Very Dental: DSO 2.0 with Brannon Moncrief

[00:00:01] This is a production of The Very Dental Podcast Network.

[00:00:05] This is The Very Dental Podcast.

[00:00:17] Welcome to The Very Dental Podcast, where you'll find entertaining and relevant conversations with visionaries, clinicians, and your friends in the dental space.

[00:00:26] Now here's your host, Dr. Alan Mead.

[00:00:29] Very dental people, welcome to another episode of The Very Dental Podcast.

[00:00:34] Today my co-host is a guy by the name of Brannon Moncrief.

[00:00:38] Brannon is in Texas, Austin, Texas. He works with McLaren and Associates.

[00:00:43] And we're going to talk a little bit about practice transition, practice sales, DSOs, that sort of thing.

[00:00:49] And actually, Brannon is kind of new to me.

[00:00:51] Actually, I was supposed to run into you in Chicago, and I just never got over there.

[00:00:56] Like, I was told by five people to go meet you and I didn't. So I apologize for that.

[00:01:00] So Brannon, welcome to the show.

[00:01:02] Thanks, Alan. Good to see you. Thanks for having me.

[00:01:04] Yeah. So Brannon, tell us a little bit about yourself.

[00:01:07] Like, what's your background and how did you come to work in the dental field?

[00:01:13] Yeah. So I've now been in dentistry for all my adult life, 23 years.

[00:01:20] Oh wow, okay.

[00:01:21] Straight out of college, I started working for a dental lender that lent money to dentists all over the country to acquire practices, start practices, expand practices.

[00:01:31] And started as an underwriter, worked my way up to director of business development, exited that company after about nine years.

[00:01:39] And that's when I purchased McLaren and Associates.

[00:01:42] So been here 13 years as the CEO and principal, just playing a different role in the same transaction.

[00:01:49] I used to finance these transactions. Then I stepped onto the brokerage sell side advisory seats.

[00:01:56] So that's the seat that I've sat in for over a decade.

[00:02:01] Okay, so you've been working with dentists since you started after college basically.

[00:02:06] I'm assuming you have a background in finance of some sort, something like that?

[00:02:09] Correct.

[00:02:10] Okay. So you got hired on as a dentist.

[00:02:14] So I'm curious, dentists are an odd group.

[00:02:19] I mean it's an odd group of people and you have worked with them almost exclusively it sounds like.

[00:02:25] So I'm curious like of your, let's say your college friends who are also in financing when you get together and have dinner and talk about what you're doing.

[00:02:33] Like what are the differences between a dentist to lend to and to sell to and to talk to and maybe another kind of business owner?

[00:02:41] Yeah, you know, I think it's been an interesting evolution.

[00:02:45] You know, most of my clients when I stepped into the brokerage business were on the tail end of their career, right?

[00:02:51] Average age 60, 65. Yeah.

[00:02:54] Looking to retire and that generation of dentists.

[00:03:00] Many of them, you know, very science math driven.

[00:03:04] Many of them very introverted.

[00:03:07] Not as social as the younger dentists that we work with today.

[00:03:11] The dentists that are on the buy side.

[00:03:15] A little bit more centric and I would say not quite as sophisticated from a business standpoint.

[00:03:23] The younger generation of dentists, you know, grow up with social media.

[00:03:27] The world's a lot smaller place.

[00:03:30] A lot of them are more well traveled, more business inclined.

[00:03:33] Maybe they were going to do something other than dentistry.

[00:03:37] Maybe they were going to become a doctor or an attorney.

[00:03:40] But those careers were more challenging and more competitive and not as lucrative.

[00:03:45] So many of them decided to go to dental school rather than go to law school or medical school.

[00:03:51] So I would say the biggest difference that I've seen is how the different generations of dentists behave and view the world.

[00:04:01] That's a really good point and what's really funny, I've been a dentist since 1997.

[00:04:06] So I am sort of on the cusp between those two things a little bit.

[00:04:11] And I'm not going to lie to you, that's an interesting thing to me because...

[00:04:17] You work with grizzled veterans who've owned a practice for a really long time and are trying to get out.

[00:04:23] And you've also worked with young, hungry dentists looking to get into a practice or looking to get into a situation where they're an owner in some way.

[00:04:32] And I'm just really curious like, man, there's got to be a big difference.

[00:04:38] Like when I got out of dental school, it was very reasonable to expect that you probably work for a couple years maybe as an associate.

[00:04:46] In a lot of cases, you were just an associate.

[00:04:48] The classic story is you go in with the dentist that you grew up with because you're from a middle-sized town somewhere.

[00:04:56] It's your dad or your uncle or your mom or something like that.

[00:04:59] That's what happened to me.

[00:05:00] And then either you buy them out or you find another practice because you get your speed up, that sort of thing.

