#836: Clarity Around DSOs

Question: Will private practices be around long-term or is selling to a DSO inevitable? Episode 836: Clarity Around DSOs Get ready for a deep dive on DSOs. Kiera is joined by Brannon Moncrief, principal and CEO of McLerran + Associates, an industry leader in dental practice sales and sell-side advisory for DSOs. Basically, if you want insight about selling to a DSO, this episode is for you. Kiera and Brannon discuss: Pros and conso to selling to a DSO What common mistakes are and how you can avoid them Different deal structure examples The DSO landscape over the next 20 to 50 years And so much more!   Episode resources: Learn about McLerran + Associates Connect with Brannon: brannon@dentaltransitions.com or 512-660-8505 Reach out to Kiera Practice Momentum Virtual Consulting Subscribe to The Dental A-Team podcast Become Dental A-Team Platinum! Review the podcast   TRANSCRIPT:   Kiera Dent (00:00.878) Hello, Dental A Team listeners. This is Kiera and I am so jazzed. I have been dying for this man to get on our podcast. I think DSOs are hot right now and it's what do I do? Is the DSO world good? Is the DSO world bad? Should I sell to a DSO? Should I not sell to a DSO? What are the mistakes? I think there's so much confusion and lack of clarity around it. And I have actually found someone referred to me from a client that I think toes the line really well of private practice and DSO to really be educational. Brandon.   I don't even know how to say your last name, Brandon. I'm not going to lie to you. So tell me how I say your last name. I was going to say Moncrief. Is that right? Brandon Moncrief. Coming in today, he has over 20 years of experience as a banker, broker, and sales side advisor, and has facilitated the sale of over a thousand dental practices. That's impressive. Kudos. His firm, McLaren and Associates, provides sales side advisory to large practice owners who are interested in pursuing a DSO affiliation or private equity partner.   Brannon Moncrief (00:36.297) Moncreme. You got it. Yeah.   Kiera Dent (00:57.614) He lives in Austin, Texas with his wife and two daughters and spends his free time traveling, cooking, and being outdoors. So we're definitely going to geek on travel. Austin, keep it weird. Brandon McCreary. I think I got it. Welcome to the show. How are you?   Brannon Moncrief (01:09.545) I'm doing good, good to see you. Thanks for having me.   Kiera Dent (01:11.79) Yeah, Brandon and I are actually like swimming in the same pool. We're going to be at the same events together. He's going to be speaking with our private Dr. Mastermind pretty soon. But one of our mutual, I have a client that I've consulted for years, sent me your thoughts about his practice. And that's how I actually got introduced to you. And I just am super jazzed. Let's talk. I obviously gave your intro, but kind of tell a little bit about who you guys are.   how you even got into the DSO space. I mean, bank or broker, you already have red flags on you from most people's perspectives. So kind of like win us over. I think you're great. So they already will like you, but kind of give us some feedback.   Brannon Moncrief (01:47.273) Awesome, thanks. I have spent my adult life in dentistry. The first nine years of my career was focused on lending money to dentists all across the country to buy, start, expand practices. So in that role, I worked.   Kiera Dent (02:00.43) How did you even get there? Like, were you just like, cool, I'm on Dennis? Or did it kind of fall into your lap?   Brannon Moncrief (02:04.841) It was very random. I mean, finance degree straight out of college. I was recruited by a finance company that focused on lending money to dentists out of the Houston area. Thought it was cool that I could actually use my degree. You know, new dentistry was a good industry to be in. And yeah, took a took a leap, started off as a loan underwriter and then worked my way up to the director of business development. By the time I left that company to buy McLaren. But as my role as a banker, I worked with   all the brokers in the country and a lot of the CPAs, attorneys that we do business with today that are still in the industry. And I recognize very quickly like broker is a four letter word in a lot of markets. The bar, what's that?   Kiera Dent (02:44.782) It is. I was like, Banker broker, you really want me to say that? I'm like, you really have that in your bio. Okay, I'll say it.   Brannon Moncrief (02:53.545) Yeah, it's kind of a four letter word and I understand why. And being a banker, I was constantly frustrated with the work product and the lack of professionalism that I saw among the brokerage community. And I was like, hey, I can do this better. So that's why I decided to step out of the role as a banker and step into the role as a broker. And I bought McLaren and Associates, which was a small mom and pop practice brokerage shop, like you see a lot of them out there today.   I purchased the company 13 years ago at the time. The legacy business really focused on doing doctor to doctor, traditional practice sales in Texas, where the company was based and built the company up substantially in the doctor to doctor world, doing traditional practice sales. Got to the point where we were doing about 50 to 60 doctor to doctor practice sales a year. And then we saw DSOs and private equity come into our backyard in Texas. We were kind of on the forefront of a lot of the consolidation.   and start to acquire a lot of the elite practices that we thought we were eventually going to sell to private buyers. And we quickly realized that doctors really didn't understand EBITDA, they didn't understand private equity, they didn't really understand the different levers involved in these deal structures, and they were getting taken advantage of. And for a while, we pounded the table and it was like, we're never gonna sell a practice to a DSO, it's bad for dentistry, it's bad for patients. Hopefully this is all just gonna go away. But after a while,   Kiera Dent (04:15.086) Thank you.   Brannon Moncrief (04:20.265) you know, we started to realize once private equity comes into a vertical and starts to consolidate it, they double down and they're not going away. So once we realize, hey, DSOs are here to stay, it's our job to educate doctors, to protect dentists. That's what we do on a daily basis. We need to build out a team. We need to build out a process to walk doctors that want to go down that path, you know, through that, that the navigation of a DSO transaction. So we did.   Kiera Dent (04:29.262) Mm -hmm.   Brannon Moncrief (04:49.449) We built out another division of our company. That's the team that I lead. We've got a former investment banker on the team. We've got a couple of guys that actually worked for DSOs on the buy side that have now joined our team. We do sell side advisory. They used to work for DSOs on the buy side. Who better to have on your side if you're selling your practice than somebody who's sat on the other side of the table. So we now have a team of 13 all over the country.   HQ is in Austin, but we have an office in San Diego, an office in Atlanta. We've closed over 200 DSO transactions. We work regularly with about 50 to 60 DSOs. There's over 500 of them out there, but I certainly wouldn't sell my practice to all of them. So we're very, very careful about vetting DSOs, making sure that we only put the best options in front of our clients, and then making sure that our clients are fully educated. They understand that they do have options, right?   Kiera Dent (05:33.262) Right.   Kiera Dent (05:45.614) Thank you.   