Equity arbitrage is a financial concept that was rarely utilized by dentists before private equity started investing in the space. In essence, it all has to do with how valuable the equity is in a practice currently and how much the equity ends up being worth after the sale of the dental practice. As with any asset, if a dentist owns their practice, they have a certain amount of equity. So, if you own a one-million-dollar dental practice and you’ve already paid off your note, you have $1 million worth of equity.
This article from Dental Economics explores the ways equity arbitrage could play out during the transition of a dental practice.
When equity arbitrage takes place
Equity arbitrage occurs during a consolidation wave, just like we are experiencing in dentistry now. By owning your practice, you essentially own the cash flow that exists after all the expenses of the practice are paid, including a fair doctor’s salary to do the work. This cash flow works like an annuity, which you can leverage as an investment much differently than before consolidation. If your equity can be combined with multiple other practices’ equity, the large investment vehicle can grow faster and provide more returns. Read more.
