Very Dental Extra: Getting Multiple Bidders for Your Practice with Chip Fichtner

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

[00:00:11] Sometimes you just can't get enough very dental sometimes you need a little bit more

[00:00:15] Now is one of those times

[00:00:18] Welcome to the very dental extra

[00:00:22] Very dental people welcome to another episode of the very dental extra

[00:00:27] And I would like to thank our friends at large practice sales for bringing this episode to you

[00:00:32] And when we talk about large practice sales, we know we're gonna be talking with Chip Fickner. Chip. Welcome to the show

[00:00:39] Thank you very much. I appreciate it's great to be here again. Yeah, it's good to talk to you again

[00:00:43] So here's the thing

[00:00:44] We've done a couple episodes before and I'm gonna put the links in the show notes to the episodes, but let's just pretend there's

[00:00:50] Some poor saps who've not heard those episodes yet

[00:00:54] I want I want you to tell them a little bit about large practice sales

[00:00:58] What large practice sales is what they do and maybe give us a little idea what invisible DSOs are

[00:01:05] Absolutely. Thank you again for having me. I appreciate it. The the invisible DSO topic is becoming more exciting every day

[00:01:14] You know, we we specialize in invisible DSO partnerships

[00:01:18] which in short an invisible DSO becomes your silent partner by buying anywhere between

[00:01:24] 51 and 80 percent of a practice for cash up front

[00:01:27] The doctor retains ownership in the balance and continues to lead the practice as the owner

[00:01:33] With his team or her team brand and strategy and full autonomy not just clinical autonomy

[00:01:40] But full autonomy meaning the doctor is going to continue to decide who to hire who to fire when to be open how to set

[00:01:47] Schedule what payers to take what products to use?

[00:01:50] they have full autonomy in an invisible DSO partnership and

[00:01:55] Practices that qualify to become partners with an invisible DSO will get many benefits from that partnership

[00:02:02] Not to mention cash up front at long-term capital gains tax rates

[00:02:06] Which may be changing based on what Biden said this week

[00:02:09] In addition, they access the resources of their larger silent partner today

[00:02:14] There are a thousand invisible DSOs and DSOs across the country

[00:02:18] We considered less than a hundred of them to be qualified to bid on our clients for a variety of reasons

[00:02:25] But when you find the right invisible DSO partner, you're gonna see your supplies costs go down by 25%

[00:02:32] You're gonna see your benefits costs go down. You're gonna see your team get better benefits at lower costs and

[00:02:38] Potentially you're gonna see higher reimbursement rates from insurance payers

[00:02:42] That's a growing category because some of these invisible DSOs who have been round around for 35 years

[00:02:50] are now able to negotiate higher reimbursement rates for their partner practices and

[00:02:56] That that is becoming a bigger thing. Some of the invisible DSOs have crossed four five six and seven hundred

[00:03:04] Partnerships or partner offices. It's it's growing. Yeah

[00:03:08] Part of what's driving that is the new money that's come into the space so far this year from what we can identify

[00:03:14] There's been over three point seven billion dollars of new equity and financing provided to the invisible

[00:03:20] DSOs and that's part of why we're still getting record values for our clients. It's interesting because I

[00:03:26] think

[00:03:28] there's a lot of people who

[00:03:30] Maybe aren't paying attention to that as much as they're paying attention to how much eggs cost

[00:03:36] And how much how much like like regular day-to-day stuff

[00:03:39] But you're saying that there's there's still a lot of money coming into the dental space

[00:03:45] Just because there's a lot of value to be had. Yeah, absolutely

[00:03:48] You know, we we still are having recapitalization

[00:03:52] Where the doctors who have retained equity have had the ability to liquidate all or part of that equity with substantial gains

[00:04:00] Blackrock the world's largest investor

[00:04:03] Invested in their second invisible DSO in 15 months in December and they invested in a dental trifecta group

[00:04:11] pedo ortho oral surgery

[00:04:13] Okay

[00:04:13] to which we had sold clients and

[00:04:15] Our clients saw returns in less than three years of two and a half to three times the value of their initial equity

[00:04:22] So it is still happening. We're gonna have another 50 clients go through a recapitalization here either late this quarter early next quarter and

[00:04:31] The returns for those clients on their equity will range from one who's been with the DSO for about six and a half years

[00:04:38] He'll make about nine times as money on his equity and those that have only been in for two years

[00:04:43] We'll probably make about two times their money on their equity

[00:04:46] interesting so

[00:04:48] You and I sort of talked before we were recording. Basically. I was gonna ask you I would like you to tell me a story