[00:05:05] Or the other thing is I went to the University of Minnesota.

[00:05:08] There were several like group practices which are probably considered DSOs, but I never kind of knew that as a term back then.

[00:05:16] And you'd go in and associate there and you'd get your speed up there.

[00:05:20] But in a lot of cases still it was a matter of, okay, I'm going to buy a practice.

[00:05:23] This is the late 90s, early 2000s dental.

[00:05:26] This is kind of what we knew.

[00:05:28] And I have to say that is not...

[00:05:31] From what I understand, that's just not the typical thing now for a newer, younger dentist.

[00:05:37] Would you elaborate on that for me?

[00:05:40] There's still plenty of young entrepreneurial, young dentists that are pursuing ownership.

[00:05:45] But there's definitely been a shift in mentality, right?

[00:05:50] So there's been a shift in demographics from male to female.

[00:05:54] And a lot of females are not going to practice part-time or not pursue ownership because, you know,

[00:05:59] they want work-life balance and they want to have a family.

[00:06:03] The student loan debt component has obviously changed dramatically.

[00:06:07] A lot of kids coming out of school today, $300,000, $400,000, $500,000 in student loan debt

[00:06:12] and nervous about going into another million dollars in debt to start or acquire a practice.

[00:06:21] At the same time, they often have elevated lifestyle expectations

[00:06:26] because they've got to show all their friends on social media how well they're doing.

[00:06:30] So if they're going to buy a practice, they need to buy a larger practice that's generating more net profit.

[00:06:37] So we've seen larger practices with revenue over a million increase dramatically in marketability and value

[00:06:45] compared to smaller antiquated practices, revenue under $600,000, $700,000 decline in value.

[00:06:53] And then we've got kind of this, to some extent, a generational attitude that they don't want to be locked down, right?

[00:07:03] To one geography or one business long term.

[00:07:07] And they may not want the responsibility of owning and managing a business, at least not yet.

[00:07:13] Not until they put roots down, maybe have a family or more settled in to their life.

[00:07:18] And a lot of young people are waiting to do that longer and longer into life.

[00:07:23] So, yeah, there's been quite a paradigm shift from that perspective.

[00:07:27] We're still selling as many Class A larger practices to private buyers as we ever have.

[00:07:36] But there's no doubt that there are less and less private buyers in the marketplace as it pertains to total supply of practices.

[00:07:47] They're all looking for the same thing.

[00:07:49] Five plus operatories, revenue over $750,000 and strong profitability.

[00:07:56] So that's been a marked change.

[00:07:59] It's also been interesting to watch a lot of the young entrepreneurial dentists that are in their mid-40s that have built large practices,

[00:08:08] multi-doctor, multi-million dollar practices.

[00:08:11] And they're at a point where in their life where maybe they don't want that responsibility or they want to de-risk,

[00:08:17] they want to monetize all or a piece of the business.

[00:08:20] And a lot of them are looking to affiliate with a DSO or private equity, not even mid-career.

[00:08:26] So there's been a lot of movement in the marketplace.

[00:08:28] Things have changed pretty dramatically over the past, I'd say, five to seven years.

[00:08:32] So your background originally was underwriting and basically helping dentists get loans.

[00:08:37] And of course, that was some time ago.

[00:08:40] I'm curious, how is it looking for people to be able to get money in a situation where there's lots we can talk about?

[00:08:48] But I am curious.

[00:08:49] I haven't gone out and looked for a loan for a while, since interest rates have gone up precipitously.

[00:08:56] And I'm just curious, for someone who's young, who maybe has more debt than we used to when we were looking at a practice purchase,

[00:09:04] maybe they can still produce the revenue stuff is OK, but the bottom line is they have more debt from school probably,

[00:09:10] maybe from lifestyle, probably from school, but also that the interest rates are such.

[00:09:15] Is there still money out there for people looking for practices?

[00:09:18] Are dentists still a good bet, even a younger dentist or is that getting tighter?

[00:09:23] No, dentists are still a great bet.

[00:09:25] So the default rate for dentists is the second, third lowest out of all industries per SBA statistics.

[00:09:33] So you've got funeral homes, veterinarians and dentists.

[00:09:37] So dentists are a fantastic bet.

[00:09:39] The supply of capital, the supply of the availability of loans has been pretty steady for the past 20 years.

[00:09:47] Now, interest rates have increased recently, I'd say by two or three percent.

[00:09:53] But the reality is interest rates have just normalized back to where they really should be.

[00:09:59] So back when I was in dental lender, you know, 15, 16, 17 years ago, you know, rates were anywhere from six to seven and a half percent fixed for 10 years.

[00:10:08] And that's where they're at today.

[00:10:10] But we've got a whole generation of young dentists that have grown up in an environment of historically low rates.

[00:10:17] So when they hear, you know, six, seven, eight percent, they think that's an astronomical rate.

