THE LANGUAGE OF THE DEAL
Dental Practice M&A Glossary
The terms that decide what you keep when you sell — defined in plain English. The standard vocabulary every buyer uses, and the forensic concepts Precision Dental Analytics uses to defend enterprise value before due diligence does the opposite.
Valuation & Multiples
- Normalized EBITDA
- Earnings before interest, taxes, depreciation, and amortization, adjusted to reflect the practice's economics under new ownership — most importantly, resetting owner-dentist compensation to a fair-market associate rate. It is the number a buyer multiplies to set enterprise value. Learn more →
- Seller's Discretionary Earnings (SDE)
- EBITDA plus the owner's full compensation — the total economic benefit to a single owner-operator. Individual buyers value smaller practices on SDE (roughly 1.8–3×); institutional buyers use normalized EBITDA. Learn more →
- EBITDA Multiple
- The figure a buyer multiplies normalized EBITDA by to reach enterprise value. In dental M&A it runs roughly 5–7× under $1M of EBITDA, 7–9× at $1–3M, 9–11× at $3–5M, and 11×+ above $5M (FOCUS Investment Banking, 2026). Learn more →
- Enterprise Value
- The total value of the practice as a business — Adjusted EBITDA times the applicable multiple — before deal structure (holdback, earnout, rollover) determines how much of it you actually receive at close. Learn more →
- Platform vs. Add-On
- A platform is a scaled group (generally $3–5M+ of EBITDA) that anchors an investor's strategy and earns the highest multiples; an add-on is a smaller practice tucked into an existing platform at a lower multiple. The spread between the two is typically 3–5×. Learn more →
- Personal vs. Enterprise Goodwill
- Enterprise goodwill belongs to the business — location, brand, systems, recall engine — and transfers when you sell. Personal goodwill belongs to the dentist — reputation, relationships — and walks out the door with you. Buyers pay full value only for the goodwill that transfers. Learn more →
- Key-Person Discount
- A reduction in value for a business overly dependent on one individual — roughly 5–25% in the valuation literature, though sophisticated buyers increasingly move owner-dependency risk into earnouts and holdbacks rather than a flat discount. Learn more →
The Deal
- Quality of Earnings (QoE)
- A forensic analysis a buyer commissions to validate that reported EBITDA is real and sustainable. It re-examines revenue, add-backs, and clinical-coding compliance — and it is where most post-LOI price reductions originate. Learn more →
- Add-Back
- An expense added back to profit to normalize EBITDA — owner compensation above market, one-time costs, personal expenses run through the practice. 'Hard' add-backs are documented and provable; 'soft' add-backs are subjective, and the first thing a QoE team challenges. Learn more →
- Letter of Intent (LOI)
- A mostly non-binding document stating the buyer's proposed price and structure, granting them an exclusive 60–120 day window to complete due diligence. The critical point: the LOI price is not the final price. Learn more →
- Holdback (Escrow)
- A portion of the purchase price the buyer keeps in escrow after closing as recourse if the financials do not hold — commonly 15–20% of price for 24–36 months in dental deals (broader M&A medians run nearer 10–12%). Learn more →
- Earnout
- Part of the price paid only if the practice hits revenue or EBITDA targets after the sale, typically over 2–3 years. Buyers use earnouts to shift owner-dependency risk onto the seller: the more the practice depends on you, the more of the price moves into the earnout. Learn more →
- Rollover Equity
- Proceeds the seller reinvests into the buyer's parent company — commonly 20–40% — instead of taking as cash. Marketed as the 'second bite of the apple,' it can be monetized at a higher multiple at the next recapitalization, but it is illiquid and at risk. Learn more →
- Working Capital Adjustment (True-Up)
- A post-close reconciliation of net working capital against a negotiated target (the 'peg'); if delivered working capital falls short, the price is reduced dollar-for-dollar. One of the most reliable post-close extraction levers. Learn more →
- Re-Trade
- A buyer's reduction of the agreed price during due diligence, after the LOI has locked the seller into exclusivity. Across lower-middle-market deals, 85% see a post-LOI price adjustment (SRS Acquiom, 2025) — almost always downward. Learn more →
PDA Forensic Concepts
- Phantom EBITDA PDA
- A concept coined by Precision Dental Analytics: profit that appears real on the P&L but will not survive institutional due diligence — typically from non-compliant clinical coding, understated owner compensation, or undocumented add-backs. Every dollar of it is multiplied against the multiple when a buyer removes it. Learn more →
- EBITDA Laundering PDA
- A PDA-coined term for profit generated through aggressive or non-compliant clinical coding that passes financial underwriting undetected — because transaction accountants overlook the clinical origin of the revenue itself. Learn more →
- The Defense Gap PDA
- The diligence asymmetry at the heart of most lost value: a buyer spends $50,000–$200,000 or more dissecting your practice, while the average seller spends $0 defending it. Closing that gap before the LOI is the highest-leverage move a seller can make. Learn more →
- The 90-Day Extraction PDA
- PDA's name for the post-LOI window in which a buyer systematically re-prices the deal — the QoE re-trade, the working-capital peg, the escrow holdback — turning a headline offer into a materially smaller wire between the handshake and the close. Learn more →
- Governance Debt PDA
- A PDA framework for the accumulated, undocumented liabilities across four domains — financial, provider, operational, and compliance — that a buyer's diligence converts into price reductions. The longer it compounds, the larger the extraction. Learn more →
- Clinical Quality of Earnings (CQoE) PDA
- A PDA concept: a forensic, pre-emptive audit of a practice's clinical data — the CDT-code-level layer a standard financial QoE misses — run by the seller before the LOI to find and remediate Phantom EBITDA first. Learn more →
- Pre-LOI Forensic Sanitization PDA
- Running the buyer's exact audit on your own practice, 12–24 months before the letter of intent, so you give yourself the haircut a buyer would — on your terms, with time to fix it — rather than conceding it at the closing table. Learn more →
Know the Terms. Then Know Your Number.
See what your practice is worth on the same EBITDA-and-multiple basis a buyer will use.