Episode 104 – The DSO Market

“For those dentists who hate management or are looking to sell and retire, the advice I would give is go to courses, learn management. You’ll find that your productivity is going to go up which will increase your EBITA so you can be attractive to buyers.”

This is something no one wants to talk about: selling to DSO networks.  It seems to be the formula that when a dentist is ready to retire or wants to sell, they sell to a DSO. And this scenario seems to be something that’s going to be around for a while.

I’ve been involved in looking at DSOs for a while now and a lot of dentists want to run numbers by me. I often get asked, “Is this a good DSO?” Well, that depends. They’re good….if they’re the right fit for you. Each one has their own twists and turns. So instead of answering your questions, let me ask you a question instead: If you were going to sell your life’s work, wouldn’t it be prudent to talk to more than just one person or group?

Today I’m going to dive into some topics and questions that would be prudent for you to understand before you sell your life’s work:

• Answers about your business you should have a clear understanding of
• Who to talk to, and what questions to ask them
• Percentages and upside potential – some things to consider

EPISODE TRANSCRIPT

Hi, this is Dr. Bruce Baird with the Productive Dentist Podcast and this is episode 104. And I thought it would be a good time to talk a little bit about something that nobody wants to talk about. Unless you’re involved, and that’s the DSO market, I just got finished attending the conference and in Denver this past weekend. And it’s a you know, I think this is something that’s going to be around, you know, for a long time. And there were multiple PDA doctors that were there. 

And it seems to be kind of the formula for when it when a doctor is ready to retire or ready to do away with managing the practice, that they go and decide they want to sell the practice to a DSO and the the interesting thing that I was investigating, and I’ve been involved kind of looking at DSOs. I sold my practice 10 years ago to heartland dental. As most of you know, the reason I sold it was because I had started a couple other companies finance company, Compassionate Finance and of course, Productive Dentist Academy has been going on now for almost 17 years. 

But so I just had so many other projects, I thought this would be a good time to do that. What I’m seeing is that’s kind of interesting, is it’s its own most I don’t want to use the word, everybody’s coming up with a new idea, a new way of doing it, we’re going to pay you four and a half x, your EBITA multiple, we’re going to pay you six but you don’t get you know, you don’t you don’t get certain things. 

And I will tell you that you know, you really it, if you were going to sell your life’s work, which I had that conversation with two PDA Doc’s this weekend, if you were going to sell your life’s work, wouldn’t it be prudent? First of all, to talk to more than just one person at one group? My suggestion would be, you know, talk to five, you know, four, or five or six different groups, look at their different options, look at the different things that they have available.

And because what you’re going to find is, every one of them has their own little twists and turns and I get the questions all the time. Well, what do you think about this group? Well, they’re good, if it’s the right fit for you, if it’s it, you know, if Are you going to continue to own a portion of the practice? Or are you going to be selling the entire practice and working for the DSO with some upside potential with stock and and those types of things? Because those are really questions that you need to have a really clear understanding of and a clear answer of before you sell your life’s work. 

Now, if you’re out there, and you’ve been and I’m going to use another example, I’ve seen some Doc’s that are 35-40 years old, that are selling. A lot of these guys are selling to the dsos. But they’re also influencers in the marketplace. And they’ve gotten deals where you know, as they tell their friends, you know, they make some additional revenue off of referral fees. So you need to be aware of that. So if somebody says, Oh, yeah, I sold to them and you should let me give you the information and there’s nothing wrong with that. But you’re going to be able to ask those people a lot of questions. Well, what do you like about it? Are there any negatives? Are there any things that that don’t seem to fit in your practice? And, you know, those are going to be the kind of the questions to ask. 

But if I was a young dentist, and I always tell a patient, this is what I do, if it was me, but if I was a young dentist, and I just hated management and all that stuff, then my first suggestion, go to classes, go to courses, learn management, learn leadership, learn those things, because what you’re going to find, and I’ve talked at on some past podcasts is you’re going to find that when you do that, your productivity is going to go up, and your EBITDA is going to go up. So I tell this to anybody. If you’re thinking of selling your practice, and you’re pretty committed to that, give yourself a three year window and increase your EBITDA increase, that productivity is going to do nothing to get better. 

And your take on three years of effort is going to be massive compared to what you’ve done in the past 15 years, or 20 years. And that’s really what Productive Dentist Academy specializes in, we take practices that are doing 800,000 to a million, and within two years, they’re doing two and a half million or 3 million. Now, what I will say is some of the dentists at that time decide, hey, I kind of like this, and I’m doing very, very well. So and I mean, maybe I don’t want to sell anymore. So it is a I don’t know, it just gives you that three year window. 

Now if you’re at that time, where you’re thinking about potentially retiring at some point in the future and say, three to five years, another time where productive dentist Academy, you know, we take these Doc’s and again, grow the business for retirement. And anytime, anytime you focus on something, give yourself a three year window focus, because I can tell you after 40 years in practice, I mean, there were years that I was focused, and there were years that I wasn’t I tended to be very much business focused anyway. And I always increase production. But a lot of offices go through these ebbs and flows, kind of where things flatten out a little bit for a couple of years. 