[00:10:22] But in reality, it's just really a return to the norm.

[00:10:25] OK, OK.

[00:10:26] OK, and that's that's fair. That's fair.

[00:10:28] I mean, that interest rate is on some level the cost of doing business if that's if that's what you want to do.

[00:10:34] And I mean, I just was curious if the loans like they're just the astronomical amount of loan debt from school is affecting how but it sounds like that really isn't that isn't something that's affecting it.

[00:10:45] Is that accurate?

[00:10:46] It's really what it impacts is the size practice you need to buy.

[00:10:51] So often when I was a banker, somebody would call me and say, well, you know, I've got three thousand dollars in student loan debt.

[00:10:58] I can only afford to buy a practice with five hundred thousand annual revenue and a purchase price of four hundred grand.

[00:11:06] And I'm like, well, time out the more student loan debt you have, the higher your annual living expense needs, the more debt you need to go into because you need to buy a larger practice that's throwing off more cash flow.

[00:11:20] You get what you pay for when you buy a business.

[00:11:23] So oftentimes it's just a resetting of expectations and understanding that you likely have to go into more debt to get out of the debt that you're in.

[00:11:34] Well, that's that's I mean, honestly, I got to say that I've said this a lot on the podcast.

[00:11:40] I think that I think that younger dentists and what's funny about that when I say younger dentists is that it's all younger than me.

[00:11:47] You know, like I like I said, I came out kind of at a great time to, you know, because of the practices that were available and the way that money was flowing.

[00:11:56] That's where I came out at a pretty good time.

[00:11:58] So all the dentists I'm talking about are younger than me.

[00:12:00] But the reality is I think that they have just there's a certain level of comfort with debt that they have.

[00:12:07] I don't know that there's any choice in the matter on that for them either.

[00:12:10] I think that's just kind of the way that it is for them.

[00:12:12] And, you know, the idea is that, you know, you're going to manage your debt as best you can.

[00:12:16] But to get into the game, you got to get into debt.

[00:12:19] That's in for me as an older person who's paid a lot of that stuff off.

[00:12:23] That's a that's a tough pill to swallow.

[00:12:25] But if you want to be, you know, if you want to be a big deal, it sounds like you got to go big.

[00:12:31] Is that what you're telling me?

[00:12:33] Yeah, I mean, it's that old adage.

[00:12:35] It takes money to make money, right?

[00:12:37] You've got to take risks if you want to propel your career forward.

[00:12:41] And there's not really avenues in dentistry to get wealthy without taking those risks.

[00:12:49] And if you take that risk and you're wildly successful, as I described,

[00:12:53] you know, the 45 year old owner that's been in ownership for 15 years

[00:12:57] and now built this multimillion dollar multi-doc business,

[00:13:00] there are options today that were not available 15 years ago where private equity is heavily investing in our space.

[00:13:07] And you might be able to monetize that business for 10, 15 million dollars and create generational wealth by doing so.

[00:13:14] Yeah. Are you are the people that you're working with mostly like what percentage of your clientele looking to buy?

[00:13:21] Yeah, looking to buy. I guess the I know you kind of you kind of help match them with with DSOs.

[00:13:26] We definitely need to talk about that.

[00:13:28] But what percentage of people are you working with that are relatively new dentists just a few years out who are who are really into it?

[00:13:34] What percentage would you say that is?

[00:13:36] So we really kind of bifurcate my business into the private practice sales side and then the DS private equity side.

[00:13:43] So you're referencing is the private practice sales side.

[00:13:46] Most of the dentists that are looking to buy practices are anywhere from two to 10 years out of dental school.

[00:13:53] OK, that's that's the average amount of time with saying probably if we had to pick a mean it probably five years at a sure.

[00:14:04] Sure. That's relatively new. Honestly, that's relatively new to me.

[00:14:07] I'm curious about and I mean you you you end up working with and seeing the people who are who are gung ho know what they want and are probably entrepreneur.

[00:14:16] I'm curious to know what the percentage of young dentists that are that are even even want by at this point is kind of to me.

[00:14:22] I don't I mean, I feel like that was a it was a large percentage of the people I graduated with.

[00:14:27] I don't I don't know if that's the case.

[00:14:29] Would you say that most are hoping to be owners or not necessarily?

[00:14:32] Not necessarily. I would say that your generation of dentists, the pathway once you got out of practice, you described it well.

[00:14:41] You're going to go work for somewhere for a couple years.

[00:14:44] Get your speed up, get your feet underneath you.

[00:14:46] Then you're going to go borrow some money to buy or start a practice.

[00:14:49] And 80 90 percent of the kids coming out of dental school aspire to own a practice.

[00:14:55] Now I'd say it's probably closer to 50 percent.

[00:14:57] OK, OK.