[00:04:54] About someone who decided to DSO is for them

[00:04:58] but they partnered with the wrong DSO or a wrong style or wrong size or whatever in some way that

[00:05:06] maybe because they didn't

[00:05:08] See all the different deals that were available to them or maybe because their best friend from dental school told them this place was the best

[00:05:15] Thing that ever happened to him or something like that where where they they they maybe were a good candidate for a DSO

[00:05:22] But maybe signed on with the wrong one for whatever reason

[00:05:25] Yeah, that unfortunately happens a lot when dentists represent themselves

[00:05:33] today any great practices being

[00:05:35] contacted by the invisible DSOs or being urged by their friends to join the invisible DSO that their

[00:05:43] friend did and

[00:05:44] The challenge for that is if you don't look at all of your options, you could be missing out and it's not necessarily

[00:05:52] having multiple bidders drives up value because it does and we generally won't take a client unless we can identify at least six

[00:06:00] Qualified bidders for that client and sometimes we're wrong

[00:06:03] Sometimes they only have three but in any client of ours that has a growing practice is gonna have multiple bidders last year

[00:06:10] Our record was 18 bidders for a phenomenal practice in, Florida

[00:06:15] But it's not unusual for us to have six or eight qualified bidders on everything

[00:06:21] And so the the value of going through the bidding process is is not just higher values

[00:06:26] But it's about looking at all of your options because ultimately this is a marriage

[00:06:30] You're making a decision to spend the rest of your career

[00:06:34] Hopefully with an invisible DSO partner and you should look at all of your options

[00:06:39] And any great dentist is gonna have lots of options today because it's all about not just the money. It's about the culture

[00:06:47] It's about how you structure the deal

[00:06:49] it's about a lot of different things and

[00:06:51] Your friends that have joined invisible DSOs are getting paid a lot of money to convince you to join them

[00:06:58] The referral fees are six figures in many cases. So now they may forget to tell you that but they're out there

[00:07:05] so interesting so like

[00:07:09] Invisible DSOs may even be

[00:07:12] Interested in practices in the same town

[00:07:14] So I might have a colleague in town trying to convince you

[00:07:18] Because they're so I never thought about I always thought about as a call. They just want one in this was it sounds like that's

[00:07:23] Yeah, no, they're one of my favorite invisible DSOs has 68 practices in Phoenix

[00:07:29] Oh, wow, now keep in mind everybody's operating under their own brand. So nobody knows that except for them

[00:07:35] Yeah, but they're now trying to add specialists into there because of their 68 offices are predominantly GP

[00:07:42] So if you're a specialist in Phoenix, you're extra valuable today

[00:07:45] Yeah

[00:07:45] Because and you're gonna grow because they have 60 some odd GP offices that are eager to refer to look at a referral within the family

[00:07:53] okay, so so my favorite story on that topic is a

[00:07:57] Doctor who came to me who who said chip look and I we had looked at his numbers

[00:08:02] So I had a pretty good idea how valuable this practice was but he was not a client and he called me up and said chip

[00:08:07] Look, I know I'm not a client and you're not gonna make any money on my deal

[00:08:10] But would you at least tell me whether this is a good group or a bad group?

[00:08:13] And I was like, of course, I will doctor, you know pay it forward happy to help

[00:08:17] I said but before you tell me who the bidder is and what the bid is

[00:08:21] Tell me how many bidders you had

[00:08:23] He said well only one my friends went with this group and I've been to Nashville and I had drinks with the CEO and I

[00:08:29] Really like them and it's a great group. They're the right fit for me. I was like, okay fantastic

[00:08:34] I'll tell you what you only had one bidder

[00:08:37] I'll guarantee you that I can get you five million dollars more net of my fee or you can pay me nothing

[00:08:42] He's like you're crazy. How can you do that?

[00:08:44] I said practice like yours is gonna have ten or more qualified bidders because you've got a great practice. It's growing

[00:08:50] It's in Florida. You can't you don't get better than that and say so you put that in writing

[00:08:55] I'm just like yeah, so I sent him an email email said look if I don't get you five million more net of my fee

[00:09:00] Then you can pay me nothing and we'll go through the brain damage of helping you close your transaction because that's the hard part of

[00:09:06] These yeah

[00:09:07] And he said okay great and I sent him an email and he said well the bidder is X and it's a 19 million dollar

[00:09:14] bid I said oh

[00:09:16] Well, I know them. We've done three deals with them in the last hundred and twenty days

[00:09:19] So I have a pretty good idea of what they'll pay

[00:09:22] So I'm gonna change my deal he's a guy you're back trading I was like now