And then they go to a couple seminars and they get excited again, and, and so it’s a it’s kind of an ebb and flow the every seven year burnout. There’s lots of reasons. But if you’re thinking about retiring, if you’re thinking about selling your practice, if it’s a major medical emergency, something of course, you’re going to need to find somebody quickly. But most of the time, it’s not, you just get fed up, and you just say okay, I’m selling, and I heard that from several people, but just don’t get fed up for three years. 

Just say I’m going to focus because that focus could mean an extra 500 to a million dollars to your bottom line and retirement which gives you choice, which gives you lots of things to look forward to plus, it kind of changes your overall overall behavior to something where I’m excited again, I’m going to grow this practice, and let’s see where it goes. So you know that that’s another suggestion I have. Another suggestion is, you know, when you start talking to multiple dsos, you’ll have sound that say we pay you 25% of what we collect on you. Some say 30 Some say 35. Some say 40. You know, what, what do you take? Well, I when I was teaching at

at Baylor to the freshmen dentist, I’m in my freshman year, the senior students on practice management, I asked that question 25% 30 35% Which guy? Which would you guys like they all raise their hand to 35%? And I said, but what if the one at 30% gave you unlimited new patients that you can see, or the one at 25% where you could have and had great financial arrangement options that they have so that more people could say yes to treatment. So you get to end up doing more demonstrate. 

You know, and in your own practice when you’re thinking about selling, you know, okay, how’s that gonna affect what other add ons do you guys have? How do you look at case presentations? Do you want? Do you want patients to go through hygiene first, which you know, Productive Dentist Academy believes how to go to the doctor first. So these are just questions to ask what I will tell you if Europe if you’re a butt kickin practice doing three and a half million or 4 million, I don’t care who buys you, they’re not going to mess with you very much. But if you’re an 800,000 toe now most of the practices that are being picked up by dsos are in the million plus range. But you know that they’re gonna want to give you advice and that’s fine. And maybe you need it and they’re gonna give you some they’re obviously there. 

Overhead is going to be reduced. So these are all things to think about. You know, what would change, talk to some other people that have sold and use your own networking, they’re fine. As some buddies put it on a Facebook group, does anybody know anybody who’s sold to heartland? Could I get their number anybody sold me to anybody sold spds Pacific dental services anybody sold to. And I could go on this list now for 102. For the entire podcast, I mean, there’s probably 120 really active dsos and there’s more coming every week. The they say that they want to be 30% of dentistry, my guess is it’s probably be closer to 50% will be in a DSO environment. 

And another 50% will be what I would call a high value fee for service practice with a super GP and some associates. And so those are, again, just thoughts that I have along those lines. Again, what about upside potential with these DSOs I have seen some where you get stock. As a matter of fact, I’m I probably made as much or more in the stock that I own with heartland dental than I did on the sale, which is really interesting. And I continued to increase my production because I could focus pretty much on just that. I wasn’t having to worry a whole lot about about office and how it was running and everything. 

Although Don’t, don’t be, don’t be naive to think that you’re probably going to keep doing the same things you’ve been doing. It’s a lot of the regulatory a lot of the HR, a lot of the additional things that you have to do that get taken care of in that DSO environment. So I like that, from that perspective, it does take some of the pressure off. more things to think about with a DSO is there upside, again, potential for stock, I would be very hesitant. If you have a company that says we’re going to give you let’s say that the most I’ve heard is maybe a six and a half x of your EBITDA. And then we’re going to give you another opportunity down the road when we have a recapitalization or new money comes in at 13x to sell another portion of your practice. So you’re going to sell 60% of your practice at a multiple of 6x. 

And then we’re going to sell 20 more percent at a 13x and then we’re going to sell another. That’s okay, if they have a track record of doing that. But if you have a new new group that’s out there that saying this is our plan, I want to know first. Alright, how many practices Do you have out there? We have 13, okay, with big plans, and they’re spending big money and they have money back. Be careful, because you know, not all these dsos are successful. So look at the fine print, look at all the things that you need to look at and talk to other people who have done it, NASA those questions. And again, with Facebook, and with those social media platforms, you can pretty well find other people now if they just send you their three picks. The top two these guys, okay, well, that’s going to be good, but they’re obviously going to be people who say this is an awesome, awesome group, awesome company.

And, you know, that’s something to think about when you look at longevity of the company, and they’re promising Oh, you’re gonna be able to increase your, your, your profits from this 5060 times, which I heard this weekend. I’m like, You’re nuts, buddy. I wouldn’t jump on that bandwagon. Because first of all, their fiduciary their responsibility is to under promise and over develop or over deliver not to deliver them, you know, say, Oh, we you might get a dx, that’s a sales technique. That’s somebody selling you a bag of bullshit, you know, in my opinion, so be careful with that, you know, so, and if you have questions, I mean, I’m not at the expert. But if you have questions, feel free to send it to me, we’ll do a podcast on it. Bruce at productive dentists calm as many of you know, and, you know, we’re going to continue to kind of support all the listeners with just different thoughts and different ideas of things that are on the forefront of dentistry, and there is a bunch of it. So I hope you guys have a great week. Look forward to next week’s podcast.