What Should You Do if a DSO Offer Comes Your Way? – Episode 297

Why DSOs are expanding so rapidly is a hot topic. About 20% of present practices are group practices, a number that is projected to be over 30% in the future. On this episode of the Dentist Money™ Show, Ryan and Matt take an up-close look at DSOs. What could this growth trend mean for you? And what should you do if you get a buy-out offer—and you still have a long career ahead?

 

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Podcast Transcript

Ryan Isaac:
Hey, everybody. Welcome back to The Dentist Money Show, sponsored by Dentist Advisors, a comprehensive, no commission, fiduciary, financial advisor, just for dentists all over the country, just like you. Check us out at dentistadvisors.com.

Ryan Isaac:
Today, on the show, Matt and me, with a terrible sick voice, are going to explore our experiences with early career dentists and older career dentists, in the world of DSOs and group practices, working for them, selling to them. This will probably be the first of many discussions and interviews we have around this subject. It’s a very large growing, compelling piece of the dental industry.

Ryan Isaac:
So, thanks for tuning in. If you have any questions at the end of this, there’s two places you can get your answers. Number one, go to the Dentist Advisors discussion group on Facebook, post a question, we’ll post an answer. Or, go to dentistadvisors.com, click on the book free consultation link and schedule a chat with one of our friendly dental-specific advisors today, we’d love to hear from you. Thanks for being here everybody. Enjoy the show.

Announcer:
Consult an advisor or conduct your own due diligence when making financial decisions. General principles discussed during this program do not constitute personal advice. This program is furnished by Dentist Advisors, a registered investment advisor. This is Dentist Money. Now, here’s your host, Ryan Isaac.

Ryan Isaac:
Welcome to the Dentist Money show, where we help dentists make smart financial decisions and avoid the bad ones along the way. I am Ryan Isaac, and I’m here with my friend. My, I was going to say long time guy on the show, but it’s been a year or so. It’s the Hollywood man. Matt Mulcock. What’s up, Matt? I don’t know how long it’s been, been like a year.

Matt Mulcock:
I don’t even know, but good to see you. I’m sorry. You’re feeling under the weather.

Ryan Isaac:
For posterity sake, this episode will go down in history as me being sick and having to record anyway.

Matt Mulcock:
Yep. The show must go on.

Ryan Isaac:
It has to go on. And I’m either sick or sultry. We don’t know yet.

Matt Mulcock:
It’s sultry. You’re sick, but it’s making you sound really sultry.

Ryan Isaac:
We’ll see. I wonder what this would sound like on half playback speed.

Matt Mulcock:
Hey, please, if you’re listening right now, on the podcast app, whatever phone, whatever podcast app you have, just turn on half speed, check it out, it’s actually one of my favorite things ever, it’s hilarious.

Ryan Isaac:
Honestly, if you were looking for a good laugh on the show, find a part where we’re laughing about something stupid, which is a lot.

Matt Mulcock:
Yep, all the time.

Ryan Isaac:
And then go back before it starts and then just play on half speed. And it’s hilarious. It’s amazing.

Matt Mulcock:
Someone on our team, someone at Dentist Advisors brought it up a while back, on one of the, it was when you and Reese were still doing it, so a year or so ago, and they posted something in our internal channel and they were like, Hey, go listen to this on half speed. Did we listen to it? And we were dying laughing, for a while. Hilarious.

Ryan Isaac:
All right, folks. Well, thanks for joining us. Thanks for being with me while I’m sick. I currently have DayQuil and a fair amount of caffeine in my body. I don’t know if that’s healthy or recommended. Yeah.

Matt Mulcock:
Yeah, it is. We work with dentists and we know, we know medical stuff.

Ryan Isaac:
I used to have a friend at my old gym, that would get sick and then take DayQuil and lots of caffeine. And then he was, I feel like I can taste colors. So anyway, here I am. We’re going to do this. Today, got a big topic, today we’re going to talk about, and it will not be the first of this topic. There’s a lot of experts in our industry right now that we’ll have on the show, we’ll interview them, people like attorneys, people who run these organizations, we need a lot of different perspectives. We’ve done a panel on this. If you go to dentistadvisors.com and look under the webinars we did, we did a panel once, where we had some people talking about the subject, but this’ll be the first of probably many discussions. And it is a force of nature in the industry. Of course we are talking about DSOs.