[00:09:26] I'm gonna increase that to ten million dollars more. So if I can't get you twenty nine million dollars net of my fee

[00:09:33] Then you can pay me nothing. He said you're crazy. We signed an agreement

[00:09:37] He had 11 bidders high bidder was forty three point five million

[00:09:42] And I called up the nineteen million dollar bidder and I was like John come on, buddy. This is theft

[00:09:48] You can't do this. This is bad. He said, all right, all right, you're right. I'll go to 30 million

[00:09:53] I was like John 19 to 30 is great nice step up there

[00:09:58] But guess what you don't get to come to dinner. He's like, what do you mean?

[00:10:01] I said well

[00:10:02] You got to be in the top three bidders to get to come to dinner and 30 million

[00:10:05] You're not gonna be in the top three and he said no, I'm gonna stick at 30

[00:10:09] So he was out

[00:10:10] so we had three bidders a three finalists that came to three dinners and

[00:10:15] At the end of the game high bidder was forty three point five

[00:10:17] He took the under bidder at forty two point five million because it was 95% in cash and he was 59 years old

[00:10:25] He had four great associates. He was ready to go

[00:10:28] So there's a good story of a doctor who almost shot himself. Oh, I see. Okay. I like the tune of

[00:10:35] 20-million dollars. Yeah Wow. So, you know today we have a thing called the black list

[00:10:40] The black list consists of the over 900 invisible DSOs and DSOs in the US

[00:10:47] Which are not allowed to bid on our clients because they're not qualified

[00:10:52] Now, how do you how do you get on the blacklist? What did you have to do?

[00:10:55] Well, it can be a bunch of different things

[00:10:57] There's one group to which we have sold hundreds of millions of dollars of practices over the last seven years

[00:11:02] That's now on the blacklist. Well, why well their new investor came in and cleaned house

[00:11:08] Every C level position was replaced and we're not gonna send our clients to a group or we don't know what the new

[00:11:14] Management's gonna do with that group. Yep, right

[00:11:17] So they're on the blacklist until we figure out what the new management is going to do and what their strategy is

[00:11:22] And are they good or are they not good?

[00:11:25] So tell me how do you screen him? Like what what what would get you on or off the blacklist as a DSL?

[00:11:31] Well, there's a I mean think about it. There's a lot of them on the blacklist

[00:11:34] So there's a lot of ways to get on the blacklist, you know

[00:11:37] Yeah

[00:11:38] so the answer is it depends on a lot of things number one obviously is who is the financial backer of the group because

[00:11:44] ultimately the money behind the invisible DSO is going to make the

[00:11:48] Decisions and they're going to be the ones who are gonna create the ultimate exit value

[00:11:53] Because they're the guys who put up the money now

[00:11:55] Although many of the invisible DSOs are about half owned by their doctors

[00:12:01] The money because it's one entity is the one that's going to make the decision

[00:12:05] So the first thing you look at is who's the money? What's their track record in dental?

[00:12:10] What's their track record in health care consolidation?

[00:12:14] because

[00:12:15] Consolidating gyms or consolidating manufacturing companies or veterinarians is different from consolidating dental practices

[00:12:22] so we really like the invisible DSOs that are backed by

[00:12:26] Private equity family offices and other money that has been successful in consolidating dental practices before there are some groups out there

[00:12:34] That have created invisible DSOs

[00:12:37] Three five seven times and monetize them and if they want to start a new invisible DSO, that's a place

[00:12:44] I want my clients to go. Mm-hmm groups with proven success in dental after that

[00:12:49] You look for the ones who have proven success in health care consolidation because it's different from consolidating everything else

[00:12:55] So your first thing you do is look at the money then you look at the management go

[00:12:59] Okay, what's your strategy and some of these groups really don't have a lot of strategy there?

[00:13:04] We're interested in practices that have revenues. Okay, great. That's not a strategy. We're interested in practices that have lots of EBIT

[00:13:10] Uh, that's not a strategy. Are you are you?

[00:13:13] Geographically agnostic or you regionally focused are you going multi specialty single specially GP only what is your strategy?

