234: Why $1M–$3M EBITDA Dental Practices Get the Highest Valuations

In a dental practice that's heavily reliant on the founder to operate on a daily basis, there is a tremendous amount of risk. So the more you can do to bifurcate the production among multiple providers, the more you can do to delegate, the better off you're going to be when you go to monetize the practice.

Hi, I'm Emmett Scott, and just like you, I've had my ups and downs in the dental industry, but times are changing. The DEO has built a map of how to succeed in one of the most challenging industries to navigate. On this show, we talk to dental industry leaders, solve problem and get you the answers you need to face these challenging times and thrive. Welcome to DEO's Growth Secrets podcast for dental organizations. Now let's get started. Hello, everyone, and welcome to another episode of DEO Grow Secrets. I'm your fearless host, Emmett Scott, and today I've got Brannon Moncrief from McLaren and Associates. Brannon, so great to be with you, man. Anytime. I want to know where the market's going. I know to bring Brandon on here. So how are you doing?

Good, man. Good to see it.

Good to see you too. I mean, let's jump right into it. I think, you know, market conditions seem crazy on a macro environment, whether it's Trump tariffs or, you know, everything that's happening on a world basis. But to be honest, as dentists in the dentist industry, we're just always trying to boil it down to what's happening for us and what does the market mean for us. And so I think I like to start maybe top down here. You know, transactional stuff. What are you seeing kind of in the marketplace? Big players, medium sized players, small players, what's happening, what's frozen and what's rolling?

Yeah, the good, great question and a good place to start. The good news is that deals are still happening. So I think there is a story out in the marketplace that deals either aren't happening or that valuations have fallen off a cliff. And that's certainly not what we've seen in our space. I mean, the market's not quite as frothy and it's a little bit more choppy than it was back in 2122 when the market was super frothy. Any business could be sold at a premium multiple. Today, deals are closing, but they're taking longer. The deals typically involve more diligence, they have more structure to them, and class A assets are still trading at a premium comparative to their pre Covid valuation levels. So valuations have softened slightly for class A assets comparative to peak of the market in 21 and 22. But if you've got a class A asset, if you've got something that's valuable and built to be sustainable long term, a business like that is always going to have demand from buyers and a strong valuation. When you go to monetize it, it's those businesses that would be classified more as like class B, Class C assets. A long story to tell. Messy financials. Maybe the owners want to sail off into the sunset. In short order, those practices are harder to move and you've seen more compression on valuations from that perspective. And then I will say, you know, over the past few years, given that we've been operating in a different macroeconomic environment with elevated interest rates, the capital markets being a little tighter, we've seen compression really at the bottom of the market and the very, very tip top of the market. So what I mean by that is demand and valuations have softened for practices with EBITDA of less than 500,000 and demand and valuations have softened for businesses with EBITDA of more than 5 million. But that sweet spot, kind of a million in EBITDA all the way up to about $5 million in EBITDA, still a tremendous amount of demand. Private equity still feels that the dental industry is a great place to put money, but they're being more prudent in who they invest in and how they structure deals, which I think is called for. You know, there's been a little bit of brain damage that some DSOs have gone through over the past few years. You know, financially, operationally, most of them have now gotten their ducks in a row. And as a result of the macroeconomic conditions improving a little bit, you know, over the past year, with interest rates starting to come down a tick and the capital market starting to open back up, we've actually seen some recaps of some midsize DSOs all the way up to, you know, a couple of large DSOs here just in Q1 of this year, you're going to see several more recaps announced over the next 90 days of mid tier DSOs that are trading for, you know, 12 to 14 times EBITDA. Not those elevated multiples of 15, 16, 17 times EBITDA that we saw in 21 and 22. But still, you know, great EBITDA multiples that are generating a nice amount of return on invested capital somewhere in the 2 to 4x range.

ROI on invested capital in that 12 to 14 recaps. What are the EBITDAS typically to. To be up in that range?

