What Every Dentist Should Consider Before Merging or Partnering – Episode #637

On this episode of the Dentist Money Show, Kyle Francis, founder of Professional Transition Strategies joins Matt to break down the evolving landscape of dental practice transitions. He emphasizes the importance of education, preparation, and strategic decision-making. They talk about some of the common misconceptions about DSOs and highlight the benefits of joint ventures. Tune in to hear insights on how to maximize your practice’s value and better understand the consolidation trends in the dental industry.

Check out our Dental Practice Valuation Calculator to get an estimate of your practice’s worth. Use this easy tool if you’re considering selling your dental practice, merging with a DSO, or planning your financial future!

Related Readings

The Dentist’s Guide to a Successful Practice Transition

Do You Hate Paying Taxes?

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Podcast Transcript

Intro: Hello everybody. Welcome back to another episode of the Dentist Money Show, brought to you by Dentist Advisors. We have a loaded show for you today. So much knowledge brought to you by Kyle Francis. He’s the CEO and founder of Professional Transition Services. he specializes in dental transitions, whether that be, to a DSO or whether that be privately, whatever it is. He helps with all things transitions and Kyle is. He’s been on the show before, just like last time. he is just a boatload of knowledge. He has so much experience. He sees so many transactions every single year and he’s so education focused. He just wants to add value to the industry and help people understand what options they have out there. So, we cover a lot in transitions and valuations and the trade-offs of making transitions when to be thinking about a transition. There’s so much here. We appreciate Kyle for being on the show. As always, we hope you get something out of this and we hope you enjoy the show.

Matt Mulcock: All right, Kyle, I’m gonna start, I’m gonna start with a story about how we met, people. The people need to know this. we met, let’s see, four-ish years ago, I

Kyle Francis: Sounds right. Yep.

Matt Mulcock: At an event. And we were speaking together. I’d never met you, and I’m gonna, I’m gonna tell you that the risk of offending you, I’m gonna tell you, um, when we were speaking together, it was me, it was a CPA then, then they had you, they, and they had like introduced you as like a transition specialist or, or something along those lines. And when you were going up there, and I again, didn’t have any reference point, I was just like, oh, here’s another DSO guy. That’s what I was thinking. I’m just gonna tell you. So sorry to be offensive,

Kyle Francis: Yeah, honestly, it’s probably fair. Really? Yeah.

Matt Mulcock: But, but here’s why I’m telling the story. There’s a point to this. cause you are not in fact that, I remember you speaking so vividly and the impression you made on me, and I told you this after we hung out after. And I told you after that, you were so genuine in your approach and you said something that has never left me. again, coming from my perspective of like, oh, here’s a DSO guy. you said in that you were sharing your story, you were sharing who you are, who your company is, how you help, and you said, hey, and you were, you were doing, so two things. Number one, you said, I’m just here to educate. I’m just here to make sure people understand the landscape of private equity and day sales and how this all works. You were super educated or education focused. But then you said something super interesting and I’ve heard you say this multiple times after you said, um, Hey, doing nothing is an option and that’s a viable option for a lot of you.

And I was like. Blown away. So I wanted to start with that and just get your thoughts that is my impression of you is that you are so focused on education, doing this the right way, and you are literally telling people like, Hey, it’s okay to not do something about this. Don’t feel like fearful, like you gotta make a move. Let’s just start with, with that. Did I, first of all, did I offend you?

Kyle Francis: Uh, no, I mean, honestly, that’s like a really, really great compliment and I’m trying to get better at taking compliments, so I’m gonna take it.

Matt Mulcock: Just accept it?

Kyle Francis: Yeah, I’m just gonna accept it. and honestly, I do feel like that’s probably the reason that we got along really well afterwards because I got to hear how you talked. Right. And, I’m not trying to turn a compliment to a compliment. It’s just like, but I really did feel like, but I really did feel like we could, like you came at it from the right direction, right. From an advice standpoint and like, it’s kinda interesting. It probably kind of, maybe that goes back to my, my dad was a serial entrepreneur, you know, and, started up a whole bunch of different companies. Some of ’em worked, some of ’em didn’t. So there were boom times and bus times growing up. And, there were different times that people, or my dad specifically was making decisions out of fear, you know, and you could kind of see it, you know, and what we were just talking offline a second ago about how, like, how desperation is never a great reason to make a decision, you know?

And that, you know, if, if you look at these different practitioners and them being worried about like, Hey, what all is going on from a consolidation wave standpoint? Am I missing the boat? You know, is, uh, is, is this a good thing? Is it right? Is it, um, a right thing for me as well? it’s just kind of funny the way that people end up making decisions. And so I feel like, you know, if. The best thing that we can do is to kind of show the landscape and show all those different options. because if you compare that against stasis, stasis can be pretty great. You know? I remember my grandpa always used to say, don’t try to be happier than happy. You know, that kind of stuff. And so like, uh, I kind of, I maybe I just kind of insert myself into kind of where I think they are, you know, and then we can talk about does it make sense or doesn’t it, you know,

Matt Mulcock: Yeah. I love that. And, and I think you’re right. I think this is why we vibed so well from, a business standpoint and just a, a personal approach to all this is just, let’s educate and let’s understand like there’s no right or wrong way to do this. There’s just education, there’s trade offs to every decision, and that really has come through since I’ve known you. Every time we’ve spoken together, which has been multiple times or doing podcasts together, it’s just so evident that that’s the case, which is why we love having you on ’cause you’re so good at educating. so let’s start with that. talking about transitions and this, the landscape that we’re dealing with right now what’s the first thing dentists should be thinking about as they’re thinking about like, transitioning? When is the right time to transition or just what are some steps they should be taking from the beginning?

Kyle Francis: Yeah. So I mean, what I, I probably start with what Stephen Covey’s book begin with the end in mind, right? And so, I think that, the key there is going to be you’re developing this asset over the course of time, right? And so if you, end up going into practice ownership, not only is it going to be a cash flow vehicle for you, but it’s also going to be an asset that is going to be sellable at some point in the future, right? And so there’s lots of reasons, different reasons to consider a sale at some point. And I think that the key is going to be, do you understand what you have, right? And I know that y’all are really good about this, right? So, I like the calculator this up on the website, right? It is like, okay, so what is my practice worth?

What is this asset that I’ve been developing over the course of time that probably feels a little bit like a member of my family and an income producing member of my family? Right? well, what is that thing going to be worth in time and what is the best way to monetize it for you? Right? And does that mean that you end up working until the very, very end of your career selling it and then walking away the next day? I’ve seen that work, right? Does that mean you wanna bring on partners? Does that mean you wanna bring on associates? You can invest into partnership over the course of time? Does that mean that you wanna have multiple locations and kind of develop kind of like a little mini empire right, in a certain area?

Does that mean that it’s better to work with either a financial or a strategic partner in order to get to where it is that you want to go? I know the answer. The, the questions you asked me is like, when is the right time and what is the right thing to do? I think the right thing to do is to start thinking about it, right?

Matt Mulcock: Good place to start. Yeah.

Kyle Francis: Start thinking about it. And then I think that the next thing to do is like, have someone who understands, a a little bit about the market, give you advice on what it is that you have, right? Because if you start there, then I think you can back into what it is that you want and then what is the best way to get what you want, right? And again, a lot of different ways to get there in total.

Matt Mulcock: I love that. And I, I love that your first thing is like, start thinking about it. That’s a good place to start. with that said, what, where do you, like, I get this question a lot. Like, okay, I am 40 years old. I I’m gonna be in this thing for a while and I know it and I like it. And, but when is the good time to start thinking about it? Like, we have our, our thoughts on this, but I’d love to get your thoughts of like, when does that process start?