[00:13:21] And then

[00:13:23] obviously we look at the practices that they have partnered with because that'll tell you a lot about the quality of the invisible DSO when

[00:13:30] We look at an invisible DSO that has partnered with clients that we have declined to represent

[00:13:35] That's a big red flag for us because if we decline to represent them

[00:13:39] There's a reason and it may be background checks. It may be doctor's personality

[00:13:44] It could be a lot of different things

[00:13:45] But when we find an invisible DSO that has partnered with a group that we declined to represent they go on the blacklist

[00:13:51] Interesting then obviously the management is critical the growth rate and their financials

[00:13:56] you know some of these groups have plenty of capital and plenty of credit lines and

[00:14:01] Some have maxed out their credit lines and are in default now

[00:14:05] They don't bother to tell you that but they may put you under LOI while they're trying to renegotiate

[00:14:09] Their credit lines and drag you out for six or eight months while they try and find the money to partner with you

[00:14:15] That's not a good sign when that happens. You don't want to be their partner. Yeah. Yeah. Wow, that's it was a really good answer

[00:14:24] It's scary. Yeah, it is scary because a lot to that doctors are experts at creating beautiful smiles

[00:14:30] They're not really experts at doing due diligence on guys that are trying to give them money

[00:14:35] It's true but what's really funny is a dentist's dentists have this thing where where

[00:14:40] We kind of like to kind of like to do that

[00:14:43] We like we like to we like to our expertise where we've decided that we know this stuff

[00:14:47] I wouldn't have the slightest clue where to start but a lot of people

[00:14:50] You know want to I can see a dentist doing that

[00:14:55] I feel like that's that's folly because there's like I don't know. It's like you're pushed into the deep end of the ocean

[00:15:01] There's a lot of sharks out there

[00:15:02] It's like I like I wouldn't know I would have no idea and I mean like the only way to find out is to work

[00:15:07] With someone who's done a bunch of this stuff that makes the most sense to to have someone lead you through it

[00:15:12] There's a lot there. There's a lot there

[00:15:15] There are also potentially a lot of gotchas in these agreements that the attorneys don't understand and your CPA doesn't understand

[00:15:23] Tax allocation is a great example in our billion dollars of transactions in the last 24 months

[00:15:30] 94% of the cash received by our clients was taxed at long-term capital gains tax rates of

[00:15:36] 20% federal or less and

[00:15:39] We see a lot of doctors who in the do-it-yourself thing

[00:15:42] Well, the DSOs want less goodwill more hard assets

[00:15:46] You want more goodwill less hard assets and we see doctors doing deals where they split the baby 5050

[00:15:54] Well that's costing the doctor in a big transaction millions of dollars in taxes

[00:15:58] And your CPA is no expert in doing these deals either. So he doesn't catch it. We had we had one great

[00:16:05] Transaction a couple of years ago the CPA filed the entire 15 million dollars in cash. He got it closing as ordinary income

[00:16:12] Oh, well, he could we didn't know he called me up about two years ago and said hey was my income supposed to be

[00:16:18] Long-term cap gains. It's like yes doctor

[00:16:21] You need to file a you need to file an amended return and get that millions of dollars that you paid and you shouldn't have

[00:16:27] Back Wow, and I said and you shouldn't use the the accountant that screwed it up the first time

[00:16:33] Yeah, you go need to find another and I'll refer you to some people

[00:16:36] Yeah

[00:16:37] Then we had then we had a couple of clients who their CPA told them they had to pay the 3.8 percent

[00:16:42] Obamacare tax you do not if you structure it right you do not have to pay that so

[00:16:49] Such a specialized transaction. That's that's the sort what I'm hearing is that like I mean

[00:16:56] Standard practice sales are a pretty specialized transaction on their own

[00:17:00] But there's a whole other animal like with the DS and the interesting thing is the DSOs

[00:17:04] I mean, yeah, there's been a lot of invisible DSOs that have been around for a while

[00:17:08] but the reality is is like I

[00:17:10] Mean, I'll bet you it's been within the last 10 years that it's been as commonplace in dentistry for people to be doing

[00:17:16] This is a very specialized transaction. I don't know that I would even try this without I mean

[00:17:21] God you love your accountant and lawyers, but this is like not something that a lot of them do very often

[00:17:27] No, and it's your life's work

[00:17:29] You've got to be careful

[00:17:30] And the other interesting thing and I think the most fun things of what we do are when one of our clients becomes the platform

[00:17:38] Practice for a new invisible DSO and we've done that on to we're about to do our third in two years

[00:17:46] this is a

[00:17:48] Great client in the southeast that has built a beautiful GP practice. He's a young

[00:17:54] Effervescent passionate doctor and so he's been gonna become the platform

[00:17:58] For a new GP focused invisible DSO and the investor in that has done it five times before

[00:18:05] Very very successful. Tell me what you mean by platform

[00:18:09] What does that mean meaning you're functionally the first?