Yeah. So I mean you can be anywhere from 20 million in EBITDA, you know, all the way up to 100 million in EBITDA. Right. So we've seen, you know, does medium sized DSOs, 50 to 100 locations, 20 to $40 million in EBITDA, you Know, trading in that 12 to 14 range, you know, all the way up to, you know, MB2, you know, traded in Q1 of 20, 25 at an EBITDA multiple approaching 13.

Awesome. You know, one of the things that you said that I think is interesting underneath this, we kind of focus on the macroeconomic noise and interest rates and those which are all have impact. But you said something else which is, you know, the brain damage of DSOs and private equity. I'm going to reframe it as like the maturing of the market too. Right. And so you get into a fun, frothy market, let's call it.com, which we're now seeing on the AI side. And what you don't have at the beginning is a level of maturity and wisdom on which.com is, you know, beer.com and which one's Amazon.com and is going to pull off something good. And right now, you know, in AI, it's like, which one's going to be the AI for the future. Well, I think the same thing happens in dentistry at a much more granular level, which is what does a good product look like? Right? And not just good clinical, but good business product, good culture, all of those things. And what am I willing to tolerate, what am I not? And a little bit of it is Groundhog Day where you run into a bad situation, you try again run into until figure out if these things are true. We have really good outcomes. What are you, what are some things? Let's say that for the most part multiples held, you know, similar. But now we even have these classifications of class A, B and C where before just roll it up and go, what do you think is happening in due diligence, where if you were going to create the ultimate checklist for someone that they said I do want to be class A, you know, just personally what do I need to build? By the way, financially, I'd like to be classified as class A too. What would be the short list of items that maybe existed in the past, maybe have now recently gotten added of? Yeah, you're going to need to have this a little cleaner than you used to.

Yeah. So a lot of it comes from? How are these DSOs being evaluated on the back end when they go to recapitalize? They're approaching those conversations from an acquisitory standpoint in the same way as they evaluate the businesses they're potentially going to buy. So they're looking at, you know, what was your growth thesis, what was your investment thesis from day one? In other words, what did you set out to build and have you stuck with that thesis throughout the growth of your business? So were you a de novo model? Were you an acquisition model? You know, what specialty were you focused on? What geography were you focused on? So in other words, you know, do you have density? And has each additional practice you've added been accretive? Are you growing? Are you making the businesses that you're starting or buying better than they were previous to your involvement?

So, Brandon, I mean, they're kind of having to begin with the end in mind, so to speak, and say, all right, when we go to sell this and recap in the future, what's going to be our story? So they can't just like do the, well, it's dentistry. Let's oh, that looks like a good practice. Oh, that looks like a good practice. Because then they turned around, they're like, so now we have a hodgepodge, multiple states, multiple specialty, et cetera, and no real story of management and leadership here. So now they're kind of beginning with that and saying, you might be a good asset, but you don't really fit who we are trying to become. Ultimately.

Yeah, absolutely. They're planning for the diligence they're going to incur on the back end when they go to recap. So they've evolved their diligence process in the same manner. Along with that, you talked about the maturity of the marketplace. You know, once you've bought 50, 100, 200 practices, you've made some mistakes and you're not going to repeat those mistakes. Also, a lot of these DSOs, given that they've now been around, you know, five, seven, 10 years, they're starting to go through succession planning with the doctors that have fulfilled their post closing employment agreement. And those doctors are getting ready to sail off into the sunset. They're being tested from the perspective can they succession plan those practices and keep the revenue and EBITDA levels stable when the founder steps out? So another thing that they're looking at is Dr. Retention and alignment. And what are the plans of the founders? What is their Runway to exit? What is their why for pulling the trigger on pursuing a Partner and making sure that they built a business that's sustainable long term. So do you have associates in place? Have you bifurcated the key man risk and spread the production out among multiple providers? Have you bifurcated the operational and managerial aspects of the business? So they're evaluating, yes, the business has performed well over the past five, 10 years, but is it positioned to perform well over the next five or 10 years, you know, through a recap cycle? Because one, if I'm the investor, I've got to get to a recap with the business intact, but I've also got to convince the investor at recap that's considering buying me the platform DSO to, you know, invest in, in your business. So they're looking at that, right? So they're looking at Dr. Alignment, they're looking at Dr. Retention, they're looking at key man risk from.