Kyle Francis: Yeah. Well look, our, our average age of person who comes through and does a prospectus with us, we do about 800 of them a year. Right. is going to be, 42. I happen to be 42 as well. I think probably like attracts like a little

Matt Mulcock: Yeah, sure. Sure.

Kyle Francis: But I, I also think that, it is a wise thing that once you have, ramped a practice, I always tell people a couple of different things. If you’re a high income earner, you definitely need a trust in place. Um, so that’s, that’s thing one, right? And then, uh, the next one is going to be understand what that asset value is going to be, which means have an appraisal done. Right. And sometimes, uh, people charge for appraisers, uh, appraisals, other people do not, right? Um, that is not something that we do, but, we do a, a lot of appraisals. And I, my thought is, is like if you have an understanding of what that is, then again, you’ll make a better decision in the long run. And so, and often what we see is going to be people are surprised with what their options could look like at that point.

Right. and, what I just talked with, uh, a guy earlier today, you know, he has a $6 million practice, but he’s only running about a 12% EBITDA margin. As of, for instance, could he have an exit today? Sure. You know, and like you’d do just fine on that if that’s what he wants. However, um, that I, I don’t wanna work with him just because of that. My job is to get him what he wants out of it, right? And so we talked about, okay, so what is your, what are, what are your life goals? What is it that you’re trying to accomplish? All that kind of stuff. And, uh, what we learned is going to be, Hey, do you know what? There are probably ways that he can get to something like an 18% margin over a nine month time horizon. Well then go do that, right?

Matt Mulcock: Yeah. Yeah.

Kyle Francis: Cause I can get you a 50% better deal by just kind of, tweaking the practice some before we start to think about it. Right now, I think part of the reason he came to us was that he was a little bit burnt out, right? And he was a little bit fearful of those kind of things, but hopefully came outta the conversation motivated, as well. And, those are some of the most rewarding deals that we get to do. Or they gonna be the ones where it’s like you get to work with them over time, track it over time, and then get to execute on the best thing.

Matt Mulcock: Yeah. And that, that’s such a good example that you just gave where you say, Hey, doing, I mean, quote unquote, doing nothing, meaning don’t transact yet, don’t transition yet is a better option. And, and you tell, that’s a great example of when you’re putting your money where your mouth is, if saying, Hey, could we do this deal? Sure. But at least we now know what you have and we know the areas that you can focus to get a way better deal in the future. Again, I think that just speaks volumes to your education focus and also your long-term focus of saying. You don’t have to rush to go do this thing. I love what you just said too about, I want to, I want to just focus on this for a moment, this idea of being burned out to me there’s such a difference, or I should say the mindset of which, where you are when you transition or think about transitioning matters, like a lot, maybe more than anything. And I see, I want to get your thoughts of this idea of being, doing it from a place of burned out desperation or maybe fear versus a proactive decision with intentionality. What are your thoughts on that?

Kyle Francis: Yeah, man. Like I feel quite a few times a year, we end up being put in situations where you can see it and feel it on the other side of a zoom. Right. That they’re just not in a great place, you know? And, um, this happened, uh, earlier this week. I was talking with a guy who has a very nice $1.8 million practice and, he’s been working there for 25 years. and you could tell that he was not in a great place. He was kind of circling in his communication, all that kind of stuff. And, um, it turns out that he had lost his wife two months ago. We didn’t know that. Right. I know. And, as we were talking through, it’s like, really what this person needs right now is not going to be a transition.

Okay. Maybe there’s a group out there that could help him in certain ways, but like, that’s not what he needs. Like he needs to reorient on like that. What he has is great, you know, and that he has this associate in there and he’s just not trusting this person to get ramped up. And I, let’s, let’s, let’s figure out if he can just get outta the office on Mondays.

Matt Mulcock: Yeah. Yeah.

Kyle Francis: Like, that’s, that’s where I ended up taking the conversation. It’s like, I think that you just need to get, you know, 25 rounds of golf in this next year. He is a, he is a golfer. He really, he, he likes that world and he doesn’t feel like he can ever do it, you know, all that kinda stuff. It’s just like, maybe what he needs is gonna be something like that. Get your mind off of these things for a minute as well. And, now that doesn’t mean that he couldn’t figure out a way of doing a transaction as well, but I wanted to be in a good head place first, right? Because if he’s not. I mean, he’s not gonna like me very much. Right? Okay. I executed what he actually called me about, but that’s not what he needs, you know? And so, anyway, I, I do believe that, you know, if you make a decision out of strength rather than weakness, one of the things that we do, and again, hopefully this doesn’t sound self-serving, but I think it’s an important part of the process. Once we get letters of intent in, um, from all the different groups, what we end up doing is going to be putting together everything on a scorecard. And that scorecard essentially breaks down all of the different metrics of the different Lois, kind of apples to apples. And then we compare and contrast that to stasis, right? So that is one of the options is don’t do a darn thing. Right? And that’s actually what we say at the very, very top of it, don’t do a darn thing.

And so, like, um, and, and look, I think that there’s a good reason to do a transaction at some point, right? So, I mean, like, you have an asset, you should be able to monetize it at some time, right? But be able to monetize it the right way and just kind of. Think through it. ’cause I, I do believe that the, the hardest thing is going to be if you just kind of stick your head in the sand. Without understanding your options and kind of what you can do, I just see really, really, really poor decisions made later. Right? And so I, I, I know you say like, when do you want to start? Like, is there a certain age? Is there a certain time horizon, you know, after owning a practice, all that kind of stuff.

First things first is you wanna ramp your practice, right? So you don’t need to worry about what that value is at that moment, right? Ramp your practice. But once you feel like you’ve ramped it, like understand what it is and then figure out the right way to monetize it over time. Sometimes that means keeping it and keeping that EBITDA stream to yourself, right? Sometimes that means bringing on a financial partner and arbitraging your equity. Equity of where it can go. Sometimes that means like, I wanna live life with someone. Bring in another clinician, have them be a partner, right? Those kind of things. And, uh, maybe that’s not the most financially advantageous thing to do because typically it’s not right? Whenever you’re selling equity at a lower cost, it’s not typically the, the most financially advantageous thing, but it can be really rewarding, you know? And so maybe that’s what you want out of life. So start early maybe is the thesis. Yeah.

Matt Mulcock: I I, I, I love this. You’re, there’s so many themes here again, and I totally agree. Knowledge is power. Get educated on this. It’s never going to hurt you to know what you have, is what I’m hearing, uh, from you. The other thing that I’m hearing is a theme is like, again, this understanding of this, this is all trade offs. There, there is not, and I want to hit on this too because I think there’s a lot of misconceptions of like, it’s like to DSO or not to DSO, like that, that is o often where people’s mind goes is like, I’m either selling privately very traditional, like 2001 type approach. I don’t know why I said 2001 could be anytime before the last like 25 years.

Um. or, it’s either that or it’s DSO. But you’ve alluded to already, and I think this speaks to a lot of misconceptions, and I want to get your thoughts on this, like what are the common misconceptions? We’re talking transition, we’re not saying to dsso or not to DSOs. The only option C. Could you focus on that a little bit?

Kyle Francis: Yeah, yeah, yeah. yeah, and I honestly, to maybe even clarify further, like, I would say like the options that are in place right now have been available for like 10 years, really, you know, and, the interesting thing about this is that, you know, you only go through a consolidation wave once, right? That is what we’re going through in dentistry at the moment. And, you know, in the next, call it five, seven, eight years, whoever it is that you believe on those kind of things. We’ll be through our consolidation wave, right? And once you’re through the consolidation wave, that doesn’t mean the world ends, right?