Brannon Moncrief (05:46.025) One option is to do nothing. You're right, stay the course. Maybe they just need to work with a great consultant like you to help solve some of their pain points rather than affiliate with a DSO. We have other clients that are already knee deep in the process, already have LOIs on the table from DSOs, and they need proper representation. They need somebody to kind of reset the playing field and negotiate on their behalf. And then we have other clients we talk to where it just makes sense to hang on to the business and eventually sell it.   in a more traditional sense to a private buyer. So we try to take a really objective approach to educating dentists regarding all the options available to them. And then at that point, it's a pick your own adventure situation, right? And whatever you want to do, we can help you execute at a very high level or help bring in the resources that you need to take your practice down the path you want to go down.   Kiera Dent (06:39.982) Sure. And Brandon, I really love that about you guys, which is why I wanted you on the podcast, because I feel like Dennis tell me all the time that they're getting usually like at least 20 emails a month from DSOs trying to buy their practices. And so I remember, gosh, it's been at least is pre -COVID. So either 2018 or 2019.   I remember I was out at a dental college in Nebraska and it was UNMC. And I remember talking to some students there and they said like, Oh, do you think DSOs are coming? And I remember saying, I was like, I don't actually think private practice is going to be traditional for a lot longer. And I think DSOs are going to come in pretty strong. And I don't mean to like rain on your parade. And I might be very unpopular in my opinion, but I saw the exact same thing you did of DSOs are here and private equity is here. And so.   Instead of fighting against it, instead of saying, I'm like, shoot, if I had a practice right now, I mean, I've owned plenty of practices. Like there is temptation around it to get higher multiples. There's also DSOs going bankrupt where people are losing their entire investments. There's, um, so I think that there's a lot of like unknown around it. And that's why I wanted you on the podcast is to start to educate to where people know, because I think fear only comes from not being educated. Fear comes from not feeling like you understand your options and then you feel like your pigeon holes into a zone.   that you maybe didn't necessarily wanna go into. So I really do agree with you. And also DSOs love consultants because we usually grow the practices. We help you get it to the level you want it to be. So you're getting those higher multiples. If you choose to sell to a DSO, if you choose to have it on your own, if you choose to keep the practice and sell it to another associate, it never hurts to grow your practice to X number and get it as high as you can before you sell, just like you wanna get your house to look the nicest it can.   before you sell it to get your highest multiple. It is an investment at the end of the day as well. So Brandon, I'm excited to kind of just chat through like, let's talk about what kind of like, let's start educating about DSOs. Like what questions should I be looking at? What are the pros of selling to a DSO? What are the cons of selling to a DSO? Like I really would love you to kind of like educate on DSOs. Cause I think people understand like do nothing. I get that one. And maybe like you said, look at the pain points of what you really have. I get that it feels,   Kiera Dent (08:52.846) tempting to sell to a DSO and just like wipe my hands clean. I don't think that usually happens. I'm excited for you to hear. But then the other side is they're also pretty familiar with selling to an associate or a doctor partner buy -in that way and then transitioning out. But I think some of those decisions can also impact if they ever want to sell to a DSO because I've heard a lot of DSOs prefer don't have true partners in if you're going to sell to a DSO. Don't partner in your associates potentially because it makes it messier when you sell to a DSO. So I think it's more like,   What mistakes do we make when we're trying to sell to a DSO and what do we need to do to make sure we're educated on that?   Brannon Moncrief (09:30.569) Yeah, so we always start our process with a discovery call with all of our potential clients. And the first question I ask is talk to me about your why, right? What are your goals? What are you looking to achieve? Is it that this is strictly an economic decision? You're five years away from exiting your business. You're evaluating. What would it look like if I hang on to the business for a few years and sell to a private buyer versus sell to a DSO today, maybe hit a recapitulation event and then exit the business.   Let's quantify what is your business worth in the private buyer world versus the DSO world and map out. What does a no sale, traditional practice sale look like down the road versus a DSO sale today and you hanging on to some equity for a while and then monetizing that equity in a recap. So is it purely economic or do you have some pain points that you're trying to solve for? Are you fed up with managing the business? If so, what components of the management?   Would you like to give up? And how does that play into autonomy? Are you concerned about maintaining clinical autonomy? What about operational autonomy? You're looking for better work -life balance. Are you looking to take a step back and work less both on the business and in the business? Or are you entrepreneurial and you're looking to actually lean in, continue to scale the business, maybe add additional locations, but you don't want to do it on your own. You want to use somebody else's capital and infrastructure to do so. So we always start with defining the why.   You know, what are your goals? And then let's talk about how your practice is engineered financially, quantify the economics, and then talk through options. And we do a lot of financial modeling and forecasting to figure out, you know, how each option is going to play out. You know, now annually and cumulatively over a five year, seven year, 10 year window. And that's exactly what we did for your client.   we were mapping out what would it look like if you sold to a DSO today versus sold pieces of the practice internally to associates and then eventually sold your remaining equity to a private party 10 years from now. How do these options compare? What are the different deal structures look like? What are the different avenues to get to your eventual exit from the business? And he loves what we did for him because it provided him   Brannon Moncrief (11:57.001) a lot of clarity regarding what his options were and what the potential economic implications of those options were going to look like. But even if you're five years away from selling, I think it's critically important to understand what your options are so that you can groom your business in a way that's going to make it more marketable and more valuable if and when.   you decide to pull the trigger. And I think you said it well, if you're going to sell your home, you're going to make improvements to your home to ensure that it's the sexiest house in the neighborhood when it's time to sell so that it sells quickly and for top dollar. Sometimes when you make improvements on your home, like you make improvements on your practice by working with a consultant, you decide to live in it because you've now created the environment.   Kiera Dent (12:47.566) Mm -hmm.   