What is EBITDA?
Earnings Before Interest, Taxes, Depreciation and Amortization. It measures a practice’s core operating profit, ignoring how it is financed and how equipment is written off. Adjusted EBITDA also adds back owner perks and one-time costs and deducts a market salary for the dentist. DSOs price practices as a multiple of adjusted EBITDA.
What is ODI?
Owner’s Discretionary Income (also called owner’s discretionary earnings or SDE) is the total a practice produces for one full-time owner-dentist: profit plus the owner’s pay, benefits and perks, interest and depreciation. Unlike adjusted EBITDA, it does not deduct a salary for the dentist. It is the main measure when one dentist buys from another.
What does TTM mean?
Trailing Twelve Months: the most recent 12 months of results, regardless of the calendar year. Buyers use TTM so the price reflects how the practice is doing now, not just last year’s tax return.
What is a QoE?
A Quality of Earnings review tests whether the earnings a deal is priced on are real and will continue. It ties practice software collections to bank deposits and tax returns, checks every add-back, and identifies items such as patient credit balances or prepaid ortho cases. DSOs commission one on nearly every deal.
Why do reimbursement rates matter?
Reimbursement rates are what insurance carriers actually pay for each procedure, often well below the office fee. They drive collections and profit. Buyers look at payer mix and PPO fee schedules, and DSOs often expect to improve rates through group contracts. A plan to drop networks after closing can reduce patient numbers and must be factored into value.
What is a DSO?
A Dental Support Organization provides business services, such as billing, HR, marketing, purchasing and IT, to many dental offices, usually backed by private equity. DSOs buy practices and often ask the selling dentist to keep practicing for several years.
What is an MSO?
A Management Services Organization is the company that actually delivers those business services under a management agreement. In California, only licensed dentists may own a dental practice, so a DSO typically operates through an MSO that contracts with a dentist-owned professional corporation rather than owning the practice directly.
What is a HoldCo?
A holding company sits above the DSO and its MSO. In many DSO deals, part of the seller’s price is paid in rollover equity, an ownership stake in the HoldCo. If the group is later sold at a higher value, the seller can earn a “second bite of the apple,” but that equity carries risk and is not cash.
What is a JV?
A joint venture is a partnership model where the DSO and the dentist each own part of the practice, or of an entity tied to it. The dentist keeps a meaningful share of profits and some control, while the DSO provides capital and support. It suits dentists who want to grow rather than step back.
What is an earn-out?
An earn-out is part of the price paid later, only if the practice reaches agreed targets after closing, such as collections or EBITDA over one to three years. It bridges a gap between what the seller wants and what the buyer will pay up front, but the seller bears the risk of missing the targets.
What is a work-back?
A work-back is the period the selling dentist agrees to keep practicing after the sale, often three to five years in DSO deals, usually as an employee paid a share of production. It protects the buyer by keeping patients and staff stable through the transition.
What is a clawback?
A clawback lets the buyer take back part of the price, or cancel rollover equity, if the seller breaks key promises, such as leaving before the work-back ends, breaching the non-compete, or if financial statements prove inaccurate. Always read exactly what triggers it and how much is at risk.
Why does culture matter?
Culture is how the team works together and treats patients. Patients often stay because of familiar staff, so a culture clash between the seller’s office and the buyer’s systems can cause staff and patients to leave. Buyers review culture during due diligence, and sellers should ask how a DSO will change scheduling, supplies, staffing and clinical decisions.
Understand the terms before you sign. Earn-outs, rollover equity, work-backs and clawbacks can change what you actually receive by hundreds of thousands of dollars.