That just means you’re in stasis from a consolidation standpoint. And that means things do go back to, I’ll use your term, 2001, right? Which is gonna be like much more standardized approach. you know, not nearly as many options at that point, and much more stable valuations as well. So whenever I say stable, I do mean lower, by the way. So, but again, there’s not a cliff there. You know, there’s a rolling hill that goes down that direction. So, if I look at some of the common misconceptions, it’s going to be, let’s say that you have a practice and you have an associate or two in there, and those associates have, have made it clear that they want to buy in at some point or have some sort of equity stake. I think that there’s a huge misconception that. If you go the route of DSO, they can’t have that. And I mean, I have a hundred comps of where you can actually have that occur.

Matt Mulcock: You’re saying ownership for the associate.

Kyle Francis: Absolutely. Yeah. Yeah. So I mean, if you think about it, the biggest, uh, problems that DSOs typically have are gonna be attracting talent and retaining talent, right? And so they would love to keep the talent that is already within the practice. And so if that is the case, then, you know, whether it’s a joint venture equity structure, whether it’s some sort of sidecar fund they can invest in, if they can invest into an equity stake within a holding company, all those different types of things. There’s lots of ways of having those people stay on board and stay on board for a long time. These are not new concepts either, you know, they’ve been used by law firms and accounting firms,

Matt Mulcock: Lot of other businesses. Yeah.

Kyle Francis: And so, whenever you have those, type of, you know, call it, you know, golden handcuffs for the associates and making sure that they’re gonna be well taken care of and actually have an ability to make a, a pretty significant monetary outcome for their life, um, then suddenly it’s like, well, if I can sell my $3 million practice for $3 million to the associates, or I can have an outcome where the associates can come in many times debt free and ownership, and also have an outcome that can go up to like, you know, eight to $10 million for the exact same asset over the same time period, it can be pretty profound, you know? So maybe can I give you an an example of kind of how that Okay. That’s, We worked with a, uh, $2.6 million ortho practice single provider in the Bay Area. they, could have sold that practice for about $2.2 million to an associate. Right. and that associate was not currently in the practice. They were looking for a practice. they really liked this person. So the owner and the husband really, really liked this person a lot. Um, so we were trying to figure out a way to make that work. and all of the sudden it started to become clear that the buyer was gonna buy it and then flip it to a DSO.

Cause we see that a lot as well, right? And, so instead what we ended up doing was going to be okay. Let’s get a DSO in on the front end. We’re gonna have, we’re gonna use them as a financial mechanism in order for this transaction to occur. they gave them a, an outcome right around a $7 million, deal, which is they had about a million dollars and EBITDA was a seven times multiple of that. Um, that doctor who is selling took $5 million off the table and gifted $2 million worth of stock to that doctor. So that doctor is now no longer $2.2 million in debt, right? They’re now $2 million in stock with the NewCo, right? The older doctor gets to get cash out, $2.8 million better than they would’ve otherwise. And by the way, they got to still work together.

Matt Mulcock: Yeah, yeah,

Kyle Francis: Which is kind of sweet, right? So, so I mean, there’s some like elegance in the ability of using different types of equity at different levels in order to achieve goals. And so, I think that some people think it’s like an all or nothing type of thing. Like you’re just kind of giving it all up, right? Or maybe you’re taking the easy way out or whatever else, but there can be some kind of unique circumstances that can be achieved by using equity in the right way.

Matt Mulcock: Yeah. That’s so cool. And I think you’ve said this before, we’ve talked about this, that you’ve seen 1D SO deal, you’ve seen 1D SO deal. Is that, does that still hold true for you?

Kyle Francis: Yeah. It’s like last night, last night at nine o’clock we were talking with a doctor, a million dollar practice also in California. And, he chose a deal, which by the way. I don’t know if I would’ve chosen, he chose a deal that he took zero cash out on the deal. He, we had all their other options for him, right? So there were plenty of other things. He decided to do a deal where it was an equity swap, right? So he ended up doing an equity swap, and he kept a 75% stake within his own business. So it was a minority deal. He kept, uh, he took 25% of his own equity, flipped it into the holding company of the DSO, and now he’s arbitraged that, but he’s kept the rest, rest of the cash flow. So he could only do this because he was a debt, it was a debt-free vehicle, right? So there’s, there is some kind of uniqueness about it. Um, but yeah, I mean, honestly like you don’t see a ton of those, right? And especially a ton of those get to completion. But man, like there are. if you just look at, you know, joint venture deals, like, that’s kind of a sexy term

Matt Mulcock: Yeah.

Kyle Francis: Right? So if you just look at joint venture deals, I think that we’re aware of something like 150 different JV deals that are out there at this point, and all of them kind of have their own intricacies and good reasons or bad reasons to work with them.

Matt Mulcock: Yeah, could you break down that a little bit more on the joint venture deal? How is that unique compared to these other types of deals that you’re seeing?

Kyle Francis: Yeah. So a joint venture deal is going to be where instead of taking, okay. I’m gonna talk to you like, we typically talk to our doctors, or like, we typically talk to our brokers, right?

Matt Mulcock: I’m dumber than our doctors, so please, please do. Yes. Even lower level than that.

Kyle Francis: So, uh, we think about these things in buckets, right? So if you have a deal structure, right? So let’s say you have a $2 million practice with $400,000 in ebitda, something like that. And let’s say you can transact that for $2.5 million as a for instance. but many deals end up saying like, you’re gonna get like 60% cash at close, right? So you’re end up taking $1.5 million cash at close. That goes into our safety bucket, right? So what that means is they can’t come after it. Um, there’s nothing that they can do. The practice can crash. That money is still yours, right? So that’s, that’s on our safety bucket. The next part is going to be, well, there’s a little bit of risk here, bucket, right?

The little bit of risk here is going to be. That you might be financing some of it that’s gonna be an earnout or a, an earn up. It could be some sort of, um, subordinated note, something like that. But essentially, that group now owes you money, right? And so that may be over a three year time rise and a five year time rise, and they may have a balloon whenever they have a transaction, those kind of things. Uh, that is not a very risky vehicle because essentially it is a debt vehicle and that debt gets paid off before equity gets paid off. So you still make that money before the private equity company makes the money. So it’s a, it’s a pretty safe vehicle in total. And then the final one is going to be, well, we should probably take some risk and arbitrage this some. So there may be $500,000 that goes into a holding company stake, something like that. the other way of doing it is by taking in, instead of having the amount go into HoldCo, you may end up having to go into a joint venture. The joint venture means that instead of owning. 1% of a hundred practices, you’re going to own a certain percentage at your own practice.

Typically, what that means is you’re gonna be still getting distributions for the work, uh, that is being done. if you think you’re kind of in a high growth scenario, you think that a $2 million practice can grow to three or $4 million with some help. Well, maybe it’s a good thing to be thinking about a joint venture style deal because you can outpace the value of the stock that you could have gotten otherwise. Right? So, but whenever I think about the joint venture deals, like there are so many things that inform how a joint venture works, where the debt is held, you know, the idea of a clawback, we were just talking about that a minute ago. You know, is there a possibility that, uh, the joint venture doesn’t get the same type of multiple as the holding company, right?

So do you have Perry pursue equity or on the same footing? Equity? There’s a lot of different things that make certain ones more attractive and other ones less attractive, and you just kinda have to sort through them on a case by case basis.