Matt Mulcock:
The good old DSO.

Ryan Isaac:
The DSO. Matt, I started in this industry working with dentists about 14 years ago. And there was always this, it was the bad word, a group, big group dental, corporate dentistry. That was the thing.

Matt Mulcock:
Corporate, yeah. The man.

Ryan Isaac:
It was the man. And rightfully so, for a lot of reasons, it had a bad rap. But man, it is just so completely different than it was five years ago.

Matt Mulcock:
I was going to say, I think two years ago. I’ve been here for three and a half years, and even when I first got here versus now, it’s changed a lot.

Ryan Isaac:
Oh yeah. How often? So, in our firm, how many are there of us? Five, six advisors? Five advisors?

Matt Mulcock:
Yeah. Yep.

Ryan Isaac:
How often do you think we’re hearing a question about an offer from a DSO, from a client?

Matt Mulcock:
Lately?

Ryan Isaac:
Last six, 12 months, what do you think it is?

Matt Mulcock:
Oh man, I would say, a couple of times a month, lately.

Ryan Isaac:
Yeah. It’s got to be a couple of times a month where we’re talking about this, and it’s like all over the map too. That’s the crazy thing about today’s DSO landscape, and this is why it’ll be interesting to interview some people later on, who run these things. There are so many flavors of DSOs now.

Matt Mulcock:
I was going to say, really quick, we’re using the term DSO, as a blanket, a blanket term. We know people are out there, probably yelling at us, they’re not all called DSOs.

Ryan Isaac:
Not all DSOs, guys.

Matt Mulcock:
We’re just going to use that term, moving forward, as the blanket.

Ryan Isaac:
The DSO, the group, yeah, there’s so many out there right now. And anyway, so I just wanted to chat about this. I think today’s episode will be some perspective on just what we’re seeing as advisors. So this probably won’t end up being the definitive should you work for one? Should you sell to one? But we’re going to talk…

Matt Mulcock:
Oh, we’re not going to give specific advice? I thought we were [crosstalk 00:05:40].

Ryan Isaac:
Tell you what to do with your life. To a general audience of tens of thousands of people every month? No.

Matt Mulcock:
I’m here for it.

Ryan Isaac:
You to do that, but yeah, I think it would just be helpful to kick off this conversation and just talk a little bit about what we’re seeing from clients. And I want to start with trends that we see in the way people think about their career and retirement in general.

Ryan Isaac:
And so, I’ll put the question to you, Matt, first. How do I ask this in a way that doesn’t put words in your mouth? I’m just curious, what do you think, or do you see any trends or changes as you keep going in this career and you keep working with more and more people, especially as we see more and more young dentists, a lot of younger dentists are hiring us these days, coming right out of school, getting an advisor, getting established and settled. Are you noticing any trends at all or changes with the way people view their careers, the longevity of their careers, the balance of work and life or how they view retirement, even? I’ll stop there. Do you have any feedback on that and any, you notice anything?

Matt Mulcock:
The trend for me is, I guess the one word I’d use is, change. Where people just don’t know, right? People that I first started working with years ago to now, their mindset has changed so much. And not in any one direction. It’s not like there’s any one pattern.

Ryan Isaac:
One Direction. One-D. Shout out.

Matt Mulcock:
I didn’t even know [inaudible 00:07:07].

Ryan Isaac:
I have four daughters, so. If I hear One Direction, that’s all I think about.

Matt Mulcock:
You love One Direction, let’s be honest.

Ryan Isaac:
But when you say changes, what are some of those changes? Like you said, they’re not all uniforms. So, everyone’s just heading in one direction, but not going to be able to not think about that now every time we say One Direction, but what do you say, when you say, even in five years, you’ve seen people change the way they think about their career and retirement post-career, what are you talking about and referencing?

Matt Mulcock:
Yeah, so things like, so I’m thinking of a specific example right now. Client tells me when we start working together, they have ideas of building multi location, multi-specialty, they were so driven and focused on building this whole empire outright. And then, within literally a matter of a couple of years after that person started that, they shifted their mindset. They thought it’s not really what I want now that I’m into this, I actually want to go the other direction and want to go more lifestyle, single location type practice. So, that’s what I mean by things that I see all the time, the changes of mindset.