Brannon Moncrief (12:51.337) that you want to have long term. So I think evaluating your business early and investing in changes that can make your practice more marketable, more valuable when it's time to liquidate it is going to make your life more enjoyable along the way and then make the windfall bigger and better when it's time to sell. So we always like to start these conversations early, start this education early rather than calling me.   you know, the day after you were ready to sell. And then I have to deal with the asset, you know, as it sits. And a lot of times it's avoiding the mistakes that doctors make leading up to a sale rather than having to make changes to the practice to make it more marketable or more valuable. So I think you really want to do both. You want to avoid the mistakes and then make the enhancements so that we have a much better asset to sell when it's time to go to market.   Kiera Dent (13:47.342) For sure. I think the question comes up Brandon of will private practice be around long -term or is it just the inevitable that I am going to sell to a DSO? I think that's a question a lot of doctors right now are facing because like, are we going to become like healthcare? Are we going to like all the mom and pop locations in healthcare pretty much got swooped up and now healthcare is very standardized and now we're starting to see the branch off. I think it's funny to watch. I'm like the two industries while yes, still healthcare.   they're shifting sides. Like, I don't think healthcare will ever go back to private practice, but there's a lot of healthcare providers that are doing their own thing. They're doing the concierge, they're coming to people's homes, they're starting their own like fee for service clinics because they're sick of the pieces. And I think that that's what dentists are afraid of. And I feel like, I feel like we as dentists and like the people in there right now are at a pivotal point that's going to actually lay the foundation for the future of dentistry.   And so it's like, are all the dentists right now going to sell it and they're all going to become like standardized healthcare. And that's going to actually hurt our industry in the future. Or is it like kind of an inevitable where it's going to happen regardless. So I might as well like selling cash out because I happen to be a part of the wave, kind of like, you know, the 2020 boom of homes and like, Hey, it's just right time, right place. And you happen to be a part of this evolution. Like what's kind of your take on the...   the landscape and what it's gonna look like and say like the next 20 to even 50 years, which I know is a pretty far projection, but I think people are also thinking about that. They want the money, but they also don't wanna hurt our industry and long -term make it to where it becomes this not as, I think, patient -centric due to the fact of all the different pieces in play.   Brannon Moncrief (15:28.169) Yeah, I love this question. So as your practice gets larger and larger, as you start to talk about a multi -million dollar rev practice, multi -doc practice, it does become exponentially more valuable and more marketable in the DSO private equity world versus the more traditional practice sale environment. As a practice gets larger and larger, it actually becomes less valuable and more difficult to sell to a private buyer. So I think inevitably with the move towards group   practice and these larger and larger offices, they're harder to liquidate in a traditional sales. So many of them by default will sell to DSOs and private equity, some type of institutional corporate buyer. I think you'll see that trend continue. And it's kind of a unique trend. And it's one of the reasons private equity got into the space. I mean, up until 10 years ago, it was actually pretty rare.   Kiera Dent (16:03.182) Mm -hmm.   Brannon Moncrief (16:26.441) to run into a dental practice that had more than $2 million a year in revenue. Now it's extremely common. To answer your question directly though, I think private practice will survive long -term, but I think it has to evolve and emulate some of what DSOs are doing in order to fight some of the headwinds that the industry is facing. So the move towards the group practice model, multiple doctors working in larger facilities,   Kiera Dent (16:26.926) I agree.   Brannon Moncrief (16:56.265) I think that's definitely going to have to happen. Larger practices can leverage economies of scale to drive up reimbursement rates and drive down overhead expenses. So I think that's going to be a necessity. Going multi -specialty, you know, patients don't want to go to, you know, five different practices for their dental care. They want to go to one location. So the more you can create a one -stop shop, a multi -specialty practice.   Kiera Dent (17:18.83) Mm -hmm.   Brannon Moncrief (17:25.929) I think the better you're gonna do with patient retention. So I think as long as private practice is paying attention to the trends in the DSO space and emulating what DSOs are doing well and then moving the other direction on the things that DSOs are not doing well, I think private practice can thrive long -term. So I think there's gonna be a balance.   I think DSOs are going to continue to consolidate the marketplace to the point where we get to probably maybe 50 max 60 % consolidation, but a large part of the marketplace will always remain private. We are about 10 years behind general healthcare and medicine. Dentistry tends to lag about a decade behind general medicine. The difference between dentistry and general healthcare is that   Kiera Dent (18:15.694) Mm -hmm.   Brannon Moncrief (18:24.137) in general medicine, the government is heavily involved. Medicare, Medicaid, you know, they really control pricing to some extent and a lot of regulatory oversight. We don't have as much of that in dentistry. So unless dentistry fully integrates with general health care and then becomes subsidized by the government and somewhat controlled by the government, I think private practice will survive. And   Kiera Dent (18:27.214) Mm -hmm.   Kiera Dent (18:32.974) Yeah.   Brannon Moncrief (18:53.481) potentially thrive long term.   Kiera Dent (18:55.502) Is there a possible black swan event? And I have not thought about this until our conversation of insurance is actually coming in and playing a factor because like, what is it? I think it's called the PBM in healthcare where literally they came through and they started to regulate the number, like the costs that people were able to pay. And so I thought like that could theoretically be a black swan event within dental where there could become a PBM that regulates all the fees that were allowed to charge.   insurance, like there's more with insurance and dental, would that change the landscape? Because now you're not getting as high as multiples, right? Like the profitability would radically go down on dental practices per se, if it's all regulated through that. Do you see that even being a possibility that could come in and play? Or do you think that they'll still stay out of it and DSOs will still continue to dominate through the market?   Brannon Moncrief (19:44.297) It's a possibility, but not a strong likelihood. And if and when we were to see that, it's going to take 30, 40, 50 years for that to happen. Dentistry is extremely fragmented right now. And that's why private equity, that's why DSOs love it. And to me, that's why we don't have some of that systemic risk that general healthcare had when all the hospital systems started buying up all of the practices. We will get to a point.   