The Transition Advisor's Corner - Random Musings from the Front
The Transition Advisor's Corner - Random Musings from the Front
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.
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seanepp
seanepp

Feeling Under Water?

Feeling Under Water?

8/12/2026 6:19:00 AM   |   Comments: 0   |   Views: 23
Feeling Under Water?

The tide continues to shift in DSO-land.  

Quiet concern has become public disclosure after public disclosure. Multiple significant restructurings.  Top end consolidation.  PE firms handing the keys to their lenders left and right.  A broad swath of the group practice landscape is not-so-quietly drowning under mountainous debt loads and adverse operating conditions.

Debt remains at the forefront.  Much of the current ecosystem was birthed out of irrational exuberance coming out of COVID.  Overpriced platforms that wandered into an unsuspectingly competitive M&A environment while the core business crabwalked sideways or backwards.  Sound familiar to anyone?

How is the market responding?

Good deals are still getting done at solid pricing.  Cycle times are stretching.  Bidders are tapping out.  Recap efforts are flailing.  Cash at closing is typically governed by the debt incurrence tests of the bidders - e.g. 4.0x EBITDA.  That is the governor. Disregard any suggestion that is the platform’s or PE shop’s “philosophy”, preference, or recommendation.  The default setting in PE has always been to debt finance everything possible.

Plugging the Hole

If a seller wants a 7.0x multiple and banks stop at 4.0x, what happens?  Well, they plug the hole with non-cash consideration - e.g. seller paper, earnouts, and equity.  This is the trickiest part of the discussion for sellers to wrap their heads around.  The credit and equity risk is platform-specific.  Two similarly sized groups and income statements can present wildly different risks.

What Can Sellers Do?

Focus on cash.  Cash at close and seller paper that pays cash interest and allows for principal amortization is considered “good money”.  Non-cash consideration simply invites a different level of due diligence as that seller is also an investor in their own transition.  Due diligence on the buyer is absolutely warranted.  Compliance certificates, financials, audits, even board materials in some cases.  Remember to always ask, “Do you need my equity to fund your deal?  Or, do you want my equity as a partner signal?”  If they don’t reflexively answer that question as the latter, you might want to focus on different options.

Good luck, have fun, don’t die!

Sean
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