[00:14:59] That that are aspiring to own a practice at some point in their career.

[00:15:03] And many of them will delay that later than your generation of dentists that within two years were chopping at the bit to own their own business.

[00:15:13] So rather than our average buyer being two to three years out of school now there five six years out of school.

[00:15:21] There's definitely been a marked change there.

[00:15:23] And again, what they're looking for is different.

[00:15:26] You know, call after call five plus up seven hundred and fifty plus in revenue if not a million plus in revenue.

[00:15:34] Those that are looking to pursue ownership, they want to go big or go home like you said.

[00:15:40] So from your vantage point, which is an interesting one to me, what do practice sales look like today?

[00:15:47] Are majority of the practice being sold individual to individual or are more practices being bought by DSOs and private equity?

[00:15:53] Great question.

[00:15:55] It really comes down to the size of the practice.

[00:15:58] I would say the majority of practices with revenue of one point two million or less are being sold to private buyers.

[00:16:05] And the reason being is those practices don't generate sufficient EBITDA, sufficient cash flow to be acquisition targets for private equity and DSOs.

[00:16:17] The gray area is probably revenue of one point two million to one point six million where.

[00:16:25] The valuation difference between the private buyer world versus DSO world is not necessarily significant enough to sway the seller to go the DSO route.

[00:16:35] And private buyers are still very active in that space, looking for practices of that caliber.

[00:16:42] Once a practice hits one point five, one point six million dollars in revenue, the valuation from a DSO private equity perspective, the practice is well run,

[00:16:51] quickly runs away from the more traditional private practice sale valuation methodology.

[00:16:58] So, for instance, let's take a practice with two million dollar top line revenue, five hundred thousand dollars in EBITDA.

[00:17:05] That practice, if you can find a buyer in the private buyer world, which is hard because you got to find somebody that has got access to capital,

[00:17:15] has the confidence, the competence, the skill set to buy a business of that caliber.

[00:17:20] You know, it might trade for let's say one point six million.

[00:17:25] In the DSO world, it's going to trade for a multiple EBITDA.

[00:17:29] It might trade for three and a half to four million dollars.

[00:17:32] Pretty compelling to take a hard look at the DSO option when the valuation is two million dollars higher than it would be if you sold it in a traditional sense to a private buyer.

[00:17:44] Sure. Sure. And that's I mean, that's I think a lot of people have understood.

[00:17:47] That's one of the reasons that this private equity DSO stuff is is is compelling.

[00:17:52] And frankly, I mean, a practice that big is more common now than it was when I first got into this.

[00:18:01] Like that that was a monster practice when I first got into to to dentistry in a practice that that's, you know, big and appealing to this to the DSOs is much more common now

[00:18:13] than so. Let me just throw this. So smaller practices that are doing OK, but they're just not that big, whether they they smaller physical plant or or just small, you know, the seller doesn't want to work that much or whatever.

[00:18:28] Those are much more likely to be sold in to an individual. Is that what you would say? Basically? Yeah, that's correct.

[00:18:37] I mean, if the practice is if it's a one doctor office, less than six ops doing one point two million dollars or less.

[00:18:45] Ninety percent chance. Yeah, maybe even higher that that's sold to an individual doctor. OK, if it's doing one point two million to two million, I'd say 50 percent chance it's sold to an individual doctor.

[00:18:59] If it's doing over two million. Maybe a 20 percent chance that it's sold to an individual doctor as those practices get larger and larger, the probability that they sell to a DSO or private equity buyer increases exponentially.

[00:19:15] And we've talked kind of about the evolution of dentists, but the evolution of practice that move towards multi specialty practices towards group practices, larger facilities, multiple doctors working under one roof.

[00:19:29] That's been a massive change over the past decade. And as a result, there are a lot more practices that fit what DSOs are looking for than ever before.

[00:19:41] I mean, back when I was a banker 15 years ago, I mean, it was a unicorn to see a practice doing two, three, four dollars. I agree. Absolutely. Yeah.

[00:19:49] Well, I mean, now on average, I talked to two to three practices a day that are doing those kind of numbers. Yeah. Yeah.

[00:19:58] It's what's interesting, too, is like back when you were a banker, DSOs, the concept of a DSO to me, especially called a DSO.

[00:20:09] I mean, I remember in dental school they talked about group practices and sort of thing. I didn't think it was a DSO in the private equity part that just didn't that didn't it didn't show up on my radar till till relatively recently.

[00:20:20] Now that also might be that I wasn't looking for it, but I'm curious as someone who is was was getting loans out there and everything like that.

[00:20:27] How has the DSO in private equity? How has that changed since you've been in the industry?

[00:20:33] So DSO was really a four letter word. You know, back when I was a banker, you know, and I would say the first five years or so that I became a broker.