Kiera Dent (19:57.358) Mm -hmm.   Kiera Dent (20:11.342) Gotcha.   Brannon Moncrief (20:12.745) probably 10, 15 years from now where the DSOs segment of dentistry will consolidate, the consolidators will start to consolidate other consolidators. So maybe there's only 10, 15 DSOs left standing, but I don't think they're gonna control 80, 90 % of the marketplace at that point. I think just from an efficiency standpoint and regulatory standpoint, it will make sense for that side of the marketplace.   Kiera Dent (20:17.23) Yes.   Kiera Dent (20:23.598) Mm -hmm.   Kiera Dent (20:33.55) Gotcha.   Brannon Moncrief (20:42.121) to themselves consolidate. But I think dentistry will always, to some extent, be a boutique, privately held business. I don't ever foresee it going fully DSO or follow the path that medicine has taken. That's my hope, even though I'll probably be retired by the time we get there.   Kiera Dent (21:00.366) Interesting.   Kiera Dent (21:05.518) Yeah. And likewise, I mean, it was just an interesting thought of like, because I'm like, what would turn over the DSO space? What would flip this entire thing? And I'm like, I think it'd be the insurances, which I don't know if the insurances have any desire to play in the game of dental, but I am thinking you get more DSOs, less practices that they're trying to serve. I could see insurances getting smart and savvy.   to where they start to almost trying to infiltrate the DSO world as well. I just don't know if they'd let them in because it's going to cut profitability. So I'm not sure how it would play into it, but always enjoy a good like, let's just talk future and could that impact at some point.   Brannon Moncrief (21:42.953) You know, I think the interesting difference between general health care and dentistry really comes down to the fact that health insurance, you typically have it for really dramatic events. Yes, it helps subsidize, you know, ongoing care. But one of the reasons you really need to have health insurance is because if you have a massive health problem or have to get a very serious, potentially life saving drug or surgery, it could bankrupt you overnight. Right.   Kiera Dent (21:59.694) Mm -hmm.   Kiera Dent (22:11.566) Mm -hmm.   Brannon Moncrief (22:12.873) Dentistry isn't really like that, right? So for that reason, you don't have to have dental insurance. Most people can figure out a way to come out of pocket to pay for their dental care that they need in order to just be a normal, average, healthy human being. That difference right there, I think will keep the government out of dentistry and will keep insurance from controlling dentistry. Does that make sense?   Kiera Dent (22:15.374) It's going down.   Kiera Dent (22:29.998) for sure.   Kiera Dent (22:38.798) That's a good point. Yeah, it does. And I also think the DSOs though, with as many as they have, we do need to be careful for the private practices that remain. They might have the ability to drive prices down because they can, because they can do less on procedures to get more patients to come, which would then hurt the private practice space. So just kind of keeping those things in mind. But again, you're trading off like boutique private practice for more corporate DSO. And is that going to impact it or not? But I think something to note. So,   I want to switch gears into DSOs. Talk to us about what like, I love starting with the why I think that that's important. And I think some people don't know and today you might not know, but at least having the cards on the table, I think helps you make better decisions. So what are some of like the mistakes you see of dentists selling to DSOs? My first one I think is it's emotional and they just get sick of it. It's a bad day. So they decide to sell. And I think that that's never a good way to make decisions. But what are some of the mistakes you guys see consistently across the board that dentists do?   because there's horror stories of DSO. Like I just heard of a big DSO going bankrupt and people had so much of their quote unquote, like valuation of their practices in the DSO stocks. And it's completely gone. Like all the savings, all the money, all the equity that they thought they had is gone and they don't have their practices either. And I'm like, they're literally left almost like they're not bankrupt per se, but they're pretty darn low compared to what they thought they were getting. So walk me through these mistakes, things you see, some of the horror stories and how   these dentists can protect themselves and be more educated.   Brannon Moncrief (24:09.801) So first and foremost, the failure to really define your why, right? I think, like you said, a lot of dentists, it's like FOMO, or they had a bad day. They make an emotional decision. They get burned out from really, typically not the dentistry, but working on the business, managing the business. So you've got to define your way. Yeah, exactly. Yeah.   Kiera Dent (24:27.534) All the things they deal with, they don't want that.   Brannon Moncrief (24:34.217) And look, I mean, most dentists don't enjoy, especially the HR component. That's become an absolute nightmare, you know, post COVID. But you've got to define your why in order to determine is a DSO affiliation even the right fit for you and is now the right time to pursue it. So if you don't clearly define the why, you run the risk of selling to a DSO when maybe that wasn't the proper course of action. You run the risk of selling to the wrong DSO.   that's not prepared to actually allow you to accomplish your goals, especially if you're looking for operational and administrative support. Responding to an unsolicited offer is a big one. Like you said, a lot of your clients getting solicited on a daily basis by DSOs, their goal is to do a deal in the dark. Their goal is for you to not have somebody like me at the table. They want what they call a proprietary lead.   Kiera Dent (25:24.43) you   Brannon Moncrief (25:31.817) Because at the end of the day, their fiduciary responsibility is to their investors. And their goal is to buy low and sell high. And if you don't create competition for your practice, if you don't control the narrative regarding EBITDA, you're going to leave a lot of money on the table, potentially millions. So by responding to an unsolicited offer, by not having a sell side advisor, by not creating competitive environment for your practice, one, you don't have optionality. If you don't have optionality, you don't have perspective as to,   you know, what different DSOs are out there, because they're all different, you know, to some degree, they all have a different deal structure, a different financial sponsor, they're at a different stage in the recap cycle, they have a different management team, and they have a different approach to dentistry and to operations and management. So you've got to make sure you date around to really get perspective and create optionality. And then that optionality, go ahead.   Kiera Dent (26:24.814) How, Brennan, can I interrupt right there? How much variability is there from DSO to DSO? Because I am very naive on this and my thought is like, no, they all pay you X percent and it's the same across the board. How much variability is there per DSO?   Brannon Moncrief (26:38.793) It's wild how much the deal structures vary, how the size of each DSO is different, their leadership team is different, how involved they are in the day -to -day operation of your business is very different. Some of them have virtually no infrastructure and really no ability to help you operate your business. And some of my clients are like, that's fine. I want them to give me the cash and leave me alone. Other DSOs have a really robust infrastructure and are really hands -on operationally on the day -to -day.   