A general dentist in the Southeast is holding a letter of intent. Page one prices the practice at 7.2 times adjusted EBITDA, a little over eight million dollars. The number fits the market. FOCUS Investment Banking's 2026 benchmarks hold general dentistry at 9 to 11 times for platform acquisitions and 5 to 8 times for add-ons, and Provident Healthcare Partners' Q1 2026 sector update shows platform-tier targets above ten million in adjusted EBITDA trading at 10 to 15 times. The letter is real, the buyer is funded, and the owner reads page one and hears eight million dollars.
Pages two through twelve describe a different transaction. They describe how much of the number arrives as cash, how much converts into stock in the buyer, how much is conditional on performance after the sale, and what the owner is agreeing to keep doing, at what compensation, for how long. Page one and pages two through twelve are the same offer.
The multiple prices an assumption
Adjusted EBITDA is a constructed number, and the largest construction inside it is normalized owner compensation. The buyer strips out whatever the owner actually paid themselves and substitutes the market cost of a provider who could produce the same dentistry. If an owner collected 1.8 million dollars in personal production and took 650,000 dollars in compensation, and the market cost of an associate producing 1.8 million is 450,000, the normalization adds 200,000 to EBITDA. The DSO is indifferent to what the owner paid themselves. It prices what the production costs to replace.
The construction cuts both ways, and in this market it mostly cuts down. Per Sofer Advisors' 2026 analysis, practices where the owner performs 90 percent or more of production see valuation reductions of roughly 10 to 20 percent, and provider risk moved from a consideration to a primary decision driver this year. It was among the top reasons DSOs walked away from signed processes in 2025. Owner compensation is also the largest add-back category in dental quality of earnings work, ahead of related-party rent and personal-use expenses. So the multiple on page one is applied to a number the diligence team hasn't tested yet, and the multiple survives only as well as the number does.
Same letter, different money
Two owners in the same region each receive a letter at 7.0 times on 1.0 million dollars of adjusted EBITDA. Both hear seven million dollars.
The first owner produces 55 percent of collections. Two associates carry the rest, and her compensation was documented against market rate before the process began. Quality of earnings confirms the 1.0 million. The structure runs 80 percent cash at close and 20 percent rollover equity, no earn-out, with a working capital peg set off a trailing twelve months her advisors verified. The wire at close is 5.6 million dollars, plus a documented 1.4 million minority position in the platform.
The second owner produces 85 percent of collections. Diligence reprices normalized compensation against the true replacement cost of that production, and tested EBITDA lands at 850,000. The same 7.0 multiple now produces a 5.95 million headline. The structure runs 60 percent cash, 30 percent rollover, and a 595,000 dollar earn-out keyed to revenue over 24 months under DSO management. Per SRS Acquiom's claims research, earn-outs outside life sciences pay about 21 cents on the dollar, which prices his contingent piece near 125,000 at expected value. The working capital true-up then deducts at close against a peg the buyer set. The money that reaches him at close runs a little under 3.5 million dollars.
Both letters carried the same first page.
The first held up because the number underneath it had already been built to survive testing. The second was an opening position.
Four places the number moves
Rollover equity converts a sale into a second bet. The rolled portion is an illiquid minority position in a leveraged platform, and its value depends on a future recapitalization at a higher multiple. The market believes in that event, with 78 percent of buy-side respondents in 2026 surveys anticipating recaps within 12 to 36 months, but the seller carries the outcome either way. The distressed dental platforms of 2024 and 2025 took their sellers' rollover positions down with them.
Earn-outs make part of the price conditional on performance the seller no longer controls. SRS Acquiom's data puts the median earn-out at 24 months and roughly 31 percent of closing payments when present, with 62 percent keyed to revenue. After close, the schedule, the fee mix, and the staffing that drive that revenue belong to the DSO. Some dental structures now add clawbacks that can require repayment of amounts already received.
Working capital true-ups move the price at close. Per SRS Acquiom's 2026 study of more than 1,500 private-target deals, working capital adjustments now appear in over 90 percent of transactions, and recent studies report a pro-buyer negative adjustment in 55 percent of deals against a pro-seller positive one in only 35 percent. The peg is a negotiated number, and the party that models it usually wins it.
Post-close terms change what the sale is. The selling doctor typically signs a three to five year employment agreement, and published composites show post-acquisition compensation falling 15 to 25 percent, in one worked example from 420,000 dollars to 310,000. A purchase price that requires three years of below-market employment contains a wage concession the first page never states.
The measurement
The number that governs the decision is net realized proceeds: cash at close, plus contingent consideration priced at expected value, plus the rollover held at an honest illiquidity-discounted mark. Legal-side summaries of DSO transactions put the gap between headline valuation and actual proceeds at 30 to 50 percent once structure is priced. No letter of intent computes this number, because the letter's job is to state the maxima. Computing it is the seller's job, and the useful moment to do it is before exclusivity, while there is still more than one buyer in the room.
There is a point in every process where normalized compensation and the add-back schedule stop being a formality and start being the deal. Where that point sits for a specific practice is diligence work. That it exists is structural, and the owners who fare best locate it before the buyer does.
The wrong question
The question owners ask is whether the multiple is good. The multiple is the one number in the letter the seller cannot spend. The governing question is how much of the headline survives the four adjustments, and the answer is mostly decided before the letter arrives, in how the compensation normalization is documented, how the working capital history reads, and how much of the production walks out the door with the owner. An owner who signs exclusivity on the strength of page one spends the next ninety days defending a number the other side constructed.
The first page of a DSO letter states the price of your attention. The other eleven state the price.
This essay describes general transaction structure. It is not legal advice, not a valuation, and not investment advice. Figures drawn from published sources are cited in the text; illustrative case figures are composites and describe no identifiable practice or firm.
Sources. FOCUS Investment Banking, 2026 dental industry valuation benchmarks. Provident Healthcare Partners, Dental Services Sector Update, Q1 2026. Skytale Group, 2026 Dental M&A Report. Sofer Advisors, 2026 analysis of provider risk and owner-production concentration in dental transactions. SRS Acquiom, M&A Claims Insights Report and 2026 M&A Deal Terms Study. Becker's Dental Review and Dental Economics, reporting on DSO deal structure trends, post-close compensation, and distressed platform outcomes, 2024 through 2026.
← More from The Decision Layer