[00:18:11] Practice in a group and the investor is counting on you to help build that group

[00:18:17] So you'll be out there doing a little traveling schmoozing other dentists getting them to come join the new invisible DSO

[00:18:25] We did it for a great practice in the Midwest last year single doctor owner

[00:18:31] 29,000 square foot single office practice as a big practice big practice 39 years old built it from scratch

[00:18:38] Same thing he became the platform

[00:18:41] For group this is a very implant and all on X focus practice

[00:18:45] And so one of the investors who has done it seven times before

[00:18:49] Wanted to get into that segment of dentistry and said chip

[00:18:53] Do you have a great practice that could be a platform for us?

[00:18:56] And I was like, yeah

[00:18:56] I got the exact right guy and we got him an incredible value and the upside his equity is staggering

[00:19:03] You know, we got him 43 million dollars for his practice, which was 14 times ebit some sort of new record

[00:19:09] But most importantly the upside in his equity because of who he's shoulder-to-shoulder with in their partnership has done it before they've returned

[00:19:17] Three and a half billion dollars to their investors and doctors in the previous

[00:19:23] Invisible DSOs that they've built over the last 10 years

[00:19:26] And those are the kind of guys you want to partner with so a doctor doing itself

[00:19:30] Doing it trying to do it himself, even if he's got a huge practice. He doesn't know those guys exist

[00:19:35] How do you bring them as a bidder if you don't know they exist? Well, guess what? They didn't exist. We created them

[00:19:41] Yeah, that's wild. All right, so something that's probably worth talking about

[00:19:45] we've again we've talked about this in the other podcast, but tell me about like what is what's the basic level of

[00:19:52] That these DSOs are looking for as far as

[00:19:55] Size of the office, you know literally physical plant

[00:19:59] Revenues, what are they?

[00:20:00] What are they looking for because I know that they're you know

[00:20:03] A really small practice does not attract the same kind of attention as a larger practice the name

[00:20:09] Large practice sales does indicate that they're looking for larger practice chip. I hate to say it

[00:20:13] But it's it's kind of sitting out there. So again, tell the listeners what what you know, they're expecting for starters

[00:20:21] So the answer is the invisible DSOs will buy smaller practices than this

[00:20:27] But they won't achieve the kind of what I call

[00:20:30] Multiple values that our clients will so our clients typically unless it's a special exception

[00:20:36] we'll have a half a million dollars in operating income or EBITDA after paying the doctor because

[00:20:44] Listeners might call up their CPA and go what's my EBITDA?

[00:20:47] He'll give you the number that was your total income last year. Not your EBITDA because he'll forget to pay you

[00:20:54] You got to pay the doctor

[00:20:56] so we're looking for practices that have a half a million dollars in EBITDA and up and

[00:21:00] That will typically arrive for a GP at about 2 million in collections if they run it correctly

[00:21:07] And many specialists with as little as a million five

[00:21:10] Ortho in particular can have an half a million dollar EBITDA EBITDA if they run their practice correctly, so

[00:21:17] Ultimately collections in our world are irrelevant in a doctor to doctor transaction. That's how practices are valued

[00:21:24] Exactly 80 100 percent of collections, but in my world collections are irrelevant

[00:21:29] What matters is your operating income or EBITDA? Mm-hmm interesting. That's that's very interesting

[00:21:35] Actually, that was that was an unexpected answer. I kind of like that so I

[00:21:40] Guess the the funny okay. So in the other part of that answer that surprising me is like you're saying, you know

[00:21:47] Invisible DSOs might be interested in a smaller practice, but they're looking at it in a different way

[00:21:52] They're looking at as bringing it on in a similar kind of transaction. I'm guessing as as

[00:21:57] An individual doc buying another individual doc something like that where you don't get these multiples that you're talking about

[00:22:03] correct, the values are different so you can have a practice with two hundred thousand dollars in EBITDA and

[00:22:09] But you're gonna end up where the net value that you get is going to be similar to what you would get in a doctor

[00:22:14] to doctor

[00:22:15] Transaction doesn't mean it's a bad deal to do it with an invisible DSO

[00:22:19] But the doctor to doctor transactions on a very profitable practice or a larger practice are gonna be very different

[00:22:27] The other thing that's happening is if you've got a let's call it a three million dollar GP practice

[00:22:31] That's making what should be industry standard margins of six hundred thousand dollars, right?