Kiera Dent (27:01.07) Mm -hmm.   Brannon Moncrief (27:07.689) And for some of my clients, they want that, right? They want help administratively. So.   Kiera Dent (27:09.998) But like, I can't understand why a dentist would want to sell to a DSO that's not going to support you with all the like nonsense that they've got to deal with. They take the money and they become an associate. Is it just for the stock buy -in of the DSO? Like to me, I cannot understand that purchase. Help me understand that one. Cause I think that that one feels just so silly. And like, why would you ever do that? You're literally giving up your profitability to be an associate.   And I just cannot understand that. Help me understand that. I understand why you would sell to someone who's got more infrastructure to help you with it, but like, why? Why would you do that?   Brannon Moncrief (27:46.505) I think it has to be a balance of support and autonomy. Most of my clients want support, but they don't want some corporate overlord. So it's evaluating, what are your pain points? What do you want to get off your plate? And is the DSO prepared to take those responsibilities? And is it better to affiliate with a DSO and give up a majority ownership interest versus outsourcing those things and hanging on to your business?   Kiera Dent (27:51.534) I agree.   Brannon Moncrief (28:16.521) I think a lot of it comes down to what is your runway to exiting your business? That dictates, and then what is the valuation of your business comparative to selling in a more traditional sense to a private buyer? If you've got $4 or $5 million in revenue and a million or more in EBITDA, and you have a plan to exit your business five years or less, hands down almost every time, economically speaking,   Kiera Dent (28:21.55) Mm -hmm.   Brannon Moncrief (28:45.065) Assuming you partner with a DSO that's well positioned to hit a recap within that five year window, selling to a DSO is economically going to win every time. But a lot of our clients in that scenario were like, okay, that's economically going to win, but I want to keep my autonomy. So I want to partner with a DSO that's not going to be really involved in my business on the day to day. This is purely an economic play versus others that say, look, economics are important, but what I really want is support.   Kiera Dent (29:08.27) Thank you.   Brannon Moncrief (29:14.569) I want to really go back to being a dentist, focusing on the patient experience, clinical dentistry. I don't really want to be so much involved in the day -to -day operation of the business. In that sense, you've got to look for a DSO that's got the infrastructure and it's got the managerial and operational pedigree to actually step in and take over those responsibilities. The worst case scenario is when you're that person and you're like, hey, I'm okay with giving up the economics. I want the support.   Kiera Dent (29:14.638) Mm -hmm.   Brannon Moncrief (29:42.825) and then you don't properly vet the DSOs and create competition for your practice, and you partner with the ESO that can't offer any support. So now you're in the same position, but you're making a lot less money. So that's why creating optionality and vetting the DSOs is so critically important. And by creating that optionality, not only are you gonna land with the right DSO, but you create the leverage to negotiate a much better financial outcome. By creating competition for your practice,   Kiera Dent (29:45.838) agreed.   Kiera Dent (30:09.006) Mm -hmm.   Brannon Moncrief (30:12.617) and running the process, utilizing what we call a bid process, having DSOs bid on your practice, controlling the narrative regarding EBITDA and holding their feet to the fire, you're probably gonna increase your valuation by 20 to 25 % compared to an unsolicited offer. We've worked with clients that already had an unsolicited offer on the table. We reset the playing field that our own EBITDA analysis went to the open market and created a competitive landscape.   We ultimately ended up selling to that same DSO that had made that unsolicited offer, but for 30, 40 % more than their initial offer. If that doesn't tell you how opportunistic and somewhat predatory DSOs and private equity are, I don't know what else will.   Kiera Dent (30:57.358) Yeah. And I think, so can you tell me then like economically speaking, what is a good deal? It's not like support wise, what is a good deal? And then I have a follow up question of the risk on that. So what does a good deal look like? Like what are some of the highest ones you're seeing economically? So we're talking top dollar, not support, none of those things, because there might be a trade off to that, but like what is your highest one?   Brannon Moncrief (31:21.481) You touched on it though, you've got to evaluate your risk tolerance. And that's where you have to look at cash versus equity and where the equity is held. So a lot of our.   Kiera Dent (31:25.166) Mm -hmm.   Kiera Dent (31:29.582) Because that's the piece that I really feel like, to me, I feel like that's actually such a big risk because these DSOs are buying, but if they go bankrupt, the worst case scenario is you lose all that stock, right? And so really only the amount that they paid you is what you get because they technically own your practice and you don't, you might not even have a job. Is that true?   Brannon Moncrief (31:46.601) It depends. So what you're describing is a holding company model where you own the stock at the parent company of the DSO. So you sell 100 % of your business and you trade a piece of the value of your business. Let's say 30 % of the value of your business. You exchange that for stock and the DSO is holding company and that scenario.   Kiera Dent (31:54.094) Right.   Kiera Dent (32:04.142) Because that also helps with taxes, right? Like that's a tax offset. Instead of you just getting the whole cash for it, it can help offset your taxes and not get as much cash from that.   Brannon Moncrief (32:12.521) Correct. The taxes on the equity component are deferred until you actually liquidate that stock. But in that scenario, you are betting on the DSO being successful and hitting a recap and having the ability to liquidate that equity. If the DSO is not successful, if they do go bankrupt, and I do want to make the point, there are a handful of DSOs that have gone bankrupt or that are headed there in short order. By and large, most of the DSOs are relatively healthy financially. In any industry,   Kiera Dent (32:17.774) Right.   Brannon Moncrief (32:40.233) you're going to see some companies that get a unicorn result and absolutely knock it out of the park. You're gonna see a handful that go BK and the rest are gonna fall somewhere in the middle. But there is risk in all of these deals. And that's where, you know, working with somebody like me that's constantly monitoring the health of these DSOs and vetting them and only allowing the best options at the table is critically important because it's very difficult for you to do isolated in your business all day.   to really understand the entire landscape and properly vet the buyers. So in the holding company model, where all of your stock is at the DSO level, you do run the risk that you can lose all of that equity if that DSO completely fails financially. The more realistic scenario is that you don't get the type of return that you were promised on that equity. You're able to liquidate it but not at the three, four, five X return.   