Can I hit on that one first?

Absolutely.

Because I think that one's an interesting trap for a lot of clinicians. You know, you come out of school, head down, I want to be the best clinician ever, take a ton of ces, increase the capabilities that you have personally. Nothing wrong with that, by the way. But then maybe you keep pushing on that same button of capability. Pretty soon you have a practice doing $3 million and you're two and a half million of it or something like that. Some, some DSO private equity comes along, says $3 million practice. I absolutely love this. Holy smokes. Way better than a $500,000 practice. They buy it at some point, you're like, cool, thank you guys so much. Spend my period of time, three, five, seven years, whatever. And by the way, you're going to recap, I'm going to go ahead and leave and everyone goes, wait, that's right, you are. Wait, how are we going to get the same production again? Practice drop, you know, and so to your point, you do that one or two times and you start going, hey, cool that you do a lot of production before we're willing to buy you. What's going to be the succession plan or you've actually backed yourself into a corner here. We need to see some other associates doing the production. And in fact, if you could make yourself a little less important to this practice, you'll increase the value of it. So just wanted to call it out there, when we say key man risk here, sometimes that can be a little counterintuitive, which is, you know, decrease your value to the practice in order to increase the value of the practice. Right?

Yeah, absolutely. And I mean, that's what it really means to build a meaningful business. Right. In general, whether it's in dentistry, whether it's or another business, to build a business that is not so heavily dependent on you day to day to operate. And because PE, because DSOs have now gone through succession planning with a large number of their practices, they realize that in a dental practice that's heavily reliant on the founder to operate on a daily basis, there is a tremendous amount of risk. So the more you can do to bifurcate the production among multiple providers, the more you can do to delegate both chairside responsibilities and management responsibilities, the better off you're going to be when you go to monetize the practice. So you're going to see more demand, you're going to see higher valuation and then probably less guardrails around what your post closing commitment is going to look like.

Yeah. The more you've created a business, the less important you are to have to be there forever, right?

Yep. Yeah, absolutely. And then we start to look at, you know, financially speaking, are your financials clean? Right. Is your business being run in an efficient manner? You know, is your EBITDA margin somewhere in that 18 to 25%? If it's lower than that, it could mean that there's some systematic issues within the business, but it's opportunity for improvement on the buyer's side. If it's higher than that, it could indicate that you've been operating lean and mean and you, your margins may not be sustainable. So you see the highest demand, the highest valuations when you're operating in that 18 to 25%, you know, EIDA range. If you're an outlier, you've got to explain why and that's why it's important to have somebody like us at the table to, to lean into that narrative, explain why it's a good thing that, that you're an outlier if you don't fall within that range. But we're seeing the most demand, the highest valuations really in that EBITDA threshold of a million to 3 million. That's where everybody's a potential buyer. You're likely an acquisition target for a strategic buyer, an existing dso. If you're on the upper end of that range, especially if you're multi site, multi doctor you could be eyed as a platform investment for a PE firm that's looking to establish a new dso. So if and when you go to market, the key is to create as much competition and optionality as possible. So the more suitors you have at the table the more demand you create, the more options you're going to have, the more leverage you're going to have to negotiate a great deal structure and a higher valuation and then same store sales. Growth is a huge talking point in the DSO world, especially when they go to recapitalize. Institutional investors are evaluating great, you were able to aggregate a lot of ebitda, but have you actually made these business you're buying better? Are they, you know, do you see revenue growth? Do you see see EBITDA growth? And they would much rather buy a business that's already growing than take a business that's maybe stagnant or on a downturn and try to reverse engineer it to get it to grow again and become more profitable. So you want to sell at a peak, not a valley. I'd love to be able to show year over year revenue and EBITDA growth as we go to market because it's much easier to buy a business that's already growing layer in economies of scale and operational efficiencies that continue to scale and grow that business rather than, you know, buy a fixer upper and try to get it to grow and become more profitable. DSOs, private equity are not in the game of buying fixer uppers. They want to buy healthy businesses and simply by tweaking a few things behind the veil, make them even more profitable by leveraging economies of scale.