Matt Mulcock: Yeah. So, and I know there’s a ton. You just mentioned a few, maybe to make this simpler for people listening. Are there any things that you’re like non-starter, if you see this, don’t, like, we’re not even gonna consider this. Are there anything that you’re, that you look at there? Like maybe it is a clawback? Those are, I know

Kyle Francis: Clawback is a big one. A clawback is a big one because essentially what that does is that sticks, the original amount of cash that you get, that puts it at odds, right? We’re not a hundred percent sure if you get to keep that or if you don’t get to keep that. Um, so we’ve act, we, we’ve never done a deal with any group that has a clawback. We negotiate them out. Um, and, uh, the reason being is partially like that’s what I would do, right? So I mean, like, if somebody was to offer on my business as a, for instance, right? So at some point or another, like, I’ll probably sell this business. I have an asset, right? And so I’ll probably hire an investment banker to go out there and see what all I can get for this business.

If somebody tries to put a claw back in, it’s, it would be a non-starter for me. Right. And so, um, and, and the reason being is I just have a hard time thinking that this safety bucket is now at odds with what the outcome could look like into the future. And I’m gonna have less control on what the outcome is going to be in the future. So I need to have safety in order to make it work. Everybody has a different amount of safety that they feel comfortable with. That’s the thing, right? So the guy who said, I’m not gonna take any cash out. Well, he has a pretty, risk, a high risk profile, right? So, I mean, he’s completely fine taking more risk, and because of that, he’ll probably have the opportunity to make much more on the backend.

I, I always think about these, uh, two doctors I worked with in Oklahoma. Um, they rolled their practices together and we sold them to A BSO. The, they were practice number 13 and 14 for that DSO. that was, uh, closing on five years ago. They’re about to have a transaction this year, and they ended up only taking 20% out, and they rolled 80% into equity. I. Um, that type of outcome for them is going to be, uh, eight figures better than it would’ve been if you take the risk averse approach that I would’ve taken, which is like, well take 60% off the table risk, 40%, those kind of things. Um, but who am I saying that they’re wrong? Right. So I’m like, I’m, I’m happy for ’em.

You know, they looked at it and they’re the ones who asked me to go back and say, Hey, can we get more equity? And the DSO is like, alright. They don’t offer that anymore, by the way, but like, they,

Matt Mulcock: They’re like, no more of that.

Kyle Francis: But anyway, I’m, I’m, I’m happy for ’em, like, what, three or four months they’re gonna be very, very happy fellows,

Matt Mulcock: Yeah. For sure. And to your point, there’s two sides of the risk of that risk equation, right? There’s also, ha have you seen situations where, that doesn’t work, right? Like meaning that DSOs are not all winners, right? Have you seen where there’s, there’s negative consequences from that or, or, or situations where that didn’t work out?

Kyle Francis: Yeah. Um, so. Interestingly enough, not ones that we have represented. And I’m not saying that bad, a thousands, right? That’s not what I’m saying. I’m not saying that everything goes peaches and cream, all that kind of stuff. But,

Matt Mulcock: But just stories you’ve heard of

Kyle Francis: Yeah, it’s like the, the times that, that it really is not great, are going to be, I think people have a really, they don’t have the ability to assess risk very well. Um, all, all that well. And so let’s say that you end up doing a deal and it’s tied heavily to the performance of the practice into the future, right? And let’s say that, the DSO has come directly to you. ’cause it’s typically the way that it happens. A DSO goes directly to you and says, Hey, I’m going to give you a 10 times multiple on your practice. However, these things need to be true. You have to grow the practice by 10% per year over the next five years. All those different types of things. Well, if you don’t hit those metrics well, it’s not a 10 x, it’s more like a five x. Right. If you would’ve properly rated that, I think that’s like your expectations don’t align with what reality ends up being.

I also find that the other times that it doesn’t work out very well is gonna be if you don’t have Perry pursue equity, which is going to be, if you don’t have equity on the same footing as your private equity partner, then suddenly they have outs that you don’t have. Right. So if you look at, uh, there’s a very large DSOI won’t call ’em by name, but there’s a very large DSO that had a transaction about a year ago, about a year and a half ago. And, the private equity group got to exit stage left and all of the doctors were left hold in the bag. Right. And so I’ve never sold a practice to that specific DSO, but it’s a big one. Right. And, um, the reason that they were able to do that is that the doctors never got the advice of what are the risks of owning equity at this level. Right. And, uh, because they didn’t own equity at the same level, they didn’t get diluted, they just couldn’t sell at the same time as their private equity partner did, which is not nearly as advantageous. So.

Matt Mulcock: Yeah. And we, we’ve seen that too. I’m glad you brought that up. We always are asking about the equity level. The other thing that I think is a, a, a critical piece here, and tell me if I’m wrong, but just common sense wise, I’m like, does it ever make sense to have the, to go with the deal directly with the DSO? Like

Kyle Francis: I know it’s, it, it sounds like the most self-serving thing for me to say, to say no. But like, so like,

Matt Mulcock: You up on that one. Yeah.

Kyle Francis: Like but again, I, I really do believe, and I’m passionate about the fact that at some point or another, I’m gonna sell my business. If somebody just calls me outta the blue, like I’m not taking that deal. Like that’s just, that is not the way that this is going to work for me. And it’s because I just, I know enough to be dangerous. That says. If you don’t make the market, you don’t know if you’re making a good decision or not, it may be the best deal in the history of the world, but why not take the three months to run process and actually compare and contrast, right?

Yes, it takes a little bit more time for you to do that, but, just jumping on one and thinking that is the best thing since Slice spread or just going with the one that your buddy went with, you know, like those are not great reasons to make a decision, you know, it’s funny, back in, back in Ballast whenever I started my career, I was, uh, hanging out with, the Baylor University Dental School and they were asking me like, Hey, how would you go about buying a practice? And I told him exactly what I would do. I was like, I’m gonna figure out what geography I’m gonna be in. I’m gonna go to Google. Google is a big thing at that point. And go and, uh, uh, write down all of the different names of all the different doctors in that area. Figure out what their address is and I’m gonna write them a handwritten note.

And that handwritten note is gonna be like, I’m interested in percha or purchasing a practice in your neck of the woods, and I’m gonna send out 200 of them. Right? Out of those I know for sure that I’m gonna get 30 responses of which I might be interested in 10 of them, and then I’m going to be in the catbird seat. In terms of negotiating with them, that’s the same game the DSOs are playing. It’s no different. Right? They want to be able to be the only suitor at the table because whenever they have that, they are doing the right thing for all their investors. So like if you are a doctor and you’re already with that DSO, you want that DSO doing that, right? Because you can buy something less expensively, which means your stock value goes up. Right? That is a good thing in total. we were talking as a team of brokers today, and we were talking about like, Hey, how are different deals, um, you know, de levered from a risk perspective. And one of the things that we came up with is, well, if it’s a non broker deal, if it’s a non broker deal, that is a de levered deal because they’re going to get things as part of that that they would never be able to get as part of a broker process.

Matt Mulcock: Yeah, yeah. That, that makes sense. And I would’ve, I would hope. One of the things that’s happened over the last several years is peop I, what we’ve noticed is dentists are getting much more thoughtful and educated on this concept, which is a, I think is a great thing. I know you agree with that. It’s a great thing because I think that’s kind of a five year, six or seven year ago thing where dentists would just get, like you said, and it still happens, but

Kyle Francis: Surprisingly enough, I mean, like, I, it’s, it’s funny, I still talk with, you know, a hundred DSOs a year, and one of the questions I ask nearly every single time is, where do most of your deals come from? And almost all of them, they say they’re proprietary.