that the DSO may have promised you when they initially acquired your practice. The other model out there is the joint venture model where you sell a majority ownership interest in your practice. Maybe you sell 51 to 70 % of the equity in your business, but the remaining equity is actually retained equity in your own practice. So in that scenario, there's a little bit less risk because you still own equity in your own business and you can own that equity long -term. You're likely...   even if the DSO goes bankrupt, ever going to have to forfeit that equity. So in the joint venture model, I feel like there's a little bit less risk, a little bit more control over what happens with the equity comparative to the holding company model.   Kiera Dent (34:21.166) Mm -hmm. Mm -hmm. Gotcha. So like, what is a good... I mean, there's so many pieces. And like, what determines good, I think, plays to your tax strategy, plays to where you are on your retirement run, plays to how long you want to keep doing dentistry. And because really, from what I understand from a lot of those joint venture ones, it's you get paid X amount, and then you have X amount that's in stock.   that X amount is paid to in a check, you have to work for X number of years. They basically have turned you into an associate. And I bet you you still stay it. You're not an associate, right? But they still pay you as an associate, don't they?   Brannon Moncrief (34:53.993) The joint venture model is.   In a joint venture model, you're going to have chair side income like you were working as an associate, but you're also going to have a pro rata share of EBITDA if you still own equity at the practice level. In the holding company model, you're purely an associate because you no longer own equity at the practice level. So you're selling 100 % of the EBITDA and the DSO is going to control that. So you have to be prepared to live on your chair side income.   Kiera Dent (35:26.798) Mm -hmm. Right.   Brannon Moncrief (35:27.721) So again, that's why the joint venture model, or at least having some sort of joint venture component, your ongoing income's going to be higher than it would be in a holding company scenario. But you've got to evaluate. If you're going to liquidate a piece of your business, you're going to take a pay cut. And you've got to evaluate what is your pre -closing income, what is your post -closing income, what is your annual personal burn rate, and how does that compare to your post -closing income? Are you going to be able to live on?   Kiera Dent (35:44.014) correct.   Kiera Dent (35:51.822) Mm -hmm.   Brannon Moncrief (35:57.353) your annual income until you're waiting for that recap event to occur. But to go back to your question.   Kiera Dent (36:02.734) Well, don't forget, like how many things do we run through the businesses too? So don't just think it's your, what you're being paid. I had a dentist just recently do this who thought about selling to a DSO and did not realize that there was an additional almost 300 ,000 being run through the business annually in addition to their associate pay and their W -2. And so just realizing like that's going away and that's not probably going to be there. And so making sure, because we think our take -home pay is just our associate pay.   and or W2 that we're getting for taxes to minimize the tax running through the business. But all those things running through the business are truly your like pay. And so just making sure you're set up because I do know a lot of dentists struggle on that to make sure like you said the burn rate, how much you're getting from it. But I, it's just it's so interesting to me of like, how do they actually make wise choices on it? And it feels like it feels like a convoluted mess is what it feels like, like, how do I know how it's hard?   Brannon Moncrief (36:55.817) It's a very complicated. It's a, it should be a very complicated discussion. I think the problem is, and one of the reasons we got involved in the space is so many doctors were making it very simplistic. They were pulling the trigger on a DSO sale, had no idea what their EBITDA was. Their buddy sold to this DSO. This business development guy walks in the door. He seems nice. He makes an offer that's higher than what a private buyer would pay. And before you know it, they've sold the goose.   Right? And then later they find out what they actually got themselves into and how the equity functions and what their rights are at recap. And that maybe they undersold their business or sold it prematurely, or maybe a DSO affiliation wasn't the right fit for them. So you've got to be pragmatic. You've got to be intentional. And this is a complicated conversation because we started talking about where is the equity held? How does that impact, you know, risk? How does that impact your ongoing compensation?   Kiera Dent (37:34.062) Mm -hmm.   Kiera Dent (37:51.598) Mm -hmm.   Brannon Moncrief (37:53.929) we could get really deep in talking about the tax implications in the sense that at the initial close, there's gonna be major tax implications. You're gonna lose potentially a lot of your write -offs. You might be paying a lot of personal things pre -tax by running it through your business. Now at the same time, by monetizing your business, most of which is gonna be a capital gain, you're converting EBITDA, which is ordinary income,   Kiera Dent (37:57.038) to 100%.   Kiera Dent (38:05.55) Mm -hmm.   Brannon Moncrief (38:20.393) into a capital game. There's massive tax advantages in doing that. So normally there's a push and pull with every single one of these elements of these deals. And in order to be fully educated, you need your financial advisor involved. You need us involved. You need your CPA involved. These are very, very complex conversations that need to occur front end really before you ever start to entertain interest or offers from a DSO.   Kiera Dent (38:24.142) Mm -hmm.   Kiera Dent (38:45.294) Mm -hmm.   Brannon Moncrief (38:50.505) So our process is four to six weeks of education, valuation, talking with your advisors, working with your team to make sure one, what's your why and is this a fit? And then two, can you afford to do it? And are you fully aware of all the levers involved in the deal? Are you aware of the tax implications? Are you aware of what your post -closing incomes are gonna look like and how that compares to your living expense needs?   How does the cash it close after tax and any type of closing cost? How does that fit into your overall financial picture and retirement goals? It's a very, very complex detailed conversation. You should not enter into the decision to sell your practice to a DSO casually. And again, that's why we got so involved in this. I wanna go back to your question. It was like, what does a good outcome look like? And good outcomes,   Kiera Dent (39:36.334) Mm -hmm.   Kiera Dent (39:43.79) Yeah.   Brannon Moncrief (39:46.537) in today's marketplace typically look like monetizing your business for no less than seven times EBITDA. I have not closed the deal at less than seven times EBITDA in three years. So if you're entertaining interest from a DSO and they're offering you less than seven times EBITDA, no doubt you're leaving money on the table. We have sold practices for as high as nine, 10 times EBITDA, even recently, despite the fact that interest rates are elevated and the capital markets are tight.   