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.
Blog By:
seanepp
seanepp

SharePostShareShare
There Should Be No Surprises

There Should Be No Surprises

10/20/2026 7:08:00 AM   |   Comments: 0   |   Views: 70
“...Well, daddy, don’t you know that things go in cycles?  Way that Bobby Brown is just amping like Michael…” - ATCQ

Anyone paying attention should not be surprised by the current condition of the group dental sector (and many adjacent healthcare verticals).  

For every allegedly “healthy” platform, there seems to be countless others withering under heavy debt loads created by a combination of copycat behaviors and unbridled greed.

One need not look any further than the chart below:



A picture tells a thousand defaults.  Here are the broad brush strokes:

A. The tail end of the Dot Com and Telecom bust, the beginning of the George W. Bush era, and the start of the second war in Iraq, the 9/11 attacks;

B. The peak trough of the 2008 financial crisis and resultant Great Recession, a collapse of global credit markets, a cessation of M&A activity;

C. The Obama era, the ACA, market stabilization, slow and steady growth;

D. Trump’s first term, culminating with COVID hitting the world, Biden elected;

E. Markets aggressively pursue growth as pent up COVID demand explodes; lenders and investors - especially the experienced ones - begin to get nervous, rates climb;

F. The Venezuelan War, the Iran war, the Ukraine War, counterproductive tariff policies, global political unrest, and soaring oil prices…(to be continued)

Rates, however, only tell part of the story:



A primary governor of growth, especially for private equity investors, is the availability of credit to fund their growth and acquisitions.  While rates are certainly important, it is the availability of credit that can really whipsaw outcomes - good and bad.  

In the lower middle market and above, availability or “debt capacity” is often expressed as a multiple of total debt to cash flow - e.g. Total Debt / EBITDA.  This is a common financial covenant in corporate finance.  The other one being Fixed Charge Coverage.

In 2008, $1 of EBITDA couldn’t even generate $3 in availability.  Coming out of COVID, that same $1 could often borrow >$7.  It is important to note that the COVID emergence levels also reflected pre-existing debt being amended and restated and not necessarily new-new deals. "Loose and fast" credit markets are typically defined by relatively low rates and, moreover, high leverage covenants. The latter is what really adds fuel to the fire when it comes to peak business valuations.

It is this availability dynamic that has driven the rise of so many capital-light approaches to group formation - joint ventures, MSOs, DPOs, DMOs, etc.  High interest rates aren’t the actual culprit, they’re just salt on the open wound.

It is Leverage Finance 101 - attempt to maximize equity returns by aggressively funding growth opportunities with as much debt as possible.  If a group is suggesting their "philosophy" is to not pay more than XX% in cash at close, what they're actually describing is their lender’s covenant level, not a well-honed, astute, self-imposed guardrail.

Interesting math, on a 15% EBITDA-margin practice, a 4.0x leverage covenant would cap cash at close at 60% of Total Enterprise Value (TEV).  In the independent market, that same practice would likely trade at 80-100% of revenues or 5.3-6.7x EBITDA on an all-cash deal.  Why not capture another 1.3-2.7x turns in cash at close vs. rolling the same or more into a speculative equity story that may or may not materialize at some point down the road?

Take-Aways:

  • The market is doing what markets do - gesticulate, adjust, absorb, pivot, carry on
  • We are approaching the tail end of a trough…we’ve not reached bottom just yet
  • There’s nothing good or bad about groups, they’re simply a permanent part of the healthcare ecosystem worthy of fully understanding
  • Due diligence and common sense are paramount, especially when equity is involved
  • If it sounds too good to be true…keep it simple, stupid
  • Dentistry remains a wonderful profession!
History suggests that we can expect the skies to brighten when negative macroeconomic factors begin to abate.  This will likely require meaningful leadership changes and the cessation of harmful political and economic choices.

Good luck, have fun, don't die!

Sean
Category: Ethics, Jurisprudence and Malpractice, Financial Planning and Investments, Health, Wellness and Ergonomics, Practice Management, HR and Accounting, Practice Transitions
SharePostShareShare
You must be logged in to view comments.
More In Health, Wellness and Ergonomics
5 Steps to Practicing Dentistry Pain Free.
5 Steps to Practicing Dentistry Pain Free.
Dr. Bethany Valachi
CE Credits: 1.5
COVID-19 – What You Need To Know
COVID-19 – What You Need To Know
Dr. Michael Glick
CE Credits: 1.5
Ergonomics for the Dental Office
Ergonomics for the Dental Office
Dr. Leslie Hovda
CE Credits: 1.75
Understanding Survivors of Childhood Abuse
Understanding Survivors of Childhood Abuse
Linda M Douglas, RDH, BSc
CE Credits: 1.5
More In Practice Management, HR and Accounting
Communication, Coding and Collections: The Three C’s of the Profitable Practice.
Communication, Coding and Collections: The Three C’s of the...
Laci Phillips
CE Credits: 1.5
Front Office Mastery
Front Office Mastery
Sandy Pardue
CE Credits: 2
The Hygiene Reset: What great retailers get right
The Hygiene Reset: What great retailers get right
2026 Articles
What if the Problem Isn’t You?
What if the Problem Isn’t You?
by Rosie Yacone
2026 Articles
Total Blog Activity
157
Total Bloggers
4,069
Total Blog Posts
2,085
Total Podcasts
1,685
Total Videos
Sponsors