[00:22:37] 20% it should be higher

[00:22:38] But we'll use 20%

[00:22:40] You know in my world the bidding for that practice is gonna start at seven times EBITDA or four point two million dollars

[00:22:46] Mm-hmm. And if you're in some parts of the country a doctor doc transaction is

[00:22:51] Going to be 80% of collections or two point four million dollars

[00:22:54] So you almost double the value of your practice and the reality is kids buying

[00:23:00] Practices today are having trouble with their own debt load and getting financed and high interest rates

[00:23:06] It's a challenge. So and so if you have a larger practice, your only market value exit is an invisible DSO partnership

[00:23:14] Mm-hmm. Oh cuz they've got the money

[00:23:18] You're not looking for someone who's trying to who's suffering with the idea of the current interest rates and their their existing debt load

[00:23:24] That's interesting

[00:23:25] You haven't thought about it that way

[00:23:26] But that's really big that and so many of the kids coming out are going to work for the invisible

[00:23:31] DSO is not buying practices. So yeah, you could oral surgery oral surgery this year June

[00:23:38] 250 graduates

[00:23:39] 100 to 150 are going to DSOs and invisible DSOs

[00:23:44] Mm-hmm

[00:23:44] So now imagine being one of the 5,000 independent oral surgery practices in the US that's eager to

[00:23:51] recruit an associate to either ultimately replace you for retirement or

[00:23:57] To grow right our two biggest deals in 23 and 22 were done for oral surgery practices

[00:24:02] That needed associates like breath to support their growth. They were down six months and

[00:24:08] So in the oral surgery space

[00:24:11] It's a challenge and so that oral surgery is the fastest consolidating of all practice types today because of that

[00:24:18] Interesting. Okay, then that actually makes sense

[00:24:20] All right. So

[00:24:23] Assuming that the revenue is large enough the office has enough operatories

[00:24:27] Are there other things that make it harder or easier for a DSO to buy?

[00:24:33] Are there geographic areas that are that are gonna be more important

[00:24:39] You know is is the the type of team you have or the age of the doctor do these things play into it or not?

[00:24:44] Really age of the doctor is a huge issue today

[00:24:48] If you're a single doc practice with a six in front of your age, you have a problem. You should call me tomorrow

[00:24:56] Okay

[00:24:56] It is a problem because because they're getting squeezed out by all the 30 year old doctors that are doing these

[00:25:03] Transaction and if you're an invisible DSO whose whole mantra is long-term partnership. You want the 35 year old doc not sure

[00:25:11] right, so so

[00:25:14] Age is a big issue today and it's getting bigger every single day as more and more young doctors do these transactions

[00:25:21] The next issue is growth rate

[00:25:23] They're keying in very strongly on first quarter 24 versus first quarter

[00:25:29] 23 how did you do if you shrunk you better have a good explanation? I broke my foot. I took two months off

[00:25:36] There's got to be something but growth rate in q1

[00:25:40] Q124 versus q123 is very important from a geography standpoint

[00:25:45] That's one of the things that kovat did good things for doctors that are not in we'll call it the hot states of

[00:25:52] South Carolina, Georgia, Texas, Tennessee, Florida

[00:25:56] Arizona Colorado, Utah, Idaho

[00:25:59] the the

[00:26:00] Kovat thing basically took regional groups and said hey you need to expand because your region could get hit and that could

[00:26:08] Hurt you disproportionately

[00:26:10] Therefore you've seen many groups that are now heading into the flyover states. We're doing deals in Iowa and Kansas

[00:26:18] Every month that we weren't doing four years ago or five years ago

[00:26:22] So yes, is it better to be in a place that has population growth than one that's having population decline?

[00:26:29] Yes, Indiana is more valuable than Illinois because of the politics the taxes and the FTA

[00:26:35] regulations but geography in general has

[00:26:39] Gotten much better for doctors because these groups are trying to get off the coast and come inland

[00:26:45] Interesting, it's big change

[00:26:48] interesting so

[00:26:50] Let's just say you find someone who's interested in working with the DSO and honestly is looking

[00:26:56] Looking maybe to try and become one of those deals where you've got the multiples. You're talking about increasing their their

[00:27:02] their profitability increasing their operating

[00:27:06] Numbers but isn't quite ready maybe due to lower revenue physical plant

[00:27:10] What's the best way for them to become a player?

[00:27:12] In other words, are there any particular procedures they should be looking at or or particular specialties adding doctors? What do you think?