Matt Mulcock: Oh

Kyle Francis: Like, so, I mean, like, it still happens a ton, right? So, I mean, um, whoa, we’re, we’re gonna do 140, 150 transactions this year. And, you know, I think that. In a way I’ve actually, I’ve, I’ve, I’ve told this to some of the doctors we work with, and I, and I’m, I’m a big believer in it as well. My business is actually necessitated upon the fact that DSOs will go out and get their own deals. And the reason being is, uh, if they go out and get their own deals, they’re going to be way under debt covenants on those deals, and then they can lever up on a competitive deal. Right. And so like that, just where we can provide value is gonna be making it competitive enough where they need to lever up, but they wouldn’t be able to if they didn’t buy the other ones cheaper. Right. That’s the only way that it works.

Matt Mulcock: Got it, got it. So that’s interesting. It’s kind of this counterbalance they, like you said, they need those for you to have the actual advantage.

Kyle Francis: Yep.

Matt Mulcock: That makes sense. can we hit come back a little bit to, I want to hit two things that you’ve said that I think are, uh, critical for people to understand. Let’s start first with valuations. and you were giving an example earlier of the doc who had, uh, 12% ebitda and, and, and you’re like, we could do a transaction, but we gotta maybe boost that and you’ll get a better, a better deal. What are, so EBITDA being biggest factor, I’d imagine that they’re looking at, from a, from a valuation standpoint, what are other things that dentists should be thinking about if they’re sitting here saying, okay, I’m gonna start with the end in mind. I want to start focusing on if ebit, if I’m not selling for several years or transitioning for several years, I want to focus on the right indicators of what, what a transition would, how do I maximize my value? What are those things that they’re looking at?

Kyle Francis: Yeah. So, I would say that. Knowing your numbers is, is important, right? So not just, uh, yeah, revenue, it’s really, really easy to figure out like, am I doing better from a revenue standpoint? Am I seeing more patients than I’ve seen before? Right? So that’s a very, very easy thing to track. happens to be the most important as well the next one is gonna be, I, I think there’s probably four categories from an expense standpoint, um, that are the. most effective to work on. Um, the first one is going to be, uh, employee cost, right? So this is non-doctor employee cost. We pretty much look at doctors, as a variable cost to a practice.

Um, so unless there’s just crazy guarantees or they have employment contracts that are completely and totally out of market, I think the, the biggest thing is gonna be employment costs. You typically want that somewhere between 26 and 28%, right? So if it’s outside of that, so all you have to do is you figure out how much you’ve paid in non-doctor, right? And then just divide it by how much you’re doing in revenue, right? So once you, once you do that, you’re gonna know if you’re outside of, the range from, from, from a personnel expense standpoint. Next one is gonna be clinical variable. So your clinical variable cost, that varies more based on the set, the type of practice. So Indo is very, very, very low with that. ortho, can be very low if it’s band in bracket can be much higher if it’s Invisalign, GP, typically somewhere in the 12 to 14% range. so. oral surgery can vary a fair amount as well. If you’re just gonna be doing bread and butter, oral surgery, just shucking teeth, um, that’s way different than doing a high-end implant practice, you know?

And so, but knowing what your clinical variable is and then kind of understanding where what you’re marking that against is gonna be important as well. Next thing is gonna be marketing. If you’re spending more than 4% on marketing nearly every single time you’re spending too much. so in certain specific scenarios, once the practice is ramped, you know, and let’s say that all you do is full arch, well, you’re probably gonna have to spend more than that but if you have a general practice, if you have a specialty practice, any of those kind of things, you just shouldn’t be spending more than 4% in nearly any scenario. And then the final one that I would go for is facility cost. Um, facility cost. If your overall facility, which means repairs, maintenance, all that kind of stuff runs more than 6%. You’re spending too much on facility, which means you need to increase revenue. Right? So, um, I think that those are the things that I would be looking at because those are the easiest things to control. There’s other ones that every once in a while come up like, Hey, am I using too much care credit, right. Or am I using too much OrthoFi or am I using, ’cause some of those can kind of get crazy, um, expensive as well. But for the most part, part, those five things, the revenue and those four expenditures are the main things to focus on.

Matt Mulcock: Got it. And I love what you just said there is you gotta raise revenue. ’cause I think a lot of times, dentists, we have this conversation all the time. I’m like, you can either approach us from bottom up or top down. And in most cases it’s a top down issue. It’s a, you gotta just grow your practice.

Kyle Francis: Yep. I couldn’t agree anymore. Uh, every once in a while, you know, whenever the cat’s away, the mis will play. Right? So you sometimes see, especially if you’re an absentee owner, right? So you have a practice in one town and you have another practice that is gonna be associate driven in another town. Those kind of things. Sometimes you can, be good from a revenue standpoint, but you’re just spending way too much on all sorts of stuff ’cause you’re not looking at it as much, right. So, but yes, I’m with you for, 90% of the time it’s a revenue

Matt Mulcock: It’s a revenue problem. that’s awesome. Kyle, I want to come back too to the other thing that you said I think is worth, drilling in a little bit. And again, I I’m realizing lately I’ve been saying drill in on, and I’m like, I, I understand the pun. I’m not meaning to do that. Um, but I do want to focus a little bit more on this consolidation part of it and the, the what’s happening with this landscape. And you’re talking about, depending on who you talk to, consolidation is anywhere from five, seven, could be 10 years, some, something like that. Could you focus a little bit more on that and specifically, I. I want to kind of give a, a little bit of like a, a general case study of, let’s say the, a dentist, high performer, really good handle on their numbers. Killer ebitda. They’re minimally chairside. They’re just running a killer business. And we see this like you’re a business, you’re a CEO, you just happen to be running a business in dentistry.

Kyle Francis: Yep.

Matt Mulcock: So to that person who’s let’s say 42 years old, it’s like, I’m killing this. I’m making seven figures. I’ve got a killer business. I’m not selling this thing for 20 more years. Like, what is your, I guess what are your thoughts on that dentist who would probably get maximum value over the next five to seven years and then post consolidation may not. Like, what, what are your thoughts on that? And speak to like the landscape of what we’re seeing over the next five to 10 years.

Kyle Francis: Okay.

Matt Mulcock: That was a

Kyle Francis: Was a, that was a compound question. I’m gonna see if I get them all.

Matt Mulcock: That was a big one.

Kyle Francis: Uh, so, so the, the first part is the consolidation. so. if you’re not familiar with this, there’s a really great article. Um, it’s a Harvard Business Review, updates their consolidation curve, um, every year. And so consolidation curve, if you just go type in, uh, consolidation curve, Harvard, Harvard Business Review into Google, you’ll find it. and, uh, this is not something new. This is not the first, uh, this is not the first industry to go through a consolidation wave. Um, as a matter of fact, we’re one of the last in medicine, uh, to go through.

Uh, dentistry is a notoriously cottage industry. Very, very, very hard to consolidate in total. it’s a lot easier whenever you have $40 million, you know, surgery practices, right, that you can kind of put together in hospitals. So. anyway, if you look at, uh, the consolidation, curve and kind of where we are, if you just kind of look at the shape of it, you can kind of figure out where we are. It’s not, it is not brain surgery to figure out where we are. and, if you also look at it from a values perspective, like what kind of values are out there, you know, if you look at 21 to 22, uh, 2021 to 2022, 2022 had higher values in 2021. So you can still kind of see we’re going up the curve. Uh, 2023 had higher values than 2022, so we’re still going up the curve 2024 was about end stasis with 2023. Interesting. 2025. We were already seeing about end stasis again, right? So it’s like we’re kind of at the peak, you know? Um, now that doesn’t mean we’re exactly the peak. That doesn’t mean we know exactly how long the peak is gonna go on and exactly what the tail is gonna look like.

