they could grow the practice by adding a second dentist and expanding hours. The patient data suggested there was untapped demand — the practice was turning away new patients because the solo dentist was at capacity. Luna: So the buyer saw a growth story, not just a stable cash flow. That explains the multiple. Lucas: Right. And the data gave them confidence that the patients would stick around even after the original dentist reduced hours. That's the holy grail: a transferable customer relationship. Luna: What's the takeaway for a business owner listening? If you're thinking of selling in the next few years, what should you start tracking today? Lucas: Three things: your customer reappointment rate, your average customer tenure, and your pre-scheduled appointments percentage. If you can show those numbers trending up, you create a data advantage in the sale process. Buyers will pay for certainty. Luna: And the physical assets? Do they matter at all in a deal like this? Lucas: Hardly. The equipment was valued at about $150,000 — a tiny fraction of the purchase price. The buyer was buying the patient list and the operational systems. The chairs and computers were just along for the ride. Luna: That's a powerful shift in how we think about business value. It's not about what you own — it's about who comes back. Lucas: And that's the thread we'll keep pulling in future episodes. Next time, we'll look at a veterinary practice that sold on similar logic — but with a twist around pet insurance data.