Well, let me make this tactical too. On some of the traps that we see with members or those who join eo, you know, we have a simple saying we use, which is two doctors makes more money and increases value more than two locations. And I think the trap there is growth oftentimes gets interpreted as number of locations. If we kind of zoom out and think about this from a business perspective, a location is a set of overhead. So who in the heck wants more sets of overhead, right? Those are almost necessary evils because eventually you do maximize a facility. But what people really want to. Your point is a store, a practice that continues to grow on its bottom line and see that growth. I love bringing this back because I think at the end of the day, one, it keeps people from falling into a location trap where they definitely, you know, grow beyond their skis. But number two, for that individual dentist who says, I don't know if I want a lot of locations, you're in luck because the real value is in scaling the single location, the two location, et cetera. And then if you want to go beyond that, nothing wrong with it if you're working off of those principles I want to disclose real quick to those listening, you know, DEO now has an exclusive relationship with McLaren. And one of the reasons we did this is we really wanted to be able to go deeper with our members and take them from beginning to end and have somebody that we trusted, that we've worked with a lot, that we said, hey, listen, these individuals are going to maximize your outcome. And on the reverse, if they see something that isn't going to get you the highest return, they can then work more closely with your tribe coach within deo, our mentors, our coaches to be able to tweak those knobs, and then we could work synergistically for the highest outcome. The really fun thing is, you know, I get this question all the time, Emmett, what if I never want to sell? And then, Emmett, what if I'm trying to prep for sale? And what's really great is the path is exactly the same. You want to build a great business that isn't solely dependent on you, and then if you do have a business that has a lot of dependency on you, then with McLaren, we're able to say this is appropriate to sell to another dentist. Right. And so we can pivot. Or maybe you have a practice that when you look at it from a passive income, net income perspectives, not super strong, but the practice itself is a good practice. Maybe that's one you want to spin off, sell to a dentist, and then the rest of your group, you go ahead and sell that upstream strategically. So now with this partnership, we're able to be very strategic in our coaching and with our members to really maximize return, which is really awesome, you know, for the industry and for. For our members. So thankful for that. One of the things that I think I see as a trap commonly is on the tax side. It's common for the CPA to say, hey, pay yourself as minimal as possible, do the rest as distributions, which is cool tax strategy wise, but it ends up overstating the net income of the business. And I think that causes two traps. One is, you think, oh, you said 18 to 20%, I'm 30%. Right. Well, what if you were paying an associate to do the work you're doing? Where are you at? You know, so that's one thing is you might overstate how well your business is doing. No worries. Deo help you out there. Number two. What was my number two on that? Oh, is that it might. It might lend itself more that you do want to look at the business that way and pivot towards selling it to another dentist because really what you're doing at that point is you're saying, hey, this is the, you know, the, the income stream of this business, both from being an associate and from being a business owner. Maybe once I right, size those numbers, I can't really sell it to another DSO or pe, but I could use those numbers to, to sell it to another dentist.

Right? Yeah. I mean, hopefully the case is going to be that the majority of your members build a business that has significant absentee owner profit, or ebitda, if you will. We were trying to point out is, you know, we see ebit analysis from CPAs all the time that are wildly inaccurate because they're not accurately accounting for the Dr. Compensation component. Right. So when you calculate EBITDA, you have to add back all the owner compensation and benefits and then back out a market wage for the owner to actually do the dentistry. So EBITDA is how as you hit

on some point, that doctor is going to leave and we are going to have to replace him with an associate.