All those different types of things and reasonable people can disagree on, on those things. However, if you look at how long it’s taken to get here and the speed of the transactions as well, it’s, Very certain that we’re gonna get to something like 60 to 70% consolidation in total. And I would guess, um, I think my best guess right now is five to six years. Right? That’s gonna be my, my, my guess. And, um, by the way, that doesn’t mean that everybody is owned by one company, right? That just means that, uh, 60 to 70% of all practices are going to be, you know, private equity backed, um, family funds, iPod, some sort of equity backer to them. And, so, to the question of you have a practice that is killer, it’s already spinning, right? Uh, you’re more of a CEO than anything else. probably my first answer if I saw that person, you know, in an elevator or on, or, or passing by, all that kinda stuff, I’ll be like, and he’s like, what should I do? I’ll be like, I don’t know, maybe keep it

Matt Mulcock: Yeah.

Kyle Francis: Kind of cool. Right? So, I mean, that’s a pretty good income stream, all that kinda stuff. Seems like you’re pretty diversified from a, from a provider standpoint. however, I probably would give a little bit of a caveat to that and that’s going to be, but I don’t think you know yet.

Matt Mulcock: Yeah.

Kyle Francis: Right. And the reason I don’t think, you know, is going to be, okay, let’s say you know your numbers and you know that this thing is spinning off, you know, a million plus for you a year, all those kind of things. Do you know what you’re comparing and contrasting against? Right. And I think that that’s a key as well, is that if you end up going to market, you’ll find out what you’re comparing and contrasting against. And you may make the exact same decision as what you ended up thinking, which is like, I might just keep this great. Well now you can make it with way more confidence, right? Um, as comparison to like, you just continue on, right? And then, you know, 5, 7, 10, 20 years later on down the road you decide to sell, you know, um, but you didn’t know what the difference was otherwise. I think you’d look back and wonder. It is kind of my thought and ’cause I think I would, right? And so if I think I would look back and wonder, I’m like, well then go to market, see what it is and just kind of hold, hold it loosely. That doesn’t mean you have to do anything. Right. So, um, again, don’t try to be happier than happy, all that kind of stuff. But at least you can compare and contrast adequately

Matt Mulcock: Yeah, it’s a, it’s a great point. And what, and another scenario, and I, I wonder if you’ve seen this or help facilitate this. I’d imagine there’s people out there, again, I, I know them personally, like that type of doctor, work, work with that type of doctor. about like, the difference of saying, go transact and sell this thing, or versus build this yourself, like maybe get a backer or like, do you, what are your thoughts on that and have you helped facilitate

Kyle Francis: 100%. Yeah. So I mean, uh, that’s probably where I spend more of my time on than anything like our bread and butter for our, for our business is gonna be practices kind of in the 1.5 to $15 million range in terms of revenue. Right? So at any one time, we’re working with 150 of those going to market, right and where I spend my time now is gonna be practices kind of in the 20 to a hundred million dollars range in terms of revenue. And so typically that’s a lot of practices or at least multiple practices, and, uh, a lot of those end up going directly to the private equity markets. That’s a financial partner, not a strategic partner typically. Um, so if the practices in good shape, then yes, you can get a financial partner on your own and that allows you to put things on steroids, you know, so if you decide that you really, really want to grow something and grow something big and grow something fast, having a backer behind you with the ability to, um, take down the type of debt that is there, not having that debt beyond you and your family anymore is a very, very attractive thing as well. And also taking a, a liquidity time as well, because you probably have a ton of your net worth, uh, tied up in that practice at that point. Sometimes it’s good to diversify some of those assets

Matt Mulcock: Yeah. Yeah, that’s a great point. I still have something that I get, uh, I’m still not totally clear on myself, and I get this question quite a bit. And it comes back to this discussion around full consolidation. I get this question a lot of around like, okay, I sell, I whatever the type of deal it is, I end up with some equity and to put it simply what’s the end point here for a, for a doc eventual exit or just we’re full consolidation. I’m a part of this deal. A lot of times these docs wanna know like, is there ever a chance I’m left? Like you were mentioning the 1D SO, I’m left holding the bag. Just how do I eventually get out of this? Uh, what final step?

Kyle Francis: Yep. well, so. Can I take a step back before I answer? I’m gonna answer the question, but I think. Okay. so I sold this practice in Virginia Beach. this guy wanted nothing to do with DSOs, as at, at all. Uh, but we couldn’t find an individual buyer was long story short, like we just couldn’t find somebody that was going to be able to do what he did, all that kind of stuff. So, uh, he decided to bite the bullet in his words and sell to a TSO. He did not want to, um, but he also knew that at some point or another he needed to retire. So, um, he was gonna be willing to give a couple of years back to him. And, uh, he, he decided at the very, very, very end. To invest $250,000 into that DSO, right?

So he is like, well, look, if I’m gonna be on with him for a while, like I’ll take some risk, right? the funny part about it is, is this is now, uh, 13 years later, he still works a day a week and he still, he still loves it. He spends most of his time in Miami, still goes up to Virginia Beach one day, one day a week, and, he still has all of that stock in that group and it’s now worth more than eight figures, right? And so that is not a possible outcome. Like, you know, at this point, that’s not a possible outcome because he’s had time within that environment to continue to grow as the consolidation wave heats up, right? So the earlier that you get in on a consolidation wave, the better you end up doing, right? And so, if I look at somebody considering something now as comparison to somebody considering something in three years, right now, there’s still the possibility of two more recapitalization events in three years.

Not possible, right? There’s gonna be one. If, right. And so, by the way, recapitalization events, uh, you know, drive some of this, but really you said that the question that you asked, which I think is really good, is gonna be like, how do they end up getting out in the long run? Um, uh, the way that they end up getting out is going to be, uh, one of the few things is going to happen, right? The big fish continue to eat the little fish, right? So there’s gonna be a lot more strategic deals where the larger groups end up buying smaller groups. there will be many of them that go to the public markets as well, you know, so once they get large enough, um, there’s quite a few that have considered this at this point. Um, there’s a big one up in Canada that already did. There’s a big one in Australia that already did. So there are public exits as well. Public exits does not mean you make a killing, right? The public.

Matt Mulcock: Sometimes the opposite.

Kyle Francis: Sometimes. Yeah. Yeah. That’s, that’s possible. I would say with like a, you know, a low growth, low risk industry like dentistry, most likely, again, it’s not gonna fall off of a cliff, but it’s also not gonna explode. This is gonna be like a tech IPO or something like that. Right. but it essentially kind of, uh, opens up, uh, different types of capital to come in as well. And, uh, look, I think that’s, whether it’s gonna be one of those where there’s a strategic buyer that comes in, purchases the business and essentially further consolidates, that’s a liquidation event as well.

Um, and then the typically, once you get far enough along the way that these end up working is going to be that, that stock holding does not necessarily need to be sold. At some point or another, they’re gonna be dividend stocks, right? So these are gonna be dividend paying stocks, uh, just like, uh, if you go out and buy Home Depot stock, right? You’re not going out and buying it because you’re arbitrage it and because they’re going out and consolidating an industry, you’re doing it because you think that their free cash flow is a worthwhile thing to invest in. The stock grows over time, it pays dividends, right? And so I think that a vast majority of them end up converting into those type of financial mechanisms.

Matt Mulcock: Got it. Yeah, that totally makes sense. So what would you say to the dentist D one right now gonna be outta school in four years, starting associate, let’s say in year five? what is the, what does the landscape look if, if you had a crystal ball or just knowing the consolidation, and again, what does the dental landscape look like for that doc?

