Why a 7x DSO Offer Lost to a 6.5x Offer
The higher headline multiple lost because, once cash at closing, rollover equity, earn-out probability, doctor compensation and required tenure were laid side by side, the 6.5x offer delivered more guaranteed money over the seller's actual transition period. This teardown is fictionalized and illustrative; the numbers are constructed to show the mechanics, not to describe any real transaction.
The practice
General dentistry, single location, seven operatories, $2.6M collections, $700K normalized EBITDA. Owner produces 55% of dentistry, one associate produces the rest. Owner is 58 and wants to work three more years, then retire.
The two offers
| Line | Offer A | Offer B |
|---|---|---|
| Headline multiple | 7.0x | 6.5x |
| Enterprise value | $4,900,000 | $4,550,000 |
| Cash at closing | $3,430,000 (70%) | $4,095,000 (90%) |
| Rollover equity | $980,000 (20%) | $455,000 (10%) |
| Earn-out | $490,000 over 3 years, 5% collections growth required | None |
| Holdback | $150,000, 18 months | $100,000, 12 months |
| Doctor compensation | 30% of collections | 32% of collections |
| Required employment | 5 years | 3 years |
| Non-compete | 15 miles, 5 years post-employment | 10 miles, 2 years post-employment |
What the seller saw first
$350,000 more from Offer A. That was the whole conversation for about a week.
What DexCompare showed
Cash at closing favored B by $665,000. That money is liquid the day the deal funds.
The earn-out in A required 5% annual collections growth for three years in a practice that had grown 2% a year. The seller would no longer control marketing, scheduling or hiring after closing. Treated as a coin flip, the earn-out was worth roughly $245,000, not $490,000.
Rollover equity: A put $980,000 into the DSO's parent company. B put $455,000. Neither could be sold until the DSO's next recapitalization, expected in four to six years. The seller had no visibility into the parent's debt or preferred equity. Both were haircut to 70% of face for comparison, leaving A's rollover at roughly $686,000 and B's at roughly $319,000, with A carrying $525,000 more of illiquid, buyer-dependent value.
Doctor compensation: the owner collected about $1.4M personally. Two points of collections was $28,000 a year. Over the three years the seller actually intended to work, B paid about $84,000 more. Over A's required five years, that gap was $140,000, and the seller had to work two years longer to earn it.
The adjusted picture over three years
| Offer A | Offer B | |
|---|---|---|
| Cash at closing | $3,430,000 | $4,095,000 |
| Earn-out, probability-weighted | $245,000 | $0 |
| Rollover at 70% of face | $686,000 | $319,000 |
| Holdback, assumed released | $150,000 | $100,000 |
| Compensation differential, 3 years | $0 | $84,000 |
| Adjusted value | $4,511,000 | $4,598,000 |
| Of which guaranteed cash within 18 months | $3,580,000 | $4,195,000 |
Offer B came out ahead on the adjusted total and ahead by more than $600,000 on guaranteed cash. It also let the seller retire two years earlier and carried a lighter non-compete.
The lesson
Offer A was not a bad offer. For a 45-year-old dentist planning to practice for a decade and wanting equity upside, it might have been the better one. The point of the teardown is that "7x versus 6.5x" told the seller nothing about which offer was better for him. The structure did.
See your own offers laid out this way.
See how DexCompare worksThis teardown is fictionalized. Practices, buyers and figures are constructed to illustrate deal mechanics and do not describe any real transaction. Market ranges on this page are illustrative planning ranges, not offers. Involve qualified legal and tax advisers on any transaction.