Exactly. And then you have to look at, well, what is market comp? And most what they're likely going to look at is what are you paying the other doctors? Right. So what you pay your associates is likely what you're going to be paid post sale. But you've got to make sure that you have an accurate doctor comp adjustment within that EBITDA analysis to truly arrive at ebitda. Or you could be misrepresenting your EBITDA and misrepresenting your margin, and you may have a business that's not as healthy as you think it is, or vice versa. So that's why I think it's really important to get an objective EBITDA analysis done very early on. So we're working with a lot of members now doing valuations for them, doing EBIT analysis, you know, two years out, five years out, 10 years out from a sale to really educate them about what is their current ebitda, what's their current margin, what levers do they need to pull and how can we, you know, work with DO and the coaches to extract as much value as possible. And you said it earlier, you want to build your business in a way that you can own it forever, but you also want to build it in a way that should you pivot and look to monetize it at any point, it's going to have value. Don't procrastinate, don't say, yeah, I know my business is a mess right now, but I'm going to get to it. And I'll start cleaning it up a couple of years prior to a sale. The reality is, what often happens is you call me the day you're ready to sell and you're mid stride and cleaning everything off. And now I've got to work with, you know, a lot of the mistakes that you may have made along the way. And the marketplace is not in the position to reverse engineer the way your practice is constructed.

So it's very give you value for your future potential.

Your potential. Yeah. People don't pay for potential. Right. So you want to extract as much potential as you can before you go to market. So it's critical to plan in advance. It's been a lot of fun, you know, getting to know a lot of the members early on in their. Their growth cycle to educate them about everything we're talking about today and make sure that they're very purposeful and building a business that they could own forever, but is also going to have a lot of value if and when they pull the trigger on taking it to market.

Going to back to that net income versus associate pay calculation. I'd also say the real value in doing that early on is, you know, we were talking about this key man risk. I've watched Dennis go, you're right, I need to stop doing so much of this production. I'm going to go hire an associate. And they never did that math. And I don't know, somehow they thought that the distribution would stay the same. They didn't realize that the distribution was made up of both what they were doing as an associate. And so then they're like, this associate's terrible, you know. Well, no, what's happened is you're now paying for that associate P. So by doing the math early on, you really understand how much passive income you have as a business owner, how much associate income. And then you can work your way out strategically a day here, a day there, until eventually you have, you know, you're able to live off of purely passive income. So it's great information. One of the reasons as soon as a member joins getting their P. Ls organized and starting to understand their different roles and their different cash flows is so helpful to them. I want to pivot to a conversation you and I were having, which was around roll ups, Right. And I think, you know, roll ups give DSO is a bad name. But how would someone define the difference between, let's call it a strong culture, well managed dso I'll put that in one bucket. That is growing quickly. Okay, so it is buying practices Here, here and here. And one that you would put in a roll up type category. How do you define those differently? And why is one you're like, no, that's great, and the other one you're like, that's evil.

Yeah, no, I love this question. So, you know, when you go to monetize a large business to institutional investors at recap, what they're looking for is a fully integrated platform where you've got a combined cap table, you've got an investment thesis that has played out in the way that you've grown. You've got geographic density, you've got commonality among the practices that you own. So they're all the same, the general or all the same specialty. They're located, you know, in the same geography or relatively similar in regards to their payer mix and service mix. And they're a true professionalized, fully integrated platform.

People like being there. It's a good culture. They like. Yeah, yeah, they all feels like a business.

Yeah, exactly. And they all hold the same, you know, form of equity. There's a corporate headquarters, there's a C suite in place. It's, it's a real business and it's built to be sustainable long term. Right. And continue to scale once the recap occurs and the new investor, you know, steps into that seat. As opposed to. There's been this concept in the marketplace that really came to fruition when the market was super frothy and you could sell anything. That's when a lot of these concepts come into play that are a little, you know, further out there. And this concept is that you can duct tape together a bunch of unaffiliated practices. They need no commonality from a payer mix, a procedure mix. They need no geographic density. And we can combine 50, 100 practices and pretend that they're a fully integrated DSO and try to convince private equity to pay the same multiple that they would for. You know, the previous iteration of DSO that I described and the way these things typically look is whoever is building this duct tape DSO or faux dso, whatever you want to call it.

Yeah.