Kyle Francis: Okay. So you said a D one graduated in four years. I think that. I really wouldn’t worry a whole heck of a lot about consolidation if I’m them. Um, I think that, you know, by the time that you’re out and by, by the time that you get your skill set up, all of those different types of things, the types of scenarios that are going to be out there are going to be threefold. Uh, one is going to be, you can still go out and purchase a business, right? So I mean, that is, uh, with 40% of the industry not consolidated. That’s still gonna be a thriving part of the industry, the cottage industry, right? So you can go out and buy a practice, you can grow it all that kind of stuff. You’re probably not gonna get the type of multiple that you could get on selling it at the, at this time right now. But that really doesn’t matter. The cash flow is really valuable, right? So if you wanted to go out and gr there and grow something, you are more than welcome to do that. And I think that there’s going to be that opportunity. the next way is going to be that once you get your skill set up, maybe what you end up doing is going to be getting into an equity ownership within an existing DSO now, I mean, that’s just gonna be like how KPMG works right now, right?

Or the way that Accenture works and all these different types of things. You get vested into equity over the course of time. You end up having these different strike prices. And many people, if you go out into the business world, have done. Enormously. Well by doing those types of things, I think about my grandpa with IBM, right? So my grandpa was a lifer with IBM. He spent 50 years with that company and, he made money on a year to year basis, right? So he produced for them, but really where he did well is going to be owning the stock, right? And so, um, if you get on board with the company, you’re going to have that same ability because it’s going to grow just like you’re going to grow, right?

So I think there’s that possibility as well. And then I think finally, if you really decided that you want to be ambitious and grow something, I, I think that startups are, are going to still be a thing. Not as much. I, I don’t think, I think it’s gonna be harder to compete in the startup world against DSOs and just because they’re gonna be able to have scale that you don’t have, you know, and so if I look at, you know, how much it costs, the different groups that specialize in, to know those as in comparison to the ones that do, uh, individual deals, it’s kind of apples to oranges and they have ends on real estate that you can’t get in on, you know, all that kind of stuff. So it’s kinda like competing against a McDonald’s if you’re like a mom and pop burger, burger shop, you know? And so I think that becomes more challenging, but I, I don’t know, part of me ends up saying like, if you’re a D one and you have four years left, just don’t worry about it. You

Matt Mulcock: Yeah.

Kyle Francis: Get, get, get out. You’ll be, you’ll be fine. You know, like, just work on your skills and then decide if you wanna go out and buy something, or if you want to, uh, be on board with like, be a lifer for a company, you know, that can be a good thing too. So.

Matt Mulcock: Yeah. No, I think that’s really good and I think it’s good that you’re giving, because I think what I’m getting at with that question that we hear a lot is some hesitation with like the younger dentists of like, is dentistry even a viable career anymore? We, we, it’s a resounding yes for us, but it sounds like you’d agree with that.

Kyle Francis: Very much so. Yeah. I mean, the earning potential in dentistry, I don’t believe is going to change. I mean, I think that there’s some interesting things out there in terms of like regenerative materials and all that kind of stuff, which, again, we’ll see how long that takes to develop over the course of time. But beyond that, I think dentistry is a place that you would want to have either yourself or your kids go out and do, like, it’s, it, it’s a, it’s a really, really good place to be a clinician.

Matt Mulcock: Yeah. I love that. And, and this is exactly what we say all the time, is it’s still very much a viable career. It’s gonna look different. Like you said, it’s looking different. Doesn’t mean it’s bad, doesn’t mean it’s necessarily worse. I guess it depends on how you look at it, right? It’s just gonna be

Kyle Francis: Well, it’s so funny, like PE-people before, like dental insurance was really propagated, you know, were really worried about like, oh my gosh, is this gonna be okay? And if you look at the growth of dentistry since dental insurance, like, and again, dental insurance gets a terrible name and maybe for good reason as well. But if you look at, you know, the total amount of people that is brought under the umbrella, you know, of, uh, that you can have treatment protocols be based on, like how much they can bring out there. I mean, like I would say overall it’s probably even pretty good. You know, it’s like, yeah, there’s these scary things that are out there, but really whenever you start really thinking about ’em, it’s maybe not as scary as you might imagine,

Matt Mulcock: Yeah, we have a, we have a compete in this, in our industry, in the financial advising space. I remember still when, robo-advising, robo investing became really, really scary for, for our space. And people were like, oh my gosh, this is gonna take over their whole industry. And our space has done nothing but grow since then and so I, it’s one of those things where it’s like, yes, we acknowledge the fact that it’s changing. These things are happening to know what is going to happen from there. It’s impossible to

Kyle Francis: Right.

Matt Mulcock: And, and same thing with the market, like all these different things. Kyle, I could keep going. I’m, I’m going to, I’m gonna respect everyone’s time, but I want to finish up with, this is such an interesting conversation. You’re working on some, well, we are working on some cool tools together. We’ve built some cool tools together. But I want to, you mentioned it earlier, the valuation and calculator, but I want to, um, focus a little bit more on, you have some AI stuff you’ve done. some cool AI tools. Can you talk about that and what, what you guys are doing with ai?

Kyle Francis: Yeah. Um, man, I would love to tell you that this was my idea. It wasn’t, the, I read an, I read an article in the Wall Street Journal in 2022 about a Japanese m and a company. I’m an m and a company, right. Um, and they developed an AI matching tool, because they did not believe that there was good enough matches being made in their country, right? And I was like, oh my gosh, how cool. I wanna learn more. So I bird dogged him. I tried to get a license for here. I didn’t even care if I was gonna have the only license. I just wanted to be able to start utilizing an interesting tool like that because I’ve been, uh, I’ve been investing in data for about the last, you know, eight years or so at, you know, more than a million bucks, just the data part, right?

And so I was like, well shoot if I can take that data and then feed it through, you know, not just an algorithm, but actually a large, uh, learning model, you know, like that is. it can be pretty powerful. Um, so because they wouldn’t let me have a license, I said, okay, well I guess I’ve got another choice and that’s going to be, that I can go out and develop one myself. Right. This is not something you can develop on chat GPT. Right? Or if you can, it would not work very well. Um, so you kinda have to do it in, in, in your own house. And so, uh, we had a gal named Julia. She is a, Stanford professor that teaches, building AI and training ai. And, she built one for us. And so it took about 18 months. So, uh, it took about six months to normalize our data and about another six months in order to build out exactly what different things we were gonna be weighing back and forth between individual buyers, individual sellers, DSO buyers, private equity buyers, all those different types of things.

And then it gives probability scores on which one is going to be the best and essentially why. Right? So now what you can do is you can have a very, very targeted approach whenever we’re, uh, going to buyers and say, look, based on, you know, these other thousand different deals that you’ve seen from us, the ones you’ve been interested in, and the ones you actually got, uh, in the door with that got to send an LOI to and the ones you closed on, this is a really high probability score as far as we think that this is gonna be a really great practice for you. Not only is that gonna increase the purchase price, but it’s also gonna increase the speed at which the transaction can occur. And so that doesn’t mean that, just like you were talking about with robots and investing, right? That doesn’t mean we rely only on that, but if we have a probability score on the back end that says there’s a high probability this thing is gonna work, you know, then suddenly again, we get to be way more targeted.

