2019 APAC DENTAL FORUM- Clinic Expansion Models with an Eye for Exit! Part 2

Generational opportunity because there's so much money out there that are throwing at these DSOs that are not dentist money. These are private fund money, family fund money and so forth. They typically provide clinical support. They started having.

Their own practices until they find out that they need to change their strategy so they have the more dentist friendly in the marketplace.

And as I go through this presentation, you will see that some of these methods are more dentist friendly because of the fact that they provide more value. So now the DSOs allow you to tip your toe in the water.

Go on with them until they prove themselves that they can do a good job for you in terms of marketing, in terms of support, in terms of building your revenue before.

They ask you to convert over fully to become a conventional DSO model.

An example of the DSO is the Heartland Dental which ended up at the biggest valuation ever. I think it was over 1, $1 billion. And they have now, I think over 1,000 locations under their management. They didn't start, they started owning, but then they started having resistance in the marketplace. So now they have become purely as a clinical support.

Center. American Dental Partners in Boston is another example.

Then we have the dental buying clubs. These are becoming more and more popular. Sometimes dentists, they like to get together and compete with the DSOs and they call them your DDS owned DSOs. They go for different names.

In this situation. They aggregate all the different doctors in one estate or different states.

And they help them save money on cost of material. Now the ones that are successful, it's not just about saving them money, they also provide some sort of a value. So the doctor has an ability.

To either sell their practice to them or have a replacement. In terms of cases is disabled or dead.

The membership pool is used to increase visibility and brand recognition.

And a very good example of this is the.

Smile Source, which they initially were in the optical business. They grew that business to several billion dollar in revenue and then they sold it off. And now they're doing the same thing in dentistry. And you see many of these popping up.

My favorite one is the virtual merger model, which I like to call that an Uber model of traditional mma. It's basically a financial integration model that is not about running a business focused on marketing accounting.

This is more about focus of marketing accounting and finding a buyer. It's a quick way to consolidate the practices. You can do a lot of.

Integration before.

Money is exchanged.

It's easy to implement with simple MOUs and very limited legal liabilities.

The trend looks as strong because you are providing a value to Dentists who cannot sell their practices on their own, or if they were going to sell it on their own, they would get a very low multiple on their practices.

And because they're not enough.

Buyers who replace these practices.

They tend to like joining a virtual merger company and is more friendly to the dentist community because it's a win win situation for everyone.

And the dentist can stay on as long as they won't. Based on the arrangement that you have with them, they can work and become a growing partner.

There's lots of high upside potential for investors because there's a lot of cost cutting done after.

The company is sold to the investors.

So you basically set up a new company.

You source different little groups, they're all looking for exit at the same time.

Or within several years you structure a deal with them, you sum up all of their accounting.

Put all the revenues together, then you find a buyer and you sell it at anywhere between 8 to 15 times your visa.

And you pay them three, four, five, whatever you decide. Now what determines the value is how you put this together. Are you going to have a rubber band around these? Meaning you have bunch of groups that you bring up under the same brand and you call them ex demo or do you actually have integrated systems of accounting management, hr, legal, finance, softwares, everything speaking the same language, Everything is based on a single dashboard.

If you are able to glue them together well then you are able to have a much higher valuation at the time of exit.

An example of that is Emergency Dental Care usa. They're growing very rapidly. Same day dental.

They are just finding affiliates. What sort of service or level of integration they do, I do not know. It's not a public information. We're trying to find out, learn more. But on the projects that I am personally working with, we try to integrate much as possible before we go to the market.

So let's look at these through some situational lenses.

And all of these are just a visual comparison. Don't try to make anything out of the graphs I just put it on. And these are what I look at personally when I talk to doctors. I want to know about their investment plans, how much money they have to invest and so forth. So let's go through these for sake of time, I'm going to try to run this quickly.

Required investments so how much investment is required for each model? If you have an organic model versus M&A. Obviously M and A requires the highest amount of investment. Okay. The licensing and the VSOs and all that are pretty much on the lower level. DVC is Fairly low. And virtual mergers. Really there is not much money involved in bringing these companies together.

Profitability wise. If you need to show quicker profit again, I will focus more on M and A for virtual mergers. The rest of a licensing franchise. It really depends on how many numbers of units you're able to sell. Organic is going to be very, very slow and nurturing process.

Cash flow. I work with some groups in Africa for example which cash flow lending is very popular. So for those groups, if they want to grow.

Cash strategies that creates more cash flow is better such as dental, buying clothes. Because many times they can run their revenue through their main company. So the dentist basically pay their company so they have a higher cash flow. Or some of the markets where the insurance is highly saturated. And cash flow lending or factoring is also very, very popular. To grow those companies or finance them.

Some companies are looking for hard asset lending, financing then organic and merger acquisitions as well as virtual mergers. They would definitely provide.

The biggest amount of assets or show the biggest amount of assets. The balance sheet.

Perception and ease of branding. Organic obviously is much easier than ma. A lot of times M and A they have a hard time if they're already taking over a well established dental group that they already have a good name. Now we got a new name coming together.

Licensing, there's co branding involved. It's, it's, it's.

Not as good as the like franchising. Franchising, you have more control over the branding, the bm, the virtual merger. You can build your brand from the very beginning and focus on the brand.

Investor comfort level post transaction and management. Obviously organic is typically they're a single management who has grown their company. Investors may not be as comfortable with them. They usually require them to stay on longer. M and A typically there are multiple layers of management in investors are more comfortable and the rest of them are basically.

You know, it depends on how many management levels they are. Okay.

Valuation. What is the potential for valuation? Typically M and A and virtual mergers have end up getting much higher valuations. Again, part of the valuation is cost cutting, how much they can benefit from cost cutting and virtual mergers. You can certainly show that to the investors. How much fat you can earn from that.

How quickly to show growth and ad revenue. Again, MA and VM are the highest and organic would be the slowest privacy in Asia. I have a lot of clients that are very private in their affairs compared to North America. If you need to have a lot of private affairs that you need to keep it fairly organic. Because as soon as you do M&As and, you know, you start exposing, you know, your numbers more and more franchising as well.

You have, you have more control over your numbers because these are private offices that you are, you know, basically bringing on.

X factors like macroeconomic factors such as.

Political issues, currency fluctuations, social factors, you know, technological factors, you know, organics are typically affected the most because of the fact that everything is through their cash flow. Okay, so if there's a new regulation or if there is a new standard of care, all of a sudden they say all dental clinics need to make cone beams as a standard of care for implants. Then that can affect those with companies that are focused more on organic because of their blood that comes from their profit.

So I'd like to end this, summarize and end this presentation with a video.

Dentistry is going through a rapid change.

And the opportunities for those leaders that are creative thinkers.

They are bold enough and they know how to make win win situations themselves and other dentists are there, jump in and grab the opportunity in front of the eyes of their.

Now I'd like to finish this presentation by final quote from Steve Jobs.

He said, when you look at your competition.

Don'T ask, how can I do it better.

Look at your competition and say, how can I do it differently? Thank you very much for your attention.