They typically charge some type of initiation fee to join the group and then they'll charge monthly management fees to lightly integrate the group. So they may be charging each practice in the group $5,000 a month with this promise that two years, three years down the road, they're going to monetize every practice in the group for an elevated multiple, 12 to 15x comparative to what the individual components would sell for on their own. 6, 7, you know, 8x today. And the reality is who's ever pitching that concept gets uber rich along the way. They provide essentially no support. They don't really integrate the business, but they think $5,000 a month from 50 to 100 practices, they're making millions of dollars a year irregardless, if that unicorn deal ever comes to fruition. And the likelihood, like the opposite of

ds, there's no support organization, there's no

support, nor is there any cash. The cash is moving the opposite direction. Right. So when a legitimate DSO or private equity firm buys your business, they're going to give you anywhere from 50 to 70% cash up front and then you're going to hold some form of equity, whether it be retained equity in your own practice, equity in the holding company of the DSO or a combination of the two. So there's real value exchanged. And then that DSO has infrastructure and economies of scale they're going to offer to the business day one. The roll up concept is the opposite of that. Rather than you receiving cash, you are paying somebody for infrastructure and support with the promise of this cash windfall in the future that's likely never going to come. So it's death by a million cuts. What normally happens is after three years of waiting for this unicorn outcome, you know, this 12x offer on your practice, you figure out that you got duped. You call me when you're ready to actually monetize the business. The only issue at that point is the fact that you spent potentially hundreds of thousands of dollars on waiting on this unicorn outcome that's never going to come. And we're going to take the business to market on its own and monetize it for what it's actually worth. Without crazy promise.

You don't like the principle of it, partly because, yeah, it's a empty promise on a roll up playing off of a potential rather than a substantial. And you don't feel like, let's say they're paying a dollar amount, they're typically just not getting actual support for that to grow the business. Is that what you're seeing too?

Yes. It's set up so that the person pitching it wins irregardless. And I don't think that, I don't

feel like the risk is equally shared.

Absolutely, absolutely. The risk is all on the owner and you've got the asset that has value.

Dentists are smart. Do you think I've seen this? And so I'm gonna lead you, but you tell me if I'm wrong or it's something else. Sometimes the autonomy word gets thrown out there. And I've noticed that it's almost like an anti dso, but it also is like an anti support word which is, hey, here's the good news, we won't change anything about your practice. You just pay us this dollar amount, we're gonna take you to market, et cetera. So I do feel like that tends to be the lure that kind of draws them in versus a more substantial DSO is going to have standards, right? They do have best practices. That's technically why you should vet them and actually want to join them is that they could upgrade, not only give you cash but also upgrade your future potential. So I do think, sometimes tell me if that's true is that it's like, hey, here's the good news Brandon, we're not going to do anything with your practice. Just someday you'll make a lot of money from us. And I think once you play that out across 50, 100 location, who wants to buy a bunch of locations that no one's ever upgraded?

Nobody wants to buy an unintegrated group of practices that have no commonality or density because think about what a heavy lift it would be, how much money and how much time it would cost to actually integrate and build infrastructure around a group of practices that large. It's almost impossible. You have to do it along the way. It's why DSOs scale. They start with a 5 to 10 location group and they scale from there and they scale that infrastructure, economies of scale and operational efficiencies along the way. To take 50 or 100 practices that are not actually integrated and try to at that point standardize those practices and build infrastructure around them is almost impossible. And if you're going to do it, you're certainly not going to pay a premium to do it. You're going to pay a discount to do it. So there's been probably you know, 15 or 20 roll up concepts that have been pitched over the past five years. To my knowledge, none of them had come to fruition at anywhere close what they were promised. And we have sold off many of their components along the way. When the doctors realize, hey, I got sold, I got duped, I paid a couple hundred grand, lesson learned. You know, if I really wanted to monetize the business, I should have just done it in a more legitimate manner and not chased, you know, this, this unicorn outcome that was never really going to happen.