[00:20:45] We didn't even bring that option up to our clients for fear that they would run us, you know, out of their office because I'm going to tell you it was not until like five years ago, maybe even less that you would commonly hear.

[00:20:58] You still hear it some, but you would commonly hear Dennis saying DSOs are destroying the profession.

[00:21:02] They're they're going to they're going to wreck the profession. They're going to make so when when when you hear that with your experience, tell me what tell me.

[00:21:10] You say it sounds like that was pretty common back in those days. How has that changed?

[00:21:15] It's changed because DSO version 1.0 most of those DSOs were all branded the same. They were de novo models.

[00:21:24] The suits control the decision making both from an operational perspective and from a clinical perspective, whereas DSO version 2.0 the doctors are looked at as partners, not as employees.

[00:21:39] They often retain or role equity. They they own equity at the practice level or they own parent company equity in the DSO.

[00:21:48] So they're participating in the financial arbitrage that the private equity sponsors that are backing these DSOs are participating in.

[00:21:56] And DSOs have learned to support practices behind the veil administratively, operationally.

[00:22:03] They allow the doctors to keep clinical autonomy and a lot of operational autonomy in a lot of ways.

[00:22:09] So they're just able to leverage economies of scale to negotiate better pricing with vendors, better reimbursement rates with payers.

[00:22:16] They can offer better benefits because they can purchase them much cheaper than the individual practitioner.

[00:22:21] So they can pull the levers behind the veil without really interrupting the culture or the day to day operations of the business.

[00:22:30] And for that reason, because they've really learned to stay in their lane and allow doctors to invest alongside them, it's become a much more palatable, much more legitimate transition option.

[00:22:41] So as where we were reluctant to bring it up with our clients up until about five years ago, now the majority of our clients are calling saying, hey, Brandon, hey, tell me about DSOs.

[00:22:50] What does that landscape look like? What would my practice be worth in that environment?

[00:22:55] So it's almost like the DSOs realized that they figured out.

[00:23:00] Well, first off now, and I think you're kind of describing what they would call an invisible DSO or DSO.

[00:23:04] It's not a branded, you know, you don't have Heartland or you don't have Aspen on the front of your building.

[00:23:09] It might even be under your same name.

[00:23:11] You're working with a DSO, but it isn't necessarily it isn't necessarily branded all the same.

[00:23:17] Is that is that what you would consider an invisible DSO?

[00:23:19] Is that a is that a term that is reasonable?

[00:23:22] Yeah, whether it's IDSO, invisible DSO, DPO, OSO, I mean, whatever moniker you want to use this new iteration of DSOs that is utilizing a buy and build model that is acquiring practices is very much behind the veil, not patient facing and really not interested in interrupting the ongoing operation of the business.

[00:23:48] But these are the DSOs that are actually acquiring good businesses and then really just trying not to screw them up.

[00:23:54] These are not the DSOs that are branded, that utilize the de novo model really focused on the startup model.

[00:24:02] Right. Those are two completely different things.

[00:24:05] The Aspen, the Pacific, so the world, you know, different model than the IDSO DPO model where they're acquiring practices.

[00:24:14] They're partnering with great businesses, great clinicians and then supporting the practice behind the veil operationally without interrupting clinical autonomy.

[00:24:23] It's interesting. It's like that change is kind of literally the change from to the behind the scenes also seems like the change in attitude for a lot of dentists.

[00:24:34] I won't lie to you, there's a lot of dentists that I talk with that that I wouldn't necessarily have expected to to start talking with the DSO that are because they're thinking it's harder to find a buyer and it's harder to find an individual buyer maybe.

[00:24:49] And also that like the idea of being able to get some of that equity out while you're still working is pretty appealing as well, like to become a partial owner and part of it.

[00:25:00] Like there I have lots of friends who are looking at it, who five years ago would have said that this kind of thing is destroying the industry.

[00:25:06] So it is interesting that there's been this evolution.

[00:25:09] And I like how you use the term 2.0 because I think it's different from what we originally saw it as and it's so common.

[00:25:19] I mean, the funny thing is I'll have people that I know that I didn't know are working with the DSO.

[00:25:25] It wasn't something that they were talking about or something.

[00:25:28] And so the way their practice runs is not that much different than it ever did before.

[00:25:33] So they're reaping the benefits without necessarily, you know, the reputation isn't different or their presentation isn't different.

[00:25:39] That's an interesting thing to me.

[00:25:41] Yeah, it's not public facing.

[00:25:44] So you would probably be shocked to know how many practices around you are owned by DSOs.

[00:25:50] Many elite both general and specialty practices have affiliated with DSOs.

[00:25:55] And for many doctors, especially those that have built a large business, their practice is by far and away their most valuable asset.

[00:26:04] And they're not diversified at all.

[00:26:06] They have all their wealth tied up in that business.

