There are more than 4,000 private equity firms in the U.S. alone, according to the American Investment Council. That’s almost a 50% increase over the last three years! With the extreme rate of growth in the investment industry, more private equity firms are aggressively targeting potential acquisitions or promising investments. As discussed at this year’s ADSO Summit, investment firms are increasingly interested in dental practices due to dentistry’s seemingly recession-proof revenue stream. Partnering with a private equity firm can be an exciting opportunity to foster growth for your dental practice, but be sure you know what to expect before signing on the dotted line.
Go Slow - Whether you are reaching out to private equity firms or investors have approached you about a potential partnership, there is no need to rush through the process. It is always in your best interest to explore every avenue of every deal. Take the time to do your homework, and maybe even reach out to other practices that have engaged with investing firms.
Know Your Investor - This is the single most important thing to remember when working with investors: Private equity firms are not interested in the sentimental value of your dental practice. Investors are driven by the return on the investment they will make in to your practice, and may be aggressive in their attempt to structure a deal that gives them control. Before partnering with an investment firm, do your offensive due diligence— understand the industries and types of companies they have previously invested in, ask for references, and read and re-read structured agreements.
The Negotiating Table - Whichever private equity firm you are working with, they are likely to be aggressive about what they want, which makes it critical to know what you want for your dental practice before structuring a deal. It’s essential that you perform a detailed analysis of your practice, including a growth and legacy plan, and the pros and cons of private equity’s involvement. When it comes right down to it, never sign something you’re unsure about.
Navigating the ins and outs of private equity can be difficult, and it’s important to have someone on your side. If you’re considering a private equity partnership, let our experienced team of CPAs and CVAs help you prepare with a full dental practice valuation and analysis.