Yeah, well, I appreciate the transparency. You know, it's all, it's not all rainbows and unicorns and you do have to be Careful on the decision. And some things that may feel too good to be true, you know, still fall into that category.

Absolutely. And one thing I always like to say is, as you know, I talked to probably as many or more large practice owners than anyone else in the country, maybe other than you, with your DEO membership on a daily basis. If this worked, if this roll up concept worked, I'd be doing it right. I would be a big proponent of it if it was actually feasible to pull off. But the reality is it's not. So don't fall for that. Don't fall for anybody that's trying to pitch you that, that concept. And if you're part of a roll up, you know, call me, let's have a conversation about it. I'll tell you what I know about it. And you know, if I think there's a probability of, you know, you getting to the goal at the end of the rainbow.

Yeah. It could be a good conversation of am I part of a roll up? And, you know, or is this just something that's something different? There's so many iterations of this. So that could be a great conversation with you, Brandon. Let's talk about two good options that are different from each other, that someone might be making, which is do I go with a strategic partner or a financial partner? And kind of the nuance of those two things. So can you kind of put those two buckets? Well, I guess third bucket is do I just sell to an individual dentist? So we'll put that over here. But if, if I have kind of a larger asset, I'm looking at a strategic partner or some kind of private equity partner. And how should I think about that and which one's right for me?

Yeah. So typically, if you've got a practice with EBITDA of less than, let's say 2 million by default, you are likely going to be selling to a strategic buyer, meaning an established dso. Right. That's already got infrastructure, a culture, a deal structure, a playbook that they're following. But once you cross about $2 million in EBITDA, especially if you're multi site and you're in a geography where attractive geography where potentially private equity could come in, partner with you, and then scale the business from there, you're a fit for both strategic buyers, an established DSO and private equity or a family office, some type of institutional buyer that's looking to establish a new dso. So if you're going to partner with a strategic, you kind of know what you're getting yourself into, right? That DSO Already owns a group of practices. So you can do some diligence on, you know, who have they partnered with. You can speak to some of those doctors and get a feel for, you know, what are the pros and cons? Why did you decide to sell? Why did you decide to partner with this particular dso? What's been good, what's been bad? You can evaluate who their financial sponsor is and have they been successful in the dental space or other healthcare verticals. You can talk about when was the last recap, what was the return, when's the next recap expected to occur? What's the projected return? You know a lot about the deal structure, the culture, the underlying viability of the asset as it exists. And the DSO has already got a C suite, you know, it's already well on its way as far as being a legitimate, you know, long term player. Whereas on the private equity side, financial buyers, it's far more unpredictable. Right. You might get a slightly higher valuation and you are on the ground floor, meaning that you're going to be a big fish in a small pond. You're likely going to get a board seat, you're going to have a major say in the evolution of that DSO because you are the foundation of that dso. But it's more predictable in the sense that, you know, has that PE firm ever built a DSO before? And if so, were they successful? Have they been successful in other similar businesses across other, you know, healthcare verticals? Who's going to be on the board? Who's the managing partner within that PE firm that's going to operate the asset that's critical to know and do you get along with that person and what's their vision for the future? So it's less predictable in regards to what it's going to look like day to day and what the ultimate outcome is going to be. The upside could be higher long term from an equity value and return on investment perspective than partnering with an established strategic partner and establishment dso. From a valuation perspective, I think there's a misnomer that private equity pays more for practices than strategic buyers do. The reason being is private equity will typically pay a higher multiple than a DSO will pay to acquire the same asset. But here's the big difference. Private equity is either going to require that you have centralized infrastructure which weighs on ebitda, or they're going to have to build infrastructure around you in order to transform you into a scalable platform. Well, because infrastructure arose ebitda, while private equity, a financial buyer, is bidding a higher multiple, they are Bidding on a lower EBITDA figure because they're factoring in that infrastructure comparative to a strategic buyer, an existing DSO that already has the infrastructure intact. They don't need to inherit your infrastructure or they don't need to build infrastructure around you. They're typically bidding a lower multiple on a higher EBITDA figure. So when it comes down to it, the valuations are relatively congruent. We're just bidding different EBITDA multiples on different EBITDA figures, depending on the type of buyer and their perspective on the transaction.

