DSO vs Private Buyer: Understanding Your Options
When you decide to sell your dental practice, you have two primary buyer categories: Dental Service Organizations (DSOs) and private individual buyers, typically other dentists looking to own a practice. Each path offers distinct advantages and tradeoffs that affect your financial outcome, ongoing obligations, and professional life after the sale.
DSO Buyers
Corporate platforms backed by private equity that acquire multiple practices. They offer higher valuations but structure deals with equity rollover, earnouts, and employment agreements requiring you to continue working post sale.
Private Buyers
Individual dentists purchasing a single practice, typically using SBA loans or bank financing. They pay lower total prices but usually offer all cash at closing with shorter transition periods and cleaner exits.
Neither option is universally better. The right choice depends on your financial goals, timeline, desire to continue practicing, and tolerance for deal complexity. Many dentists assume DSOs always pay more, but when you analyze actual cash received at closing versus uncertain future payments, the comparison becomes more nuanced.
Price And Deal Structure Comparison
The most common question sellers ask is simple: who pays more? The answer requires looking beyond headline numbers to understand what you actually receive and when you receive it.
| Factor | DSO Buyer | Private Buyer |
|---|---|---|
| Typical Valuation | 80% to 100%+ of collections or 3x to 5x EBITDA | 65% to 80% of collections or 2x to 3x EBITDA |
| Cash at Closing | 60% to 80% of total price | 90% to 100% of total price |
| Earnout Component | 10% to 30% tied to future performance | Rare, typically 0% to 10% |
| Equity Rollover | 20% to 40% retained as DSO equity | None |
| Employment Required | Yes, typically 3 to 5 years | Optional, typically 6 to 24 months transition |
A Real World Comparison
Example: $1.5 Million Practice
DSO Offer: $1.8 million total
Cash at closing: $1.08 million (60%)
Earnout over 3 years: $270,000 (15%)
Equity rollover: $450,000 (25%)
Employment required: 4 years at $180k salary
Private Buyer Offer: $1.2 million total
Cash at closing: $1.2 million (100%)
Transition period: 12 months at $15k/month
No earnout, no equity, no long term employment
This example illustrates why headline valuations can be misleading. The DSO offer looks $600,000 higher, but the private buyer delivers $120,000 more in guaranteed cash at closing. The DSO's additional value depends entirely on achieving earnout targets and the eventual liquidity of your rolled equity, both of which involve risk and time.
Key insight: Always compare actual cash at closing, not total deal value. A $2 million DSO deal with 60% cash delivers $1.2 million at closing. A $1.3 million private buyer deal with 100% cash also delivers $1.3 million at closing but with no strings attached. Learn more about how dental practices are valued.
Understanding Earnouts And Equity Rollover
Two components make DSO deal structures fundamentally different from private sales: earnouts and equity rollover. Both shift risk from the buyer to you and delay full payment, sometimes by years.
Earnouts Explained
An earnout ties a portion of your purchase price to the practice achieving certain performance metrics after you sell. Common metrics include collections, EBITDA, or patient retention targets measured over 1 to 3 years.
When Earnouts Work
- Practice is growing and targets are conservative
- You maintain operational control during earnout period
- Metrics are objective and clearly defined
- Earnout represents small portion of total deal
When Earnouts Fail
- DSO makes operational changes affecting metrics
- Targets based on optimistic projections
- Calculation methodology is subjective
- No protection if DSO sells during earnout period
Earnout Risk
Once you sell, the DSO controls operations. They can change fee schedules, reduce marketing, reassign staff, or integrate your practice into another location. Any of these decisions can tank your earnout even if you perform perfectly. Never assume earnout targets are guaranteed. For detailed analysis, see our guide on how earnouts work in dental practice sales.
Equity Rollover Explained
Equity rollover means accepting a portion of your purchase price as ownership shares in the DSO rather than cash. You become a minority shareholder in the larger DSO platform alongside the private equity sponsor and other affiliated dentists.
The theory is that your equity will grow in value as the DSO expands, then you will receive a larger payout when the DSO eventually sells to another buyer (a "second bite of the apple"). The reality is more complicated.
- Illiquidity. You cannot sell your equity until the DSO has a liquidity event. This could be 3, 5, 7+ years away with no guaranteed timeline.
- Valuation uncertainty. The value of your equity when you roll it in is set by the DSO. You have limited ability to verify whether that valuation is fair.