[00:27:20] Yeah, adding doctors is a good thing

[00:27:22] As long as you have the patient demand adding your doctors for the concept of adding doctors so you can work less is not necessarily

[00:27:28] a plus

[00:27:30] But but growth growth growth growth. So understanding new patient marketing is critical

[00:27:35] Understanding case acceptance is critical. You know, one of the things that I've started harping on recently is AI in the diagnostic procedures

[00:27:44] Most independent dentists are not using AI in their diagnostic procedures

[00:27:49] But let's look at what the big guys are doing heartland which knows a little bit about dentistry with

[00:27:55] 1750 offices across the country

[00:27:58] recently did a

[00:28:00] 170,000 patient study to find out whether artificial intelligence really does improve diagnosis and

[00:28:07] Guess what? It must have because they just rolled out AI to all

[00:28:12] 1750 offices last quarter

[00:28:15] So not only are you providing better patient care because you're identifying issues that the human eye can't find

[00:28:22] But they have shown that it increases collections because it increases case acceptance rates when you can show

[00:28:29] Today's tech savvy patients who live with a iPhone in their hand when you can show them on the screen

[00:28:37] This is what's wrong with your mouth. We need to fix it your case acceptance rates go up and I promise you heartland

[00:28:44] Did not do it just for the patient care. Yeah sure. There was also a driver

[00:28:51] They I mean they did the research and decide they made the decision based on that that's what Heartland does

[00:28:57] Because they've got the data. Yeah

[00:28:59] That's very interesting. So I think that

[00:29:03] For doctors, you don't have to be on the cutting edge or the bleeding edge of technology

[00:29:07] But you need to understand what's coming because your competitors are gonna have it

[00:29:10] Mm-hmm, and I think one of the big risks independent dentists is the fact these larger groups are getting paid

[00:29:16] significantly more on procedures than they are and so when you when you have a

[00:29:21] Independent dentist who has a cost disadvantage to the invisible DSO's and is getting a growing

[00:29:28] Disadvantage from reimbursement rates

[00:29:30] There's ultimately some things that are gonna break

[00:29:34] Mm-hmm. So growth is the number one value driver in our world. Got it. Got it

[00:29:39] so if you're probably if you're trying to give a

[00:29:41] recommendation growth is gonna be the way to go and in probably that like you said based in somewhat in

[00:29:48] Technology somewhat in you know, understanding new patient flow and and case acceptance and all those three things together gonna help with growth. I

[00:29:55] Like that

[00:29:56] All right

[00:29:57] So we talked about this before we were recording too

[00:30:00] I want to I want to throw we have a lot of listeners that are probably younger and newer and they're they're not owners at

[00:30:04] this point

[00:30:05] but and I

[00:30:07] Pose the question to you. What do you what do you tell a relatively new dentist about ownership?

[00:30:13] That doesn't it doesn't have an ownership stake in anything yet in today's market

[00:30:16] What's the smartest way for them to get into practice ownership?

[00:30:20] Is someone new to it? What do you think? Well, you know, the great thing is is because

[00:30:27] There are multiple doctors with the six in front of their age, which cannot participate in what we do because of their age

[00:30:33] There are opportunities to buy those practices at reasonable rates if you can stomach the interest rates

[00:30:40] You're not gonna have any trouble getting the financing, but you got to make sure the numbers work

[00:30:44] The banks love to finance young doctors and they're eager to do it

[00:30:49] The rates are a little higher than they used to be

[00:30:51] But you know

[00:30:51] There's still options there of doctors with sixes in front of their ages the two years ago would have qualified for my process

[00:30:58] but today they won't so you have the opportunity to potentially pick up a great practice at a

[00:31:03] Relatively low value that's number one and you're saying banks are still dentists are still a good bet to give a loan

[00:31:09] Even though you've got someone who probably has some debt from school and that sort of thing big-time

[00:31:15] Doesn't matter the banks want to finance you because their loss rate on their dental portfolios is minuscule

[00:31:21] I was I spoke at a conference a couple of months ago with the head of the largest lender to dentists

[00:31:27] With a nine billion dollar practice finance portfolio and he was talking about his rates and I said those are relatively low

[00:31:33] Why he said because we don't lose money on these we have a loss ratio of less than 1 10th of 1% in the dental

[00:31:41] Portfolio, so yeah, they love to finance it

[00:31:44] You've got to look at the numbers and figure out whether you can pay the interest on that but a no problem getting financing

[00:31:50] Interesting call me and I can point you in the right direction if you want, you know, the second option

[00:31:54] However, which is becoming more prevalent these days is in our transactions where you have a single owner or two owner doctor

[00:32:02] practice

[00:32:03] And has multiple associates the invisible DSOs are eager to create a path to ownership for those

[00:32:10] Associates as a part of a transaction now, the reason for that is very self-serving

[00:32:15] They want to put golden handcuffs on those associates by giving them ownership in the invisible