You know, I love deal structures that involve a joint venture component where you're going to have some practice level retained equity, because then you're going to have some ongoing pro rata EBITDA distributions on top of your chair side comp, especially for my younger doctors that have a longer runway. I think that that structure, either a pure joint venture or a hybrid structure that combines joint venture equity with holding company equity makes a lot of sense. And then just ensuring that you clearly define the why.   Kiera Dent (40:21.934) Mm -hmm.   Kiera Dent (40:32.59) Mm -hmm.   Brannon Moncrief (40:45.417) and you're getting what you want out of the transaction so that you don't have seller's remorse. If you want full autonomy, you want the DSO to be hands -off and very light support, partner with a DSO that functions in that manner. If you want to work with a DSO that's got heavy infrastructure because you either want to take a step back and you don't want to manage your business or you want to really scale your business and you need somebody that's got the operational support to help you do that.   you've got to end up with a DSO that is a fit with that vision. So it's really personal. Everybody's kind of got a different why. Everybody's at a different stage in their career and a different season in life. And everybody's got a different personal financial situation. So evaluating all of that before we go to market is really going to dictate who we're going to market the practice to and what a good outcome is going to look like.   Kiera Dent (41:18.446) Mm -hmm.   Brannon Moncrief (41:41.641) If I have five of your clients and they all want to go to market and sell to a DSO, there's a high probability they sell to five different buyers.   Kiera Dent (41:48.462) I would agree.   Yeah. And something I was thinking as you were saying that, Brenna, I don't know if you're open to this, but I might consider throwing on one other question of you start with your why. Second, you figure out like what you want for your retirement piece of like, what do you financially also need it to be? Because I think there could be a why, but also you want to make sure like you said, no sellers remorse of the financial aspect from tax implications to reoccurring monthly revenue for you of how much you're taking home. And then also what your retirement looks like. I would venture to guess that one where it's all in the holding company is probably going to have a high   higher return due to the fact that there's more risk. Like that one to me feels like, like that's how they're going to be able to get you to come. Right. If, cause it's, if they get there and you have nothing else there, if it's all within, um, and the other one sound like probably not as high, but again, that's the same thing in the stock market, right? You go all in risk or you go to private equity or you go to venture capitalism, you have an opportunity for way higher return. You also have opportunity for like nothing to pan out. And so I think it's just like really weighing that in. So your why.   Brannon Moncrief (42:25.705) if they get there, right? Yeah.   Kiera Dent (42:49.678) your financial piece. And then like you said, not, I think knowing that there's so many DSOs out there, that feels exhausting to try and vet them all and like have a spreadsheet of all 500 and what the offer is and what they're willing to, like that's too much. And so really it's like you hone it in and then you figure out the DSOs that really fit to it. But I think that this is where people then make either the I'm not selling or the I'm just going to sell because it feels too hard to educate. And so my recommendation, that's why I wanted Brandon to come on today is,   call you. How does it even look to work with you? So let's educate them on that. But like, get the pieces in place. It's kind of like a will. It was really weird for me to put up a will. And I felt very awkward having to call some siblings and say, Hey, if I die, or I'm in a coma, this is what we do. And I remember feeling like very shaken for a good couple of weeks. And then as soon as we signed it was like, got it. I know what I'm going to do. I know what happens. Like there's no more of that fear around it.   But getting to that took me quite a few weeks to get there and to get all the pieces in play. And I kind of feel like it's a similar thing with your practice, but getting a plan in play. So when these offers come through, you're not just one day on a bad day, selling your whole practice and your whole livelihood on a whim. So Brandon, how does it look like? Do they have to pay you? Do you guys do it for free? Is it a complimentary thing? Like what's your, I truly don't even know. So it's education for me too. How does it work for them to start getting educated, getting their plan in place kind of like a will.   So when they're ready to sell, everything's in place and they know exactly what they want to do or they keep it. And they also are totally confident with that today, knowing that they could change their mind in a few years if their life changes as well.   Brannon Moncrief (44:24.937) We always start with a casual, we call it discovery call. And that's typically a call with me. That's what I do all day long, is talk to large practice owners. And this is whether you're interested in going the private buyer route or going the DSO route. I want to make the point that we're agnostic and very objective. We can help you execute at a high level, irregardless of what path you want to go down. But we start with a discovery call just to get to know each other. Spend 30, 45 minutes, talk to me about your why, tell me a little bit about your practice.   Talk to me about your family. Talk to me about your runway to retirement. Why did you decide to pick up the phone? And call me. What's the goal? And from there, we decide, does it make sense to do a deep dive? Do an EBIT analysis. Do a cashflow analysis. Quantify what's your practice worth in the private buyer world. What's it worth in the DSO world? We kind of do a SWOT analysis to also determine if you're going to sell three or five years from now.   Kiera Dent (45:01.422) Mm -hmm.   Brannon Moncrief (45:20.713) where do we see some blind spots? Where do we see some areas for improvement? So we can do some coaching on those calls. And typically, if they're not ready to go to market and they do have some things they want to work on, that's where you come into play, right? So we go through that process of doing evaluation, talking about the economics, talking about options. And that cost for that exercise is $2 ,500. That is credit towards our fee if and when down the road.   we consummate a sale. And we have a lot of clients that are a year away, three years away, five years away from actually executing on a sale. We only charge the valuation fee once and we'll update it at no cost when the doctor's ready to go to market. But what it does is establishes a baseline. It establishes where am I at today? And we can often help coach you to re -engineer essentially the goal that you're ultimately looking to achieve. And once we've established that,   intimate relationship through doing the valuation, we can actually be an advisor to you along the way. Otherwise, if we haven't done a deep dive on your practice, it's all anecdotal in nature. So once we've done the valuation, we talk about options. If it's time to execute a sale and go to market, then we sign a listing agreement to represent the doctor in marketing their business and negotiating a sale. And at that point, we take the opportunity to market to all the DSOs that we feel could be a   good fit and for lack of a better word, create a bidding war. And we help our clients vet each DSO. We help with the diligence process. We help control the narrative regarding EBITDA. We analyze all the offers as they come in and decide how are we going to negotiate once all offers are on the table? Do we have a clear front runner or we want to call for best and final among multiple parties? And then once we ink an LOI, we help them navigate the closing process.   