- Dilution risk. Future financing rounds or acquisitions can dilute your ownership percentage, reducing your eventual payout.
- Distribution waterfall. When the DSO sells, debt holders and preferred equity investors get paid before you. Your share depends on what remains after senior claims.
- Platform risk. If the DSO performs poorly or fails to find a buyer, your equity could be worth significantly less than projected or even worthless.
For comprehensive guidance on protecting yourself in DSO transactions, see our DSO transaction representation page.
Clinical Autonomy After The Sale
How much control you retain over your practice after selling differs dramatically between DSO and private buyer transactions.
Working For A DSO Post Sale
DSO transactions include employment agreements requiring you to continue working for 3 to 5 years. During this time, the DSO controls most operational decisions while you focus on clinical production.
Typical DSO employment restrictions include fee schedules set by corporate, vendor and supply decisions made centrally, staff hiring and firing controlled by DSO HR, marketing and patient acquisition managed by corporate, and treatment protocols influenced by platform standards. Some dentists appreciate this arrangement because it removes administrative burden. Others find the loss of autonomy frustrating, especially if DSO decisions conflict with how they have always practiced.
Transitioning To A Private Buyer
Private buyer transitions are typically shorter and more flexible. Most private buyers want you available for 6 to 24 months to introduce them to patients and staff, then you are free to retire, relocate, or do whatever you want (subject to any restrictive covenants in the purchase agreement).
During the transition, you work as an employee or independent contractor. Once the transition ends, your obligations typically end completely. You have no ongoing employment requirement and no equity tied up in the practice.
Consider your goals: If you want to keep practicing with reduced administrative burden, a DSO employment arrangement might work well. If you want a clean break to retire or pursue other interests, a private buyer offers a faster exit with fewer ongoing obligations.
Timeline And Closing Process
Transaction complexity affects how long it takes to close and how much effort you will invest in the process.
DSO Timeline
90 to 180 daysMore extensive due diligence, corporate approvals required, complex documentation including purchase agreement, employment agreement, and equity documents.
Private Buyer Timeline
60 to 120 daysSimpler due diligence, SBA or bank financing approval, standard purchase agreement with fewer ancillary documents.
DSO transactions involve more parties, more documents, and more approval layers. You will negotiate not just a purchase agreement but also an employment agreement, restrictive covenants, equity subscription documents, and sometimes real estate arrangements. Each document requires attorney review and potential negotiation.
Private buyer transactions are more straightforward. The main documents are the purchase agreement, bill of sale, and any lease assignment. Financing approval from an SBA lender or bank is the primary variable affecting timeline. For guidance on the buyer's perspective on practice acquisitions, see our buying guide.
Comparing DSO And Private Buyer Offers?
Get clarity on deal structures, earnout risks, and which option aligns with your goals.
Schedule ConsultationWhich Option Is Right For You?
The right choice depends on your specific circumstances, financial goals, and preferences for life after the sale.
Consider A DSO If:
- You want to continue practicing dentistry for 3 to 5+ more years
- You prefer reduced administrative responsibilities with corporate support
- You believe in the DSO's growth trajectory and want equity upside
- Your practice is large enough to attract competitive DSO interest
- You have tolerance for complex deal structures and deferred compensation
- You are comfortable with less clinical autonomy in exchange for higher headline valuation
Consider A Private Buyer If:
- You want to retire or exit dentistry within 1 to 2 years
- You prioritize certainty and cash at closing over maximum possible value
- You want a clean break with minimal ongoing obligations
- You prefer a shorter, simpler transaction process
- You want to preserve your practice culture and legacy with an individual buyer
- Your practice size may not attract strong DSO interest
Questions To Ask Yourself
Before deciding, honestly answer these questions about your priorities.
How important is maximum cash at closing? If you need liquidity now for retirement, debt payoff, or other investments, a private buyer's all cash offer may serve you better than a DSO's higher total value spread across earnouts and illiquid equity.
How long do you want to keep working? DSOs require multi year employment commitments. If you want out sooner, a private buyer with a 12 month transition offers more flexibility.
How do you feel about corporate dental medicine? Working for a DSO means adapting to their systems, policies, and culture. Some dentists thrive in this environment while others find it stifling.
What is your risk tolerance? Earnouts can be manipulated. Equity can lose value. If you are risk averse, the certainty of a private buyer's cash offer may let you sleep better at night even if the total amount is lower.