The way I think about it from I guess the entrepreneur owner perspective is what do you want? And I put it into two different camps. One is, this has been awesome. Enjoyed the journey. I would love to have somebody who kind of knows around the corner what to do next, et cetera, to do the rest of this with me. Maybe age wise too, I don't see myself, you know, taking on 5, 10, 20 more locations, etc. I see myself really, you know, capitalizing on my hard work up to this point and maybe I want to do another add on here or there, but overall I'm looking for someone who's been there, done that, and, and so, you know, I, I don't know if age is the total factor, but I'd say, you know, 60 plus for sure. Maybe as I'm approaching 50, 50 plus, you go, do I really want to do a strong run here? You know, and maybe you're that 30, 40, and you're like, I got a lot of energy in me. I really excited about the platform that I have built. I can see myself doing another 10 of these things and if I could just get the capital behind me to open up the lending platforms and other things. And I'm okay with some of the uncertainty of developing and so forth because I'm excited about that. I have that energy and I think that could sometimes determine this more than you definitely don't want to do it for. The financial piece is so negligible. I think it's really the energy piece ultimately, because if you're like, cool, I just did a PE thing and I just have no energy to build more locations. You would have been better off doing this.

I think it's a great point is what do you want life to look like for the next five to 10 years? You know, selling to a strategic, you're probably going to have less responsibility. Right. And it might look like taking a step back from the business and having a little bit more free time and being rewarded for all the Work that you've put in up to that point versus if you're going to be the foundational platform for a new dso, the private equity firm's going to be, you know, putting a lot of weight on your shoulders like that, expect you to

have the vision like that is a

long term commitment and you are going to be elbows deep in it every day. And those are two very, very different world. So I like the perspective you brought to the table there. I think it's critically important.

Yeah, it's fun. Within deo, we've got individuals doing both paths, we've got coaches who done both paths. I definitely went the private equity route so I understand that going from 0 to 150 million in revenue and we have lots of coaches who have. So combining your experience and your team Brandon with DEO has been awesome for our members and really giving them choices to find what do they want. At the end of the day there's a fun saying that I love which is I can give a man anything he wants. The hard part is for him to decide what he wants and I think that's always the internal work that we have. Now. If you're a member of deo, just know you can go into the app, you can quickly go into Brandon's contact information there under McLaren and Associates. It's under our cost savings club, club area. It's under our add on services. He's all over the place and you can just talk to your tribe coach and they can get you connected. But Brandon, for those who aren't in deo, want to reach out to you, maybe have you do an assessment of where their current group is or to work with you all. What's the best way for them to reach out to you?

Yeah, absolutely. I always give out my cell phone number. Best way to get ahold of me is to text or email me and schedule a 30 minute confidential casual discovery call. My phone number is 512-660-8505 and you can also email me Brandon. B R A N N O N dentaltransitions.com that's our website, dentaltransitions.com We've got a DSO resource page there. It's got a lot of conversations just like this, like webinars, articles, podcasts. A great place to start learning and getting educated about the space. But yeah, that's where we start off with everybody. It's just a 30 minute call just to get to know you and decide. Does it make sense to do a deep dive, do evaluation, do an even analysis and be a resource to you on a go forward basis.

Brandon thanks for always being so generous, open, transparent and I really appreciate it. I know our members at do appreciate it. He did a great job at our pre event workshop here in June and I know you guys are going to be at our October 1st in Dallas as well so just awesome to be with you. Everyone listening. Reach out to Brandon if you're looking for what's that next step in your transition and until next time keep smiling. Thank you for listening to deo's Growth Secrets podcast for dental organizations. Continue the conversation on our Facebook group and meet other dental leaders. Get questions answered and the strategies you need to succeed. Plus we have some free resources for you right there on the Facebook page. Remember you're not alone. Let's do this together together. Join deo's Growth Secrets group on Facebook and until next time keep smiling.