Kiera Dent (46:53.102) Mm -hmm.   Brannon Moncrief (47:16.137) Bring in the CPA, bring in the attorney, bring in the financial advisor at the appropriate time and help negotiate all of the major and minor points of the deal. Navigate the legal agreements, navigate diligence and ultimately navigate closing and integration. The whole process is kind of daunting from a 10 ,000 foot perspective. Our job is to break it into very manageable pieces and make sure that you're educated and represented from start to finish.   Kiera Dent (47:33.806) Mm -hmm.   Kiera Dent (47:43.854) And so, Brandon, please, I hope, I try so hard not to be offensive and I'm very dis -simple minded. So I hope this lands like very clean and nice. It feels like you're almost like my real estate agent. Like you help me get my house ready. You help me know what's a good market value. You help me figure it out. Then you help me market it. We find all the potential buyers. You help me get my pieces and then we sell it and close and off we go. So that's kind of how it feels like in simple terms of someone who's never sold in a DSO what that looks like. But how is your guys is like a real estate agent. They have,   X percentage off of it. Do you guys do a percentage or are you flat feet?   Brannon Moncrief (48:17.097) Yeah, we typically charge a percentage and that percentage can range from anywhere from 6 to 9 % depending on the size at close. Yep. With the valuation fee credited towards our commission. So 6 to 9 % of the value of the business. Our goal is obviously for you to be educated, create a lot more optionality so that you land with the right buyer and then negotiate a premium of 20 to 30 % comparative to what you would get.   Kiera Dent (48:25.614) of the clothes, right? Okay.   Brannon Moncrief (48:47.049) negotiating with the same exact buyers on your own. So we like to at least double or triple our fee economically in return of value. And I like the analogy to a real estate agent in one sense, but real estate is relatively simplistic, right? It's heavily regulated. No, no, no, no, I think it's a good comparison. And here's why. That is a heavily regulated industry.   Kiera Dent (49:05.07) Totally. That's what I said, don't take offense. I know it's really simple.   Brannon Moncrief (49:13.865) relatively easy to pinpoint what your house is worth, comparative to the other houses in your neighborhood. And if you listed it on Redfin or somewhere else, you could probably sell it on your own. But the reality is, 95 % of us hire a real estate agent when we go to sell our home, despite the fact that it's a really linear process and it's highly regulated. DSOs, private equity, the Wild West. It is not regulated at all.   Kiera Dent (49:39.182) Exactly.   Brannon Moncrief (49:41.545) your business, the value of your business is gonna be predicated upon your EBITDA and how you control that narrative. There's a lot of different options out there and it's not a linear path from start to finish. So it's much, much more complex than selling a home and that's why if you're gonna hire a real estate agent to sell your house, you sure as hell need a strong team of people behind you to sell your business, which is likely your most valuable asset and...   you're probably more invested in emotionally than you are your home.   Kiera Dent (50:13.486) I would agree. And so Brandon, my last question for you, and then we got to wrap, is how do I know that your percentage fee is good versus going and vetting other companies like you? Because now I've got like multiple companies. I've got to find somebody like you, aka real estate agent, for simple terms. And then I've got to figure out the DSOs, aka all the buyers and figure out which ones of those are good. How do I vet and like know that your fee is a good fee and I'm not overpaying, just like real estate agents, right? There's some that are like 2%, some that are 5%. Like they've kind of like,   narrowed out because we can see it and it's exposed when I'm looking on a house. I can see the seller and the buyer or the agent's commissions. How do I know that your fee is a good fee? And I know that that's asking you, but like to educate the consumer, how do they know if they're getting a good deal with you and to work with you versus another firm?   Brannon Moncrief (51:00.777) So as far as fees go, our fees are relatively similar to the other advisors in the space. It really comes down to experience and reputation. And I would encourage any of your clients to do as much vetting of us as they would like. Look at our 125 -star Google reviews. We have plenty of client references that are like, thank god I hired these guys because this process was extremely complicated.   And I had an offer from a DSO before I hired them and they got me 30, 40 % more. So between references, experience, reputation, I mean, that's how you know that we drive value for our clients. And so much so that if I have a conversation with a client and I don't feel like my representation is going to move the needle, I won't take them on as a client. You know, you and I both relatively young in this for the long term.   Kiera Dent (51:52.782) Okay. Cool.   Brannon Moncrief (51:57.577) I've spent 20 years building a fantastic reputation and if we can't provide value, we're not going to take on a client.   Kiera Dent (52:05.87) Cool. And I think that that's what it is, right? Like let's educate on DSOs, but then also educate on firms to represent us going to the DSOs. So Brandon, that was so helpful. I feel like it was so much clarity and also so much muddling. I'm like, oh my gosh, this was like an onion with so many more layers I didn't realize. So I just appreciate your time. I know you're speaking with our doctors really soon coming up as well that are part of our company. But if you want to connect with you, just want to start to get educated, what's the best way for them to reach out with you?   Brannon Moncrief (52:33.609) Yeah, you can text me, you can call me. Text is probably better, text or email to schedule a discovery call. So my cell phone number, everybody thinks I'm crazy for giving out my cell, but this is all I do all day is talk to doctors. It's 512 -660 -8505. That's 512 -660 -8505. And my email is Brannon, B -R -A -N -N -O -N at dental.   Transitions .com. And I encourage people to check out the website. We have a lot of great podcasts, webinars, articles on the website. Again, we like to lead through education. So dentaltransitions .com. Check it out. And yeah, if you want to have a conversation, please reach out.   Kiera Dent (53:22.83) Awesome. Brandon, this is so great. And I hope all of you like just take time to get educated because I believe fear is there when we're not educated. And then we have more cards in our hand to be able to play and make smarter decisions. Biggest thing I beg of all of you is no rash decisions based on emotion. Let's get our will, aka our DSO sell plan. Cause at some point you will sell your practice in place before you need to. And that way you just know the cards on hand. And Brandon, just appreciate you a ton. I think you're doing great things in the industry. So everyone reach out and as always, thanks for listening. I'll catch you next time on the Dental A Team Podcast.