[00:26:09] So for many of those people, it does make sense to monetize at least a piece of that business and diversify their wealth among multiple asset classes that have it all tied up in the breath.

[00:26:20] So would you say that DSO 2.0 also describes the kind of mid career dentist who is planning on sticking around because that's part of the DSOs plan?

[00:26:30] Like, here's the funny thing is, is what about the guy who's been at it and has just done just wants to sell and leave?

[00:26:36] I think even if they had a big practice, I think DSOs like like the continuity is that I don't know that everyone does.

[00:26:43] But is that is that something that is typical?

[00:26:45] Yeah, I mean, doctor turnover, particular founder turnover is the Achilles heel of most DSOs.

[00:26:51] So if you're ready to sell yesterday and you've got a big practice going the DSO route is going to be difficult because they're going to probably want you to stick around.

[00:27:00] Yeah, if you want to exit within three years, it's going to be very, very difficult to sell to a DSO or at least sell for the type of valuation you would want.

[00:27:12] So most DSOs are looking for a five year post closing commitment.

[00:27:18] Now they've extended the time frame that they want you to have a vested interest in the business post sale.

[00:27:25] However, it comes with a lot more autonomy.

[00:27:28] The DSO version 1.0, you only have to stick around a year or two years, but you had to work a certain number of days a week or a month or a year.

[00:27:35] You got to produce at a certain clip.

[00:27:38] DSOs of today, they want you to have a longer vested interest, but it comes with more autonomy in the sense that you don't have to work cheer side at all.

[00:27:45] As long as you backfill your production with associates that are competent and can keep up, you can step away, cheer side or cut back your schedule significantly.

[00:27:57] So it's come with a lot more flexibility, but a longer term post closing commitment.

[00:28:02] Again, because DSOs understand they need somebody vested.

[00:28:06] They need alignment of incentives at the practice level in order for the organization as a whole to do well long term.

[00:28:13] That's interesting.

[00:28:14] I mean, it's all kind of so funny because it's a little different angle than when like DSOs.

[00:28:22] DSOs don't have as bad a name amongst owners now as they used to.

[00:28:26] I'm just going to say that right now.

[00:28:27] I just know that from the past five years or so.

[00:28:31] So I am curious.

[00:28:33] So you work, you actually work and own with McLaren and Associates.

[00:28:36] How does the sale or transition process work?

[00:28:39] Basically, let's say an owner is like, OK, I'm looking to start a transition.

[00:28:44] I want to work with you guys.

[00:28:46] How does it?

[00:28:47] How does the intake work?

[00:28:48] How do you know where you're funneling this person to?

[00:28:51] And then eventually I'd like you to tell me how do you how do you know to evaluate with the different DSOs that you work with?

[00:28:56] Like, how do you know what a good DSO is to work with?

[00:28:59] But I guess start with the intake process on your end.

[00:29:01] Yeah.

[00:29:02] So intake process always starts with a casual discovery call just to get to know each other.

[00:29:06] First question I always ask is like, tell me about your wife.

[00:29:09] Right.

[00:29:10] What are you looking to accomplish?

[00:29:11] What are your goals?

[00:29:12] What's your runway to exiting the business?

[00:29:14] And then tell me a little bit about the business.

[00:29:16] What's the revenue?

[00:29:17] Number of doctors, geography, patient mix, clinical mix, that type of thing.

[00:29:22] So let's figure out what we're dealing with.

[00:29:24] Right.

[00:29:25] As far as what your goals are and what type of business, what size of business you own.

[00:29:29] And then we'll talk about, hey, does it make sense to do a deep dive?

[00:29:32] Does it make sense to do an even analysis, to do evaluation, whether we're looking at that through the lens of a private buyer or the lens of a DSO private equity or both?

[00:29:42] Right.

[00:29:43] Some people come to us and say, hey, I want to know what's my practice worth if I were to sell it to a private buyer?

[00:29:48] What's my practice worth if I was to sell it to a DSO?

[00:29:51] Let's quantify that delta.

[00:29:53] And then let's walk through those different options and see how they compare and contrast.

[00:29:57] So discovery call, valuation process.

[00:30:01] We go over it together to discuss our findings, discuss options, discuss economics, and then decide, you know, what's the appropriate course of action from there?

[00:30:11] So I always say, like, our job is to educate and empower dentists to make good decisions with the future of their business.

[00:30:17] And whatever they decide to do with the business, we can help them execute at a high level and make sure they go down the right path and they maximize their outcome, both emotionally, you know, and financially, because most of our clients do care about the continuation of their business and their legacy.

[00:30:36] There's an emotional component there that matters as much or more to some people than the economic component.

[00:30:42] Absolutely.

[00:30:43] OK, that's interesting.

[00:30:44] So on the other side of that, let's say that I mean, you OK, let's say you do the process and you're like, you know what?