Ryan Isaac:
When I think about this over the years, I think there’s becoming less of a stigma around not owning a practice. Clearly for sure, the optimal path to net worth and income, high-income in dentistry is owning something. I think that’s probably not an argument that needs to be made. But there used to be a bigger stigma, I feel, just watching people navigate that decision over the years, than there is today. There’s a lot of people that will come out of school or even mid-career and just decide, you know what? I don’t want to, I just don’t want to own this thing anymore. I don’t want to do it. I just want to have a good job. I love dentistry, I love the clinical side, I just want good job. I want someone else to handle all the stuff for me. I want to go into dentistry, see my people and take off. What do you think about that?

Matt Mulcock:
Yeah, no, I think that’s interesting. I do think we’re in this transition period where, I think before, it was a foregone conclusion, right? You come out of school, it’s like, you just own, this is what you do. But I do feel like there is this transition period that we’re in, where you still have a lot of, I still talk to a lot of people that are holding on to that mindset a little bit. They’re not wanting to fully embrace this idea of maybe I’ll never own, but to your point with the younger generation, and we’re working with younger and younger people now, we’re witnessing this transition a little bit before our very eyes, of the younger generation we’re talking to, literally like you said, right out of school, we’re not hearing as much of like I have to own. It’s just, I want a good job, I want a good income, I want to, like you said, I love what I do. But, if you talk to the older generations, it was a foregone conclusion. It was never even a thought for them, you come out, you own a practice. You buy a practice or it’s just what you.

Ryan Isaac:
You do it, no matter what. Whether you wanted to or not, you just throw yourself into that world. And I think that’s what I’m saying about the stigma is going away, which will lead into this discussion. But I think it’s important to, I don’t know, just normalize that a little bit, that there’s a lot of people who view the career in dentistry as different than always just owning, and it’s becoming a lot more okay. And there’s a lot of trends if you look a little more ancillary, there’s a lot of trends in the way people view housing, and how often people are moving now, and how often people are renting versus owning housing. People are more mobile, people, I get the sense from a lot of younger people, now that I’m old, I can say this with confidence.

Matt Mulcock:
You’re so old.

Ryan Isaac:
So old, I can say younger people now. Mostly whippersnappers, it what I’m referring to.

Matt Mulcock:
What is the age you get to, when you can start using the word whippersnapper? I think is it 40?

Ryan Isaac:
Probably. It’s just when you feel that you can start saying it.

Matt Mulcock:
You feel old and I could probably feel extra old now, because you’re sick right now. So, the term whippersnappers is going to be used multiple times as we finish this.

Ryan Isaac:
Well, so mostly whippersnappers.

Matt Mulcock:
The young whippersnappers. What a word, whippersnapper.

Ryan Isaac:
There’s just this sense of, I don’t know what the word is, it’s just mobility and flexibility. People want flexibility in their career. I hear it from a lot of people who don’t want to be immediately married to one practice or one type of dentistry or one city or one house. And anyway, those, I just wanted to bring that up. Those trends are different.

Matt Mulcock:
Yeah. So, priorities are shifting for different generations, right? Generations before us had different priorities, that we compared to us. And then the young whippersnappers have different priorities. And I think that’s true, not even just in dentistry, you just look, like you said, with housing and just in general, people favor, the younger generations favor different things than maybe we did or older generations.

Ryan Isaac:
Yeah. Different life experience, different environments to live in, and it becomes a big decision. And those external factors are playing a part in the way people are shaping their careers in dentistry. Which leads to, when more people need just a job in dentistry and not ownership, it creates demand for somebody to be the owner, right?

Ryan Isaac:
And so, anyway, that was one thing I wanted to bring up, because it shapes the way that this is all heading. And it’s not just about, because I think a lot of times people think about DSOs, if that’s what we’re going to call them here, big groups, corporates…

Matt Mulcock:
Group dentistry.

Ryan Isaac:
Big brother. I’ve met a lot of really solid DSOs and group owners, it’s just not the same as it used to be. It’s like being bald nowadays, I hope, I think, it’s cool. It didn’t used to be very, it didn’t, it wasn’t accepted. It wasn’t accepted in my dad’s day. He just kept the hair long on the sides and…

Matt Mulcock:
The comb-over. The wispy comb-over.

