Guide

How to read a DSO offer: contract red flags and what they actually cost you

A term sheet is a marketing document. The APA is the deal. Here is what to look for in both before your attorney sees them.

By Blane Jackson, DDS/MBA · Former owner of 8 practices · Updated April 2026

A term sheet from a DSO is a marketing document. It is short, clean, and written to get you excited. The asset purchase agreement (APA) that follows is typically 60 to 120 pages, and it is where the actual deal lives. The gap between the two is where most selling owners lose real money.

What follows is a practical reading guide, organized around the four areas of the APA where the offer is most commonly quieter than the term sheet.

1. Purchase price: the number is not the number

The headline purchase price on a term sheet is almost always quoted as "enterprise value." It is not what hits your bank account. Between the headline and the wire you will encounter: working capital adjustments, a holdback escrow (commonly 10–20 percent held for 12–24 months for indemnity claims), a rollover equity requirement (often 15–40 percent of proceeds taken in HoldCo units rather than cash), and an earnout component (typically 10–30 percent, tied to performance metrics).

A $3.2M enterprise value can easily become $1.9M of hard cash at close. That is not a bait and switch, but if you have not modeled it pre-LOI, you will feel like it is.

2. Earnout mechanics: the accounting controls the outcome

Earnouts are structured around EBITDA or revenue targets over 12 to 36 months. The mechanics section is where these two sentences matter most: who controls the accounting, and what discretionary items can be added to or subtracted from EBITDA.

A DSO-controlled EBITDA earnout gives the buyer every incentive to move operating costs into your measurement period. New software systems. Centralized marketing allocations. Management fees. Regional overhead. All of these legitimately exist; all of them can be accounted for in ways that push your earnout below the threshold.

The fix is simple and rarely used: demand an independent CPA review of earnout calculations, written into the APA, paid for by the buyer. Heartland and DCA will agree to this. Aspen and Sonrava will resist. That resistance tells you something.

3. Non-compete: the only lever you control is scope

Every DSO APA will include a non-compete. The default language is typically ten miles and twenty-four months. Both are negotiable. The market will bear five miles and twelve months for a seller with a well-run practice. Push for the narrower scope. It is free to ask.

The non-compete matters more than most sellers realize. If you are 55 and selling, you are probably not retiring; you are repositioning. A ten-mile non-compete across two major metros shuts you out of the only markets where your referral network and reputation have value.

4. Rollover equity: what class are you holding?

A rollover is typically 15 to 40 percent of the deal value, taken in units of a HoldCo LLC or LP rather than cash. The theory is that you participate in the DSO's eventual recapitalization or IPO.

The practical question is: which HoldCo? Many DSOs are structured with multiple entities stacked above the practice — a sub-LLC that owns your specific market, a regional HoldCo above that, and a platform HoldCo at the top that gets recapped. If your rollover is into the sub-LLC, your equity is real but is not going to the next liquidity event. Ask explicitly where you are in the stack and ask to see the organizational chart.

Two questions to ask your attorney before you sign the LOI

• "Have you read the last three DSO APAs I might plausibly be offered?" If the answer is no, you do not have the right attorney. Generalist business attorneys will miss the specific clauses that cost dental practice sellers six-figure-plus sums.
• "What would you change in the LOI before we sign it?" The LOI typically includes an exclusivity period (30 to 90 days of no-shop). Every protection you do not insert into the LOI is harder to negotiate once you are in exclusivity.

The DSOs have done this hundreds of times. You will do it once. The asymmetry is the entire game.