[00:30:54] Probably your best bet.

[00:30:55] Let's say the practice is a smaller one or the physical plan is smaller and it's probably a better fit for a private sale.

[00:31:03] How do you go about finding, you know, how do you help someone find typically?

[00:31:06] I mean, I guess one thing is like, are you are you only working in certain states or are you nationwide?

[00:31:12] Is it something that tell me about that?

[00:31:14] Yeah, so great question.

[00:31:15] So from a private sale perspective, our headquarters is in Austin, Texas, and our legacy business is selling private practices in Texas and the surrounding states.

[00:31:27] Got it.

[00:31:28] So most of our private practice transition opportunities are in Texas and the surrounding states.

[00:31:35] Occasionally, if it's an elite practice in a great geography and urban market where I know there's a lot of buyers,

[00:31:41] we'll take a very strong listing outside of our footprint to market and still perform at a very high level.

[00:31:48] OK, but if it's a smaller practice in Jersey or Oregon or wherever it might be that I really feel like you're going to be better served by working with a larger company.

[00:31:57] If I'm going to be better served by working with a local broker that sells practices daily in that market, I'm going to make a referral to somebody locally on the DSO private equity side of the business.

[00:32:09] We work nationally. We have an office in San Diego.

[00:32:12] We have an office in Atlanta.

[00:32:14] So if we get through the discovery process, the valuation process, and it makes sense for you to go down the DSO path will represent clients all over the country.

[00:32:23] When we take that opportunity to market, we're going to utilize a bid process and we're going to take it to all the DSOs we think would be interested.

[00:32:29] And typically you're going to have a mix of national players, regional players, and then very localized players that maybe own five, ten, fifteen offices in that particular city.

[00:32:44] So you want to give the client a good mix of national, regional and local players and different deal structures so that they have full perspective on what's available in the marketplace.

[00:32:56] They meet each DSO. We map out all the offers and we decide based on culture and fit, autonomy, deal structure, infrastructure and economics.

[00:33:08] Do we have a clear front runner or are there three or four front runners and we want to call for best and final from all of them?

[00:33:15] So we represent the seller and seller only, but it's our job to maintain relationships with all the DSOs across the country that are buying practices on a daily basis.

[00:33:26] And we spend an inordinate amount of time onboarding and vetting DSO buyers and trying to figure out like who's legit, who's not, who would I bet my capital on if I was one of our clients?

[00:33:38] And that is a full-time job.

[00:33:41] I was just going to say how do you because I know that the DSO landscape has gotten, I mean it continues to get complicated because there's people coming in all the time.

[00:33:49] There's literally there's dentists that have decided to start their own DSOs because they've done so well with practice.

[00:33:54] There's big monster DSOs that are, I'm curious how do you know what a good fit for one person is?

[00:34:02] Are there certain DSOs that work better with certain regions or specialties or anything like that?

[00:34:10] How do you tell all that stuff?

[00:34:12] Sure, sure.

[00:34:16] Sure, so there's a lot of optionality in today's marketplace.

[00:34:20] If you want to go down the DSO route, it's a crowded market.

[00:34:23] Yeah, it is.

[00:34:24] And I think you bring up the point like you need perspective.

[00:34:28] And so often we see doctors that their buddies sold to this particular DSO and their buddy introduces them.

[00:34:34] And before you know it, they've inked an LOI with that one DSO without shopping around, without dating around, figuring out.

[00:34:41] Yeah, maybe that was the right DSO for my buddy, but this is the right DSO for me, right?

[00:34:45] Everybody has a different why.

[00:34:46] Everybody has a different business.

[00:34:48] So that's why broad exposure, multiple offers from multiple buyers is critical so that you have proper perspective and you can really truly identify who's a good fit and who's not.

[00:35:03] On average, our clients will receive seven to ten offers.

[00:35:07] Wow.

[00:35:08] So we're always evaluating what's their reputation?

[00:35:11] What do they own?

[00:35:12] Let me talk to some doctors in their group.

[00:35:14] What has their experience been?

[00:35:15] Do they own quality assets?

[00:35:16] Do they own class A assets or class C assets?

[00:35:20] What's their core competency, right?

[00:35:22] What geography?

[00:35:23] What type of practice are they good at owning and operating?

[00:35:27] Who's their financial sponsor?

[00:35:29] Right.

[00:35:30] Who's the private equity?

[00:35:31] Who's the financial sponsor?

[00:35:33] Right.

[00:35:34] Who's the private equity firm?

[00:35:35] Who's the money behind this DSO?

[00:35:37] Have they been successful in dentistry, you know, building and monetizing a DSO or successful in other health care verticals?

[00:35:41] If so, I want to know that story, right?

[00:35:43] How good are they at as an operator and as a financial sponsor?

[00:35:45] What's the management team look like for that DSO?