Ryan Isaac:
Yeah. It’s just, I think a lot of people think that or have this idea, that DSOs are just fueled because there’s a lot of private equity money and there’s just money to be made, and it’s just all money, it’s all money play. Clearly, it’s a profitable place for large-scale investors, clearly.

Matt Mulcock:
Of course.

Ryan Isaac:
And it’s not stopping anytime soon, but there’s so much more that’s feeling this. Just the demand for people’s different lifestyle expectations, work expectations, expectations to be more mobile, move about more freely, test different environments, that’s just a thing that’s driving a lot of this.

Ryan Isaac:
Real fast, I also want to hit on, what is your perception of the way people view retirement nowadays? The clients you talk to, when they look forward and they think about post-work life or how long they’ll work, what is your sense for people? How people view retirement these days?

Matt Mulcock:
Yeah. It’s definitely a spectrum, but I would say, more people are on, more people that I talk to are probably more on the spectrum of, so whenever I ask this question, this is something I ask all of my clients as were first getting started, how do you envision your retirement? I know we’re still a ways out for most of you, if you’re, cause we hire, like you said, or people hire us that are on the younger side. I always bring up this idea of, it’s on a spectrum. On one end of the spectrum, I have a date in mind, I’m hanging up the handpiece and I’m walking away and never going to look back ever again. And on the other end of the spectrum, it’s no, I always wanted to do this, I’ll do this until I physically can’t, in some form or fashion, I want to be involved and always want to be working. I just want to know work is optional, and then everything in between.

Matt Mulcock:
I think I would say, I have more people on the latter part of that spectrum, the part of I always see myself doing some…

Ryan Isaac:
Longevity.

Matt Mulcock:
Longevity is finding that balance, keeping longevity, they don’t necessarily have a date in mind where they’re like, I just am never going to come back to this ever, I want to hang it up. I do have some, but very few, more of them are focused on longevity.

Ryan Isaac:
Not as many. I was going to say, I’ve noticed that trend. I mean, I have no idea if this is an actual trend, this is just anecdotal from being around dentists for years, and I’ve noticed that too. There was an older trend of feeling, you go from full-time one day at age 64 and a half, and then the very next day, you’re done.

Matt Mulcock:
You’re done.

Ryan Isaac:
And people just don’t view it the same anymore and people, yeah, this idea of longevity and balance. So anyway, those two…

Matt Mulcock:
So we’ve talked about it before, so many, we’ve talked about a lot, what a cool profession that you are in, in dentistry, that you can walk away full from full-time work, at any, really any point. Work a day, a day and a half a week and make six figures. [crosstalk 00:15:35].

Ryan Isaac:
Like anywhere else. It is very cool. It is very sustainable. And I think a lot more people are opting for that. And there’s less of, and I think it’s generational too, there’s less of an idea that retirement is this thing that you just quit working at a specified age and then just do nothing. A lot of people have a hard time just picturing what that’s going to be like, and they don’t want to do nothing, they want to, especially if they love their career and they’re good at it, they want to be involved in some way.

Ryan Isaac:
So anyway, I just think it’s important to bring up those two trends. I’m sure there are studies that are out there, we could link it to that. [crosstalk 00:16:06]

Matt Mulcock:
Studies show…

Ryan Isaac:
I know there are, in the way people view retirement trends. And especially housing trends, people moving around more. The whole point is, that’s fueling a lot of what we’re seeing. Another thing that’s really interesting is, more than half of dental students graduating now are women. Now we’ve said this before, women historically, shout out to the women…

Matt Mulcock:
Shout out to the ladies.

Ryan Isaac:
Historically, women have not owned practices, at the same rate men have owned practices. That’s totally changing, but there’s still also probably a big chunk of the workforce in dentistry that might not be owning, at least immediately, if it continues as it historically has been. So, there’s just this, I think, surge of people, who given their life circumstances, the things they want out of life, their expectations with work, it’s just fueling this demand for good jobs and good entrepreneurs to create good systems and companies, so that they can work in.

Ryan Isaac:
And here’s the other thing, we’ve said this before, but I’ve met quite a few dentists who are insanely good dentists, excellent providers, clinically so sound, great with relationships, but they’re not great at running the business. And they’ll tell you that too, I’m not just like passing judgment.

