For successful practitioners considering a transition, one question often rises above the rest: “How and when will I receive cash value from the sale of my practice?” While you’ve mastered your clinical expertise, the financial terminology and deal structures of practice transitions can feel like learning a new language. This post breaks down what you need to know about DSOs, MSOs, and how each type of buyer structures a deal.
What’s the difference between a DSO and an MSO?
A DSO – Dental Support Organization – is a business entity that provides non-clinical operational support to dental practices. DSOs handle administrative functions like billing, HR, marketing, and compliance, allowing dentists to focus on patient care. When a DSO acquires a practice, the clinical operations remain under the dentist’s control; the DSO owns and manages everything around it.
An MSO – Management Services Organization – operates on the same model but is not limited to dentistry. MSOs partner with and acquire practices across multiple specialties: primary care, behavioral health, dermatology, aesthetics, and others. The acquisition structures and equity arrangements are similar to DSOs; the difference is the buyer’s specialty focus and the portfolio of practices they’re building.
For practice owners, the distinction matters mainly in terms of who the buyers are and what kind of platform you’re joining. The deal structures – how cash, equity, and earnouts are split – look similar whether the buyer is a DSO or an MSO.
Two types of equity when selling to a DSO or MSO
Before diving into sale structures, it’s important to understand two key types of equity:
Practice-level equity represents ownership shares in your specific practice location. This option may appeal if you’re confident in your practice’s continued growth and plan to stay involved in operations.
DSO/MSO-level equity gives you ownership across the entire organization’s portfolio of practices. Think of it as diversifying your investment across many practices rather than concentrating it in one location. While this typically offers more security through diversification, it may mean less direct influence over your original practice.
What affects your practice’s valuation
Your practice’s valuation isn’t just about earnings multiples. Several key factors influence your final valuation:
- Strategic value of your location
- Practice longevity and history
- Online presence and reputation (including website quality and Google results)
- Practice transferability
- Relationship dynamics with potential buyers
- Operational efficiency
Four common sale structures
When selling to a DSO or MSO, you’ll typically encounter these four structures:
Traditional Sale with Holdback
- 75% cash at closing
- 25% earn-out based on future performance
- Best for sellers seeking a clean exit while maintaining some upside potential
DSO/MSO Equity Sale
- 75-80% cash at closing
- 20-25% parent company equity
- Ideal for those interested in long-term organizational growth
Joint Venture Model
- 60-70% cash at closing
- 30-40% practice-level equity retention
- Suitable for sellers wanting significant ongoing involvement
Hybrid Structure
- 70% immediate cash
- 15% practice-level equity
- 15% DSO/MSO equity
- Offers balanced exposure to both local and organizational growth
Choosing the structure that fits your goals
Not every aspect of your sale structure will be within your control. Various factors about your practice’s current state and market conditions will influence your options. However, you can make informed decisions about equity retention based on your entrepreneurial goals post-sale.
If you believe strongly in your practice’s future potential and plan to stay involved, practice-level equity might be attractive. If you’re looking for a more protected, diversified investment, DSO/MSO-level equity could be the better choice.
The key is aligning your sale structure with your personal and professional goals. Consider:
- Your desired level of future involvement
- Risk tolerance
- Immediate cash needs
- Long-term investment preferences
- Career aspirations
At Practice Transitions Group, we’ve found that successful transitions start with honest self-reflection. Understanding your current season of life, financial goals, and practice dynamics will guide you toward the most suitable sale structure. Whether you’re actively planning your exit or simply exploring options, understanding these structures helps you make informed decisions about your practice’s future.
Transitioning your practice isn’t just about getting the highest multiple – it’s about structuring a deal that aligns with your long-term objectives and provides the liquidity you need when you need it. Reach out here if you’d like a direct conversation about what your options look like.
Frequently asked questions about DSOs and MSOs
What is the difference between a DSO and an MSO?
A DSO (Dental Support Organization) provides non-clinical support to dental practices specifically. An MSO (Management Services Organization) operates the same way but spans multiple healthcare specialties. For sellers, the deal structures look similar from either type of buyer – the main difference is who the buyers are and what kind of platform you’d be joining.
What percentage of my sale will be cash at closing?
It depends on the structure. A traditional sale with holdback typically delivers 75% cash at closing. Equity-focused structures deliver 75-80%. Joint venture arrangements may deliver 60-70% cash with a larger equity component. The right split depends on your goals and how much ongoing involvement you want post-sale.
What is the difference between practice-level equity and DSO/MSO equity?
Practice-level equity means you retain ownership in your specific practice location. DSO/MSO equity means a portion of your proceeds are reinvested into the acquiring organization – giving you exposure across their entire portfolio of practices rather than just your own.
How do DSOs and MSOs determine what my practice is worth?
Valuation looks at more than an EBITDA multiple. Buyers consider location value, practice history, online reputation, how transferable the practice is, and operational efficiency alongside the financial metrics.
Should I work with an advisor when selling to a DSO or MSO?
DSOs and MSOs have dedicated M&A teams that have done this many times. Most individual sellers have done it once. An advisor who works exclusively for sellers – and understands how these buyers think – creates competitive tension that affects both price and deal terms.