And we also don’t miss something, right? Because we’re still human interacting with humans, right? And so sometimes you send out an email saying, Hey, you really should look at this practice. And then they don’t get back to you and why don’t they get back to you? Life got in the way or whatever else. Right? And so, few of fewer of those will fall between the cracks as well, which also I’m, I’m really excited about. So, um, we’ve already seen some really, really great outcomes and, uh, buyers that, uh, honestly, I don’t know if we would’ve put two and two together, like, oh, that’s right. They can be interested in Oregon even though they’re only in the sunbelt.

You know, those kind of things. There’s, with what, 350 different, strategic buyers out there and more than 2000 private equity funds that we keep track of. Like, there’s just a lot of moving parts. And so a matchmaker is a really, really helpful tool for us and for our clients.

Matt Mulcock: Yeah, so, so obviously they have to, this isn’t something you just like type in something on the website and it’s like doing it. It’s like this is a tool that you guys are utilizing with your clients.

Kyle Francis: Yeah, so like once we have a prospectus done, then we can have a really high probability that we can come up with the match and we can tell them like, Hey, we think there’s going to be this much interest because of, you know, the last 15 years worth of data that we’ve been storing.

Matt Mulcock: Yeah, the, this, this is a whole other discussion for another day, but we are trying to implement AI into our business and use it as the right, the tool that it is. And we had a consultant come in and work with us, an AI consultant. And, uh, something he said that stuck with me that I think what you’re, um, an embodiment of right now is, he said, people are afraid that AI is gonna replace jobs. He said, no. People that know how to use AI are gonna replace jobs like you, you, it, it’s a tool. And the ones that know how to use it are gonna be the ones who stand out. And, and you’re, you’re proving that right now.

Kyle Francis: It can be a really powerful tool and it actually is. And it, so in, in a way, it also is keeps your ego in check, right? Because, you know, you think you’re really, really good at this, right? It’s like, oh no. Like, uh, we get together as a broker team every week and we go through the different deals that just started marketing and everybody kind of, crowdsource different ideas. Like, Hey, have you thought about this one? Have you thought about this one? And putting people in touch, all that kind of stuff. that isn’t going away. However, we’ll be able to do it with like, we’re not going to miss a single darn one, right?

Matt Mulcock: Yeah.

Kyle Francis: We know for sure we’re going to have the highest probability scores and only be talking about those ones with the clients.

Matt Mulcock: Yeah, so, so cool. And I love that you’re saying that we’re not gonna miss it. You still, you’re not replacing the human side of it and, and still navigating those human conversations and values and concerns and trade-offs that are outside the monies type stuff. and then the last thing we’ll mention from a tools perspective.

We joined together and when I say we joined together, I mean, you guys built the tool and then, uh, we put it on. but uh, we, we did, we did work on this together and, uh, I came to you, I don’t even know how long ago this was, but we’re super excited about this. It’s live on our website, the, the valuation calculator that you guys really architect, uh, or the architect behind it.

Would love for you to speak to that a little bit and, and, and we’ll try to share how people can reach it, but just any thoughts on that?

Kyle Francis: Yeah. well, so the way we ended up thinking about it was like, okay, there’s only so much time in a day. right. And so, we kind of took that to heart whenever we built it. So there’s essentially like three different levels. Level one is going to be, Hey, I just want a general idea of how much an asset like mine could potentially go for. You know, with not very much effort. If you kind of know about what your revenue is and you kind of know about a couple other like very, very easy characteristics, it’ll spit out a value for you, right? If you wanna put a little bit of work into it, like say like, Hey, you actually know, how much money you’re making outta the practice, how much you’re taking out from a tax perspective, right?

So how many operatories you have or the, those different types of characteristics. well then it’ll give you a much more accurate, picture as well. And then if you want to further, uh, guess really kind of dig in, uh, I should drill in, I’ll use yours, um, on what is going to be the right way of thinking about it. It’s like, well then maybe the best thing to do is gonna be talking to your team, or talking to my team about actually having an appraisal done. Right? Um, now that is. Not without a time spend. Right? So it’ll take you a couple hours in order for that to occur, right? So if you want a general idea, if you want a better idea, or if you want a very specific idea, if nothing else, you have that at your fingertips now.

Matt Mulcock: Yeah, that’s awesome. And we really appreciate it. We’ve already, I was just talking to my team yesterday of advisors and we were talking about this calculator that we just rolled out, like pre, pretty recently this year. And we, we use it actually quite a bit, for our clients and, and they’re really liking it. If at the very least, like you said, to give some level of an idea, when you and I were talking about it, that third level, it’s impossible to have that as a calculator,

Kyle Francis: Yeah. Like there’s just so many variables that affect it and some of the variables are dramatic. You know, just saying that you have a $2 million practice in a, call it a Tier C City or something like that. Um. what am I really supposed to do? Like, there’s just so many other things that go into it, you know? Um, uh, do you have another doctor? How robust is your hygiene program? Right? So do you end up having, a whole bunch of implant work being done that’s gonna affect it? Uh, are you a specialist? There’s, uh, how many operatories, how many chairs do you have? The ability for expansion? There’s all of these different things that can affect the valuation and actually kind of, surprisingly a lot that it’s better to have, I, I would say, a pro go through and do that rather than, rather than guessing.

Matt Mulcock: Another one I’ve heard, Kyle, you and I have talked about, I’ve heard from other brokers too, or just people in the industry, uh, that is hard to measure is personality.

Kyle Francis: Oh, yeah. Completely. Yep. And so, uh, it, it, it matters not only from an individual to individual deal, ’cause it could make your practice unsellable, right? As a for instance. Um, on the flip side, it also could make it where even if you can’t offer the best thing, all that kind of stuff, you may be taken way more seriously just because. You’re likable. Right? And so if you, it is like show ability, right? And so if, if you end up showing, well that can make an enormous difference as well. We actually, by the way, that is one of the things that we look at was we kind of put people through the ringer in terms of asking them for stuff and, uh, understanding how they respond to us. It does affect our thought process in terms of how the valuation is created. We talk about that as a valuation team. Yep.

Matt Mulcock: I bet. okay. This was so much stuff, and I mean that in the best way possible. Honestly, so much valuable. Again, we, we started this off with how education focused you are. You did, you did not disappoint in that. I’ll make one. So as far as valuation calculator goes, if you’re hearing that and like, how do I find this?

dentistsadvisors.com/dentalpracticevaluationcalculator, it’ll write to our website. You can access that. And then there’d be a link there to go directly to PTS and to your team to take that third level. but other than that, any, uh, how do people reach you outside the calculator? if they’re out there thinking, and I know they are, Kyle’s the freaking man, and this, he sounds amazing, and I want to at least do this prospectus and, and go through these pro or these, these options. How do people best reach you?

Kyle Francis: Yeah, so if you go to our website, uh, professional transition.com, there’s a, you know, chat box there that you can chat directly with the team. If you want to email us, it’s called info@professionaltransition.com. That’ll get you the right people as well. and, I think that, you know, from a team perspective, uh, that’s how we prefer it, you know, so, uh, whether you end up talking with Kaylee or Bailey or Rebecca or Jennifer or Mark or Jess or whoever it is, uh, you’ll be well taken care of and, um, yeah. Excited talking with y’all.

Matt Mulcock: Awesome. Well, Kyle, thank you so much honestly for sharing your, boatloads of wisdom here and inside and experience super helpful. I know everyone out there listening appreciates it. We very much appreciate our, our partnership with you. Everyone, thank you for hanging in listening. We hope you got something of value of this, uh, from this until next time. Take care. Bye-bye.

Keywords: dentistry, transition, DSO, private equity,  joint ventures, dental consolidation, practice valuation, DSO, EBITDA, AI in dentistry, dental practice growth, dental market insights.

Practice Management, Practice Transitions