Matt Mulcock:
And they know that and they just, they don’t have any interest in that. I

Ryan Isaac:
They say it all the time. The people management and the marketing and the books and the systems and the training and the constant running of the business away from the clinical side of dentistry just wears them absolutely, mentally, physically, emotionally thin.

Matt Mulcock:
It’s managing people. Let’s be real. That’s always the issue. It’s always the staff.

Ryan Isaac:
It’s always team, man. The people. People are hard. We’re hard. So, all those things just really create this interesting dynamic. I was reaching out this morning, I was trying to find some statistics on this, it’s hard to pin down, but I reached out to a couple people who run big groups, and one who runs a giant or has been involved running a giant DSO, and they pegged the number somewhere around about 20% of practices nowadays, in the industry, are group, some kind of group, which can be two or three, a handful.

Matt Mulcock:
Yeah, of course.

Ryan Isaac:
Three to four, probably. So, expectations from anything I can find online, see that capping around 25% to 30%. A third of the industry compared to where it was 10 years ago, that’s huge, that’s really big. But again, it’s not the same stigma as the crappy corporation, with the low quality of care, and…

Matt Mulcock:
All about the bottom line.

Ryan Isaac:
And W2 employees, who don’t care about their patients, that model still exists. But man, there are so many models now, group models where the dentists are still even partial owners.

Matt Mulcock:
Yes. They have autonomy over their practice and how it’s, yeah.

Ryan Isaac:
It’s changing the landscape of the way that this is all viewed. So anyway, I think this whole first part of it is just pointing out the fact that people’s expectations of work and retirement are changing, I think it’s totally okay for people going to career, dentists going into their career, saying, I just want a good job, with a good company and I want the flexibility and the freedom that comes along with that, and the security too. A lot of people with these huge student loans are looking just for a job with good security, that they don’t have to worry about running themselves.

Matt Mulcock:
Yeah.

Ryan Isaac:
The second part I want to just chat about is the other side of the equation, which are the owners that we work with and that we know and hear from, that are considering selling. This is all over the place, this is what we’re talking about when we say, a couple of times a month clients reaching out to one of us, saying, Hey, got an offer. I’ve got an appointment right now, was today Thursday? Today’s Thursday, right?

Matt Mulcock:
Today’s Thursday. You’ve lost track because you’re moving.

Ryan Isaac:
I don’t even know. I have a lot of DayQuil and caffeine in my head right now.

Matt Mulcock:
Caffeine. You’re tasting colors.

Ryan Isaac:
Taste the rainbow. Yeah, I’ve got appointment on my calendar tomorrow, to talk about a DSO offer. And the person’s in their forties.

Matt Mulcock:
I’m literally going through this, I’m going through this right now with two clients, as we speak.

Ryan Isaac:
Yeah. This is just such a frequent discussion now. So, let’s just spend a few minutes on this part of the discussion. This probably won’t be the outcome, won’t be should you or shouldn’t you. Man, you’re going to have to dive into a lot of different factors with someone who knows your situation, that’s really well-organized around your situation, to come to a conclusion on this. Let’s just talk about some experiences we’ve seen with people, in general. Here’s what, I’m going to start with this high level, and then you can add to this.

Ryan Isaac:
Generally speaking, most clients I see who take these deals, are people who are already within probably a five to seven year window, of being done anyway. And being done could mean retired, they’re going to be done, they’re going to sell to somebody anyway. They want to be done owning the practice, regardless, or being done in terms of, they want to move. Time to leave the house, leave the city, leave the state, leave the country, whatever. And so, for these people who are in that window, combined with the absurd multiples that are still being offered these days, you’re working on one right now that is absurd, but it’s also rational and totally sustainable, it’s sustained by the numbers, right? So, the people in that window are just in a sweet spot right now. The people outside of that window, my experience so far, this is a 100% of the time is happening, and it’s usually someone in their forties, who, they’re not five to seven years away, they want to keep working, they don’t really want to move anywhere and they don’t really want to go start from scratch.

