Over the past two years, private equity activity in the healthcare sector has increased substantially, and many dental groups are interested in exploring the benefits of participating. While there can be major benefits of accepting a private equity offer, it’s critical to understand the pros and cons of doing so ahead of time. What are some of the things you should consider when exploring private equity?

Know Your EBITDA Value

Before you can weigh a private equity offer, you need to understand your group’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). This figure includes a variety of expenses and benefits like your salary, your pension or retirement benefits, and non-cash expenses that count against your bottom line. The EBITDA will be multiplied by a multiplier typically between 5-7 to provide you with an amount that they are offering to pay. However, the monetary offer you receive is only one piece of the puzzle.

Valuations Have Caveats

Some group owners are surprised to see other local dental groups or colleagues receiving private equity offers that are much higher than anticipated based on EBITDA. While the offer might be high, remember that every valuation comes with caveats. Selling your dental group will change your business’ finances, which might decrease your compensation or a change in your role. Will those changes fall in line with your preferred career trajectory? What level of infrastructure investment will be expected after the sale?

Consider Opportunity Cost

When considering a private equity offer, you must also consider the opportunity cost of accepting the offer or not accepting the offer and continuing to follow your own plan. For example, if your income will decrease, what pension plan opportunities or tax planning opportunities might you miss out on? If you were to continue on your current growth trajectory, could you receive an even higher private equity offer only two or three years in the future? Visualize the next 3-5 years for your business and think about whether or not you could be in an even better place without the private equity partnership now. There is nothing wrong with being “sell-ready” for years before actually completing the sale.  

APEX Reimbursement Specialists Is Here to Help Your Practice Grow

Whether you’re preparing for the recredentialing process or looking to explore automating your dental group, APEX Reimbursement Specialists is here to help. Contact our team today by calling (410) 710-6005. We look forward to working with you to make your practice a more profitable place.