Dental Practice Valuation | EBITDA Vs. Percentage of Collections

Dental practice valuations have evolved over the years. Historically dental practices were valuated on a percentage of collections basis, but the market has recently started going in a different direction. Because of industry trends, the market has moved to a valuation model that emphasizes profitability and efficiencies over gross revenue. The dental profession has never had this many headwinds hitting at one time, and because of these factors, there is now a premium paid for profitability. Of course, there are outliers and unique situations, but in general dental practice valuations have moved to an EBITDA valuation. Check out the video below briefly discussing the differences of these two valuation models.

PS- There also can a difference of valuations depending on who the buyer is. In the DSO space, there are two types of buyers. There are strategic partners and there are financial partners. A strategic partnership is a business partnership that involves the sharing of resources between two or more individuals or companies to help all involved succeed. The big strategic partners in the dental profession are Heartland, Aspen, Smile Brands, and many more. Financial partners identify a company that has attractive growth opportunities and the ability to generate cash. Financial partners take a short-term view, typically around five to seven years, and make decisions based on the business cycle and level of risk. In the dental space, most of the financial partners are Private Equity groups or hedge funds.

Stay tuned for more dental practice valuation content to come, and please comment down below what you are interested in learning more about!

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