[00:32:20] DSO that vests over a period of time here

[00:32:23] We're gonna grant you a quarter of a million dollars of equity in our parent company at no cost

[00:32:28] You don't have to go to the bank. Don't have to write a check

[00:32:30] But it's gonna vest each year as you stay here for five years

[00:32:34] And if you leave before then it doesn't vest so it's a great opportunity for associates who are working with a doctor

[00:32:42] Who they have not been able to get ownership for whatever reason in these invisible DSO partnerships

[00:32:48] they want the associate doctors to become owners and they'll create a

[00:32:53] Frictionless way for that to happen so that that associate has the same upside in his equity

[00:32:58] That the doctor has in his maybe in different values or different amounts, but it's shoulder-to-shoulder

[00:33:04] It's the same potential upside for the associate as for the owner selling doctor

[00:33:09] That's kind of it's kind of brilliant I hadn't thought about it that way either because it's a win-win for everybody

[00:33:14] It is it is and I think a lot of I mean, yeah, cuz associates might might be looking but

[00:33:20] Yeah, I feel like that's pretty compelling

[00:33:22] especially

[00:33:23] you know if they've been in the practice and they know they like the area and they like the doc and the way the

[00:33:27] Dentistry is going. I feel like that makes a ton of sense

[00:33:29] And and you can sort of dodge a little bit of that of that

[00:33:33] Oh the interest rates and the hassle of you know, finding the right practice and getting it

[00:33:37] I mean, it's not like people do it all the time, but that sounds pretty great. Actually. I like the frictionless part of it

[00:33:42] Yeah

[00:33:42] You know

[00:33:43] So you've got a 55 year old doctor and a 35 year old associate that 55 year old doctor is probably gonna be done at 60

[00:33:49] in our world

[00:33:50] and so the for 35 doctor the year old doctor is now the owner of the practice or the owner operator of the

[00:33:57] practice in five years and

[00:34:00] He potentially has significant upside in that equity he or she I have a bad habit of always saying he even though

[00:34:07] What is it over 50%?

[00:34:09] females

[00:34:13] So are you're seeing you're seeing plenty of people benefiting from these these

[00:34:20] Transactions that are female male and of many ages although older tends to maybe not be into this as much

[00:34:27] You know if you've got a 6x year old doctor, but he's got three 40 year old associates

[00:34:33] That's fine. As long as he's not the majority of the production sure

[00:34:36] I've seen practices where the doctor is 70 something and he has three young associates, but he's still half the production in the practice

[00:34:44] That's a problem. Yeah, that's really interesting. That's really interesting

[00:34:47] I didn't I didn't see it going that way, but it does make a lot of sense

[00:34:50] I mean from someone who does the deals all the time you you have a particular

[00:34:55] Angle on on what's gonna work and what's not gonna work for these things. We see it all

[00:35:01] Well chip this is this has been fascinating and I will I'll make sure that you know

[00:35:05] All your contact information is in the show notes again. I feel like I feel like I could talk to you for another hour

[00:35:11] This is this is always good stuff

[00:35:13] Well, I appreciate your time and I urge every doctor on this call to go to large practice sales

[00:35:19] calm and if you'd like schedule a call with me and we'll have a conversation and

[00:35:23] Worst case we'll both learn something because I learned something new every day talking to doctors

[00:35:28] Chip is like the least intimidating

[00:35:32] DSO guy in the whole world. I'm not a DSO guy. I'm an ID

[00:35:36] You're an ID so guy but more than that, but more than that you're okay for for a dentist like me. That's like kind of

[00:35:44] Business is just definitely the secondary part of it. You are not intimidating at all. It's it's pretty great

[00:35:49] Actually, I'm sort of I sort of laugh because a lot of you know, if you've ever like stood

[00:35:54] Stood at a dental meeting hearing hearing people talking about their their deals and all that stuff

[00:35:59] It is intimidating if you don't know it is I have to say you have a you have a bearing about yourself

[00:36:03] That makes this makes this much more reasonable to think about to me. I love what I do

[00:36:07] It's I'm passionate about this opportunity for Dennis and I they should all learn about it whether it's right for you or not

[00:36:14] Who knows but very good point

[00:36:16] Everybody should understand it because you're either gonna join an invisible DSO or you're gonna compete with many

[00:36:22] I promise that's so you will pay to understand that. That's awesome

[00:36:29] Chip, thank you again for your time. Always appreciate it and and hopefully we'll catch you again real soon. Fantastic. Thank you

[00:36:35] Have a wonderful week