Ryan Isaac:
And that’s the other thing. Some people have built something awesome, but they’re, ah, I’ve built three, four locations, but I’d love to just go back to one. Just build one again. So, these are, so I’m talking to people in their forties, they get these offers, the first thing is always the money, right? You look at something, it says six or seven or $10 million, and you’re like, well, I’m done at 46 years old then, right? And, but I think a 100% of the time, people that young have, in my clients, have not taken the deal. Not that it doesn’t happen, but the people I’ve talked to, they don’t take the deal because they run the math and they go, okay, I get paid this much up front, and then I got some work back bonus and I got to hit some targets, and then I get some stock in the DSO, if the DSO performs, I should have X amount of dollars in seven years, after my work back contract is done. And then they do the math and they go, well, if I’m going to be around owning this practice for seven years anyway, considering our growth rate and my profitability and what my income is currently, I’m going to not only have that much money in seven years, anyway, maybe eight or nine years, whatever, but I’m going to own the whole thing still.

Ryan Isaac:
So, when they’re that young, my experience people end up, they go through the motions and get excited, then they do the math, they think about their life. They’re like, I don’t really want to be done, looking for a job in seven years and they turn it down and they just get back to work. So, that’s been my experience. What have you seen, what have you worked on and dealt with people?

Matt Mulcock:
Yeah, I think that, generally speaking, is the same situation or the same things I see. Again, most of the time, the deal that one of my clients, I will give no details cause I will keep them completely anonymous, I don’t want anything to slip, but I will, all I’ll say is, the one that is happening right now, they fit more into that younger mold. It’s probably one of the first ones I’ve ever seen where they’re actually going to take it. And they have a long career ahead of them.

Ryan Isaac:
Yeah, go ahead. I was going to ask, what’s unique about this younger person taking the deal?

Matt Mulcock:
Yeah. So it’s what you said, there’s an opportunity this person to transition, to basically move. They want to get back home…

Ryan Isaac:
They live in, they work in and live in another state that they don’t want to be, in long term.

Matt Mulcock:
They moved to a different state, so they moved to a different state, for this opportunity, to work in this practice.

Ryan Isaac:
[crosstalk 00:24:04] it worked out.

Matt Mulcock:
They partnered in this practice, and then pretty soon after that, they got offered this deal. It was a killer deal, the multiple, the split of cash and equity, it was a killer deal. We reviewed it together and it was a really, it’s a solid deal. So, this person said, I want to get back home anyway, so that’s a five-year work back. And so, they just said, I’m fine to work for another five years, they’re still getting paid, great income. They’re basically cashing it upfront, obviously. They’re going to get some equity in the deal. They’re still young, but they said, look, I want to move anyway, at some point, in the relatively near future. It fits, because they’re going to transition back.

Ryan Isaac:
Yeah. It fits that narrative of, I’m going to make a big change anyway, if I can. Whether it’s move or retire or start completely over, and do a totally different style of business.

Matt Mulcock:
Yep. Exactly.

Ryan Isaac:
Than I’m currently in, so. That’s interesting.

Matt Mulcock:
So, for this person, it worked and they were on the younger side. And that’s the first one I’ve ever seen that I actually was, you know what? This actually makes sense, this deal really works for you. For the most part, to your point, I see it generally works the other way, where I’ve had other deals, similar situations, younger people.

Matt Mulcock:
I had another one last year, same situation, but the person wasn’t planning on moving, and they had a 30 year career ahead of him, at that practice. So I said, why would you do this? And we ran the numbers together, and I just said, look, you own the, you keep the asset, you’re going to be there for the next 30 years, there’s no point of doing this, keep the asset for yourself. And they decided to go that direction.

Matt Mulcock:
Most people that I see take the deals, most of the time, like you said, are five to seven years away from, I’ll say, a transition. Whether that be retirement, whether that be moving or doing another profession or whatever, it’s usually five to seven years away from a desired transition.

Ryan Isaac:
Yeah. And we’re saying five to seven because, by the time you do the deal, do your due diligence, sign on the dotted line, usually there’s a work-back period. I’ve seen them as short as three years, with an option to get out at like two, if everything’s going okay. And they’re as long as five to seven years. So, that’s why that five to seven year window is magic. And, I mean, look, we say this all the time about investing, sometimes big returns happen just because you’re purely lucky.

Matt Mulcock:
Yes.

Ryan Isaac:
You just happened to be born at a certain year, graduated a certain year, be in a certain location, at a time when multiples from some of this private equity money are just higher than they were in the past and probably will be in the future. And, lucky you.