[00:35:47] What's their experience?

[00:35:49] When was their last recap?

[00:35:51] When's their next step?

[00:35:52] When's their next step?

[00:35:54] When's their next step?

[00:35:56] When's their next step?

[00:35:58] When's their next step?

[00:36:00] What's their experience?

[00:36:02] When was their last recap?

[00:36:04] When's their next recap expected to occur?

[00:36:06] You know, what are the different elements of their deal structure?

[00:36:08] What's the upside on the equity component and the likelihood that we're going to get to a point where our client is going to get that second bite of the apple?

[00:36:16] There are so many different factors that we have to evaluate that tell a picture about who each DSO is and whether they're going to be a good fit for our particular client based on their why and the unique experience that they have.

[00:36:28] That's really interesting.

[00:36:30] It's a great answer, by the way.

[00:36:32] I didn't know where you're going to go with that.

[00:36:34] I thought that was really good.

[00:36:36] Here's the thing.

[00:36:38] Dentists like to dabble in stuff and like to think that they understand the marketplace.

[00:36:44] But if you're running a practice and you're trying to keep your team, keeping all your team members and you're dealing with patients and stuff, that's a lot.

[00:36:56] And I don't know that really being, I think you've got to decide that you can work with someone who already knows this space.

[00:37:02] And honestly, frankly, I like the fact that you work with DSOs, but you also sell individual practices to individuals because I think that there might be people who feel like DSO is the answer and maybe you look at the practice and go, you know, this maybe isn't the answer for you.

[00:37:20] Whether you're too small or you're regionally or your building is too small or whatever, these are things that like there might be a little tough love that you need there as a dentist who has a certain expectation about their practice.

[00:37:32] You ever run into that before?

[00:37:34] Oh, yeah.

[00:37:35] No, we spend a lot of time talking with clients about sometimes talking them out of going down the DSO path if we don't feel that it's economically compelling or they're wise not in alignment with what the market can offer.

[00:37:48] Also, we often look at businesses that are doing that need work before they go market so that they're going to be more marketable and more valuable.

[00:37:56] At the time we get there, we look at some of the businesses that are growing so quickly that sometimes it makes sense for the business to experience more maturation and increase the EBITDA, increase the revenue before we go to market.

[00:38:08] Otherwise you're going to leave a lot of value on the table if you sell prematurely.

[00:38:12] So we're constantly trying to give our clients very, very objective guidance regarding where they're at, what their options are and when it's appropriate to pull the trigger and go to market.

[00:38:24] And look, if it makes sense to wait a year or two or if it's not a fit, don't do it.

[00:38:28] We're lucky to be blessed to be busy.

[00:38:32] So we don't have, we're not compelled to try to get from a conversation to a commission as fast as possible.

[00:38:40] We truly try to focus on client by client.

[00:38:43] What do they have?

[00:38:44] What are their options?

[00:38:45] What's in their best interest?

[00:38:46] Give them that guidance and then whatever they decide, you know, it's pick your own adventure at that point and we'll help you execute, you know, whatever initiative you decide to pursue.

[00:38:56] That's really good.

[00:38:57] That's good stuff.

[00:38:58] So Brandon, if someone is listening to this right now and going, yeah, I probably need to start looking into this or, oh, I was going to try something else.

[00:39:06] What's the easiest way for someone to get in touch with McLaren and Associates and kind of start the conversation?

[00:39:12] Yeah, whether you're a day out, two years out, five years out, you should start the conversation early.

[00:39:18] Everybody always says I'm crazy.

[00:39:20] I give away my cell phone number.

[00:39:21] I mean, this is what I do all day long is talk to practice owners and kind of guide them down this path.

[00:39:27] My cell is 512-660-8505.

[00:39:33] You can call me.

[00:39:34] You can text me.

[00:39:35] You can reach me via email.

[00:39:37] Brandon, B-R-A-N-N-O-N at DentalTransitions.com.

[00:39:43] And I also encourage your audience to check out the website, DentalTransitions.com.

[00:39:47] There's a lot of great articles and podcasts just like this one where we unpack a number of different subjects.

[00:39:53] And, you know, step one is get educated, right?

[00:39:57] Get some objective guidance.

[00:39:59] And then that'll determine, you know, when it's appropriate to take the next step.

[00:40:07] That's fantastic.

[00:40:08] Brandon, thank you for your time.

[00:40:10] This was really good.

[00:40:11] And if you guys have questions or comments, you can go to the Facebook group, ask them there.

[00:40:14] I will make sure if you have questions and you don't want to go directly to Brandon, I'll make sure he gets them.

[00:40:19] This was very helpful.

[00:40:20] I appreciate it, Brandon.

[00:40:21] And we will maybe catch you next time.

[00:40:24] Thanks for having me, Alan.

[00:40:25] Take care.