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The Practice Buyer's Corner - Random Musings from the Buy-Side
The Practice Buyer's Corner - Random Musings from the Buy-Side
The purpose of this blog is to share current, real world, experiences on the topics of practice valuation, practice transition, retirement planning, and building equity value - over time - in your dental practice.
Blog By:
seanepp
seanepp

Demystifying "Private Equity"

7/1/2025 6:36:50 AM   |   Comments: 0   |   Views: 50
What is Private Equity ("PE")?  Anyone can Google this.  But what is it real role in the dental industry, healthcare and more broadly?

In my experience, "private equity" (including Venture Capital) is simply the most expensive money that any business owner can borrow.  Beyond the capital costs - usually targeting IRRs > 20% - the primary concession is control/governance. 

Just like a bank, they want their capital and the returns thereon back - usually within 3-7 years.  The timing of such recapitalization events (aka "recaps") depends on economic cycles, credit market health, broader industry themes and company-specific results.  Most PE-backed businesses are sold to other PE-firms or PE-backed strategic consolidators who are pursuing "top end" consolidation.

Going public - a common water cooler discussion - has been highly unlikely with most of the previous publicly-traded DSOs failing in plain sight.  There are not good comparables nor organic growth stories to "sell to the Street".  The last several attempts by large platforms have been totally unsuccessful.

PE has become a commodity - not too dissimilar from bank loans - with thousands of such investment vehicles in the US alone.

Pricing is relatively consistent for new investment opportunities.  It is simply an asset class, not the bogeyman.  In fact, many folks may already have exposure to Private Equity without knowing it attributable to "Funds of Funds" investment vehicles that pursue "Alternative Investments".  

PE shops are definitely guilty of copy cat behavior with many firms pursuing the DSO-space because others have made it look relatively easy.  As a result, many groups are currently languishing under the weight of bad choices and the excessive debt loads that financed them.  

If you are an owner and you are contemplating a transaction that could involve taking a portion of the consideration of the sale of your practice in equity of a DSO, please feel encouraged to do your due diligence on that DSO.  Demand references.  Make those calls.  Ask hard questions.  If the "second bite" sales pitch/story seems too good to be true...  Rollover equity returns should never exceed those of the initial investors.  They are usually less due to timing if nothing else.

Private equity is simply a means to and end.  It is not something to be feared, but rather studied.  Ask any prospective suitor, "What's your why?"  If their answer isn't rooted in building healthy, durable, and sustainable employers/businesses but rather financial engineering magic, you might want to get extra curious.

Feel free to ask questions.

Be well!
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