Matt Mulcock:
Exactly. Better to be lucky than good, as they say. That’s basically my life. But the other thing to consider here too though, we didn’t hit on, you probably were going to go this direction, so I’m just…

Ryan Isaac:
You know my mind. You know where I was headed.

Matt Mulcock:
But in the case I was talking about with his client, that is taking the deal and they’re on the younger side. The other thing to consider here is, the size of your business matters. So meaning, there’s a big, big difference between a GP doing a million, even 1.5, a solid practice. There’s a big difference between that, and that’s your plan to do that for the next 25, 30 years versus a practice, like in this case, a partnership location, specialty office, that’s doing six, seven million.

Matt Mulcock:
And the reason, what I mean by that is, the GP doing one, one and a half million, there’s always a market for that, right? Meaning private privately or DSO…

Ryan Isaac:
More buyers for that market.

Matt Mulcock:
A lot of buyers for that practice. When you get into the multi seven figure type, five, six, 7 million dollars in revenue and collections, there’s a smaller market for someone, for that type of practice. And you’re usually going to be restricted to a group practice. Most of the time, unless you’re going to go sell to a partnership, we got three doctors coming in that want to partner together, which is very rare, you’re usually going to be forced, at some point or another, to sell to a group practice, if you want to exit. Which is the situation they were in.

Ryan Isaac:
It becomes harder. I’ve also noticed this with very high producing, very rural practices. It’s a hard word to say, when I have a stuffy nose. It just ends up sounding very rural practices.

Ryan Isaac:
Where there’s nobody, the only people who would traditionally buy that as someone who’s from the town that wants to move back to the town and buy it. And oftentimes I’ve found that this is, can be a good market for those too, because some of these groups have the resources to place somebody there, and figure it out versus, the selling owner doctor, trying to find someone.

Ryan Isaac:
Matt, it’s time.

Matt Mulcock
Time for what, Ryan?

Ryan Isaac:
It’s time to book a free consultation at dentistadvisors.com. Just click on the big book free consultation button on the homepage and talk to one of our friendly advisors today.

Ryan Isaac:
Here’s what I would say, is that, in these deals, some of the numbers are extremely high, when you get an offer. They’ll send you a one or two sheet thing, like here’s what we’re thinking. And some of the money, oftentimes a big chunk of the money, comes on the back end, in the form of you get stock in the main parent company, with the assumption that that parent company is going to continue to acquire practices and grow, and then take on more funding. They call that recapitalization, have another from and the same firm give them another round of funding, and they’ll cash investors out. And oftentimes, when that works well, the return is pretty high, because again, this is private equity. The highest returning asset class will always be private equity investments, because it has the most amount of risk.

Matt Mulcock:
Yeah. As you say, it’s also, it’s also very risky.

Ryan Isaac:
Yeah. So I, something just to be aware of, I’ve seen this happen where, when you’re working on these things, because everyone wants to be a DSO now, everyone wants a piece of that pie and they want the money. So, you’ll see some smaller groups. And not that small groups can’t turn into big groups, because that’s exactly how it works, but I’ve seen where a smaller group will approach someone, take them on as the first practice or the second or third practice, with big promises of equity in the parent company. And I’ve actually seen a parent company dissolve, buy someone, buy 60% of someone’s practice.

Matt Mulcock:
They got over leveraged.

Ryan Isaac:
yeah , over leveraged. They weren’t able to acquire more than one or two after that. They didn’t fulfill on the services side, like, we’ll do your marketing and your management and your HR and all these things. And then they just dissolve, and then the person is left with the big chunk of their payout, was supposed to be equity in this DSO in the parent company, it didn’t work out.

Ryan Isaac:
So, I would say, that’s what I’ve seen. I’m sure that if it’s a small group, it doesn’t mean that that’s going to happen, but I was going to say, that’s what I’ve seen happen. And so, one thing to just keep in mind, if you’re entertaining deals is, if it’s a smaller company and you are one of the first handful of practices, you got to really weigh the risk that you’re taking, by putting a big chunk of that payout in stock in the parent company.

Matt Mulcock:
Yeah. I think that, it’s such a good point, because it’s like this balancing act, right? Because, the earlier on you can get into these deals, it’s what we talk about with investing in the financial markets, history has shown that if you invest and tilt more towards smaller companies, small cap companies, the upside is greater. But the other side of that is, there’s obviously more risks there, you’re exposing yourself to more risk. So, the same thing with private equity deals, to your point is, it’s very appealing, and I’ve even heard of these, a lot of these groups say, this is the main appeal is, you’re the first guy, you’re the first doctor looking at [crosstalk 00:32:04]. Which if it works out.

Ryan Isaac:
You’re the Winklevoss twins, hanging with Zucky, in the dorm.

Matt Mulcock:
Yeah, you’re hanging with all the Zuckerberg stuff.

Ryan Isaac:
And he steals you stuff, is in the house. [Crosstalk 00:32:13]

Matt Mulcock:
Steals your idea, and then you guys fight in court. But, so that’s the problem, you want this balance of track record, but if they’ve got too much of a track record and they’ve recapped two or three times, returns won’t be as good.

Ryan Isaac:
Because you’re safer, less risk.

Matt Mulcock:
Exactly.

Ryan Isaac:
It’s so much bigger than, Hey, there’s two or three people and we’ve got a little funding, let’s just go buy some practices together and see what happens. Those parent companies are promising to improve, take things off your plate and improve your practice efficiencies. They’re promising to run teams and systems and processes, do billing better, lower your expenses with buying power and costs and market better, you know? So yeah, anyway, I think that’s a good place to…

Matt Mulcock:
Yeah, not every one of these DSOs are created equal. That’s what we’re trying to say, is just because they say this or that, does not mean they’re all the same. Every single deal is very different.

Ryan Isaac:
So, to wrap this up, I guess this is a, this is the first discussion. Again, there’s a lot of people to interview on the show, that we’ll have on to hit different angles from this, but I think this is a good first step in just telling our experience, anecdotally, what we’ve seen clients go through. This is not going to go away, the money’s probably going to be pretty sweet for years to come, I’m sure, I don’t know how long. I talk to people all the time that have some predictions on, in five years, the money will, the multiples won’t be the same or seven years, I have no idea. But it’s good, it’s not going to go away.

Matt Mulcock:
There’s no question. [crosstalk 00:33:49]. It’s happening. Some portion of the market is going to be consolidated, it’s already, it’s happening before our eyes.

Ryan Isaac:
For sure. And their growth rates are speeding up. I was reading something this morning that talked about, the growth rates of DSOs, for the first decade, from when they came on the scene or what they’re seeing now, in three years. So, it’s happening in a, probably hit a threshold where enough private practice dentists don’t want to sell anymore, and enough people don’t need jobs from larger entities and there’ll be an equilibrium in and balance there. But, I guess here’s the lesson, is if you’re going through this or you’re getting an offer, just take a lot of time to sit down with people who know your situation well, and just really talk things out with them. Try to get super organized, try to project your future as much as you possibly can, run different scenarios, talk to a CPA, please have an attorney as you go through these and you write up contracts, oh my gosh, please have an attorney.

Matt Mulcock:
Absolutely.

Ryan Isaac:
Please have a CPA involved, financial advisor, these are people that will help you walk through these situations. And another thing I’ll say, it’s a little shameless plug, but it’s much easier to make these decisions if you’ve been working with somebody for years, and then it comes across your plate versus, you don’t have a team, you don’t have an advisor, you don’t have a good relationship with a planner who knows your situation, who’s watched your decision making, who knows your life, knows what you want out of the future. And then you go to try to figure this out in the moment.

Ryan Isaac:
Thanks for joining us. If you’ve been a long-time listener, we seriously appreciate you always coming back and we hope this is helpful to you. If you have questions or you have topics you’d like us to cover, anything, even if it’s super specific, it’s actually almost better, go to Dentist Advisors discussion group on Facebook, and just post a question, we’ll turn it into an episode, we’ll even answer it on the spot there, with a little video or response. Or if you’d like to chat with one of us individually, about your own situation, some of the decisions you’re trying to make, and that you’re facing, go to dentistadvisors.com, click on the book free consultation link, and schedule a chat with one of us.

Ryan Isaac:
And, it’s good to be here, Matt. It’s good to see your shining face, on my Zoom screen, as always.

Matt Mulcock:
Thanks to you, as always.

Ryan Isaac:
Thanks for being here. We’ll catch you next time. Everybody have a good week. Take care.

 

Practice Management