Dentists Who Invest Podcast
Official Podcast of the Dentists Who Invest platform. Talking all things investing, money and finance with a dental spin. Have you ever wondered how you can grow your wealth and protect your hard earned money as a Dentist? We've got you covered. Featuring famous guests such as Andrew Craig, Edward Zuckerberg and Benyamin Ahmed we delve deep into EVERY aspect of finance to educate and empower ALL Dentists.
Dentists Who Invest Podcast
How To Get Your 8 Figure Exit - Part 1 with Michael McCulloch
You can download your FREE report on how you can avoid financial mistakes as a dentist using the link just here >>> dentistswhoinvest.com/podcastreport
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Thinking about going into dental practice acquisition or scaling up your current practice? This one’s for you! Join me and Michael McCulloch, a pro in the field, as we break down the steps to increasing revenue and making savvy moves in the dental business world. Michael shares how to spot scalable opportunities, make smart investments, and boost profitability with creative strategies—like extending your hours or giving your brand a fresh makeover.
We’ll also talk about how to maximise your practice’s value. Whether you’re an associate eyeing an exit or an owner planning to expand, we’ll discuss why it’s crucial to set clear goals—whether you’re after financial growth, a better work-life balance, or professional recognition. Plus, we’ll touch on the challenges of building a patient base from scratch, the power of social media in boosting your practice’s visibility, and how strategic branding can seriously impact your practice’s valuation.
Michael also spills the beans on how dental corporates like Bupa and mydentist approach branding, and why your personal brand matters just as much. By the end of this episode, you’ll be ready to take your dental business to the next level and make smarter moves in the acquisition game.
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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional.
I was chatting with yourself just before we jumped on camera and we said that what it might be nice to do is tell a little bit of a story and we're like, right, okay, here is the associate. They're just about to buy a practice. How can they think about setting up correctly so they can get a big exit to a corporate? Should that be their goal? It's not everybody's goal, of course, but in reality, if you've got like four or five dental practices, it's going to be the guys and girls with bigger pockets that are going to be looking at you anyway, right? So you really got to think about how you can set things up today so that that can come into play later. That can come into place later. So if you want to get big and you want to expand, well, it's more than likely going to be an exit, along the lines of what you deal with, to one of the bigger guys and girls. So that's why it's so important to think about this stuff today. So, anyway, going back to the story that we were talking about just a second ago, you've got the young associate, who's never purchased a maybe yet, to buy a practice. How can they look out for a practice that will mean that that's possible, that that big exit we talked about further down the line is possible in the here and now. What things can they do?
Dr James:Next person is somebody the principal who already owns a practice and is maybe thinking about expanding or even just keeping it at a few practices. What can they do? And then that third perspective, or that third person, that third avatar that we're going to explore, is the person who's just about to there. Well, they're at the stage where they're going to sell and they're just about to pull the trigger, so to speak. So what can they do to make things go as smooth as possible? And what's going through the buyer's head in those situations as well? So, guys, that was just a little bit of a lay of land as to how we're going to proceed on this podcast today. So, michael, if you agree with me, maybe it's nice to start off with those associates that we talked about just a second ago. What can they do? What can they look out for today, in the here and now, to make things smooth further down the line?
Michael:yeah, no, absolutely. I think the key for any and all of those kind of avatars, as you've kind of laid it out, is actually, you know, start with the end in mind of your journey. To a degree, you know, you don't have to have everything mapped out from from day one all the way through to day and right, but having some level of thought or some level of planning which can allow you to kind of think about where you are at the minute, where you want to get to, and what does that look like as well. That's really key, because I think, you know, just thinking, oh, I want to kind of exit in the future, great, but what does that mean? What do you actually want to get out of it? You know, think about. You know, is it just financial? Is it money? Is that the key thing? Is it lifestyle? Are you looking for profile, or are you looking to mix a little bit of delivery in there as well? Or maybe it is a combination of all of those things.
Michael:I think, with someone that's looking in, maybe looking at buying their first dental practice, what do they want to look for?
Michael:I think they want to look for well, one, an attractive practice that probably has the ability to grow, of grow as a business as well. I think buying a, buying a mature business which is already, either, you know, full capacity or doesn't really have the scope to grow, I think that's going to limit your kind of growth opportunities, again limits potentially the return that you can actually make from that site. Look for something which can grow to the number of surgeries you know four, five plus surgeries. I think from a dental corporate perspective they don't really want to be buying little sites that are one, two, three surgeries, right, they want to be buying bigger things which you can run really efficiently from that perspective. So I think, looking at that as one of the things it's, it's the scalability of the practices that you buy and as well as then how effectively and efficiently you can get them run as well. So again, there's the scale, scope, and then there's obviously the profitability element as well.
Dr James:I see. And what does a scalable practice look like in your book? What are the hallmarks?
Michael:I think in terms of the hallmarks, it's probably there's a couple of things you need to really consider. I think you probably look at location, you look at the kind of the types of services you can be running and you also then want to understand the demographic of the market that you're going to be marketing to. I think positioning your practice the right way is going to be very important to actually making sure you can get it profitable. I think there's also ebbs and flows with the way the markets have grown over time. I think if you look at the way that the dental corporate market sits at the minute, there are kind of a small handful of players that probably look from an NHS perspective or even into the mixed practice perspective, but a large bulk of the kind of the private equity backed dental corporate groups do really want to see that private dental growth and that's what they really focus on I see so and that was actually one thing that I was going to ask uh, is it better to think about purchasing private practice more than nhs?
Dr James:but we're looking at this from the point of view of those associates who are just starting out. So it's like, yeah, you can purchase the mixed practice and potentially do it up or just keep doing mix if that's what you want to do. But we're just saying out loud how the corporates and the the bigger players in the field look at the market, right, um, so yeah, we, if we just put all that aside, if we put our proclivities aside and just look at it purely from that context, well, this is what they're after, and then we just have to decide what we want to do. So, yeah, because of this particular avatar, we're looking at it specifically from the perspective of this specific avatar right now. Well, what it means is that you potentially think to yourself all right, maybe there's an opportunity here if I purchase a mixed practice or an nhs practice, but certainly you'd need to see that shift with time is what you're saying I think, I think and again, this is, this is always going to be the caveat.
Michael:That is the current indication from the market right and again, with the way things can change over time. Potentially again, if the Labour government wants to start funding NHS more, then actually that might become a lot more attractive again, kind of market sentiment kind of suggests. It certainly suggests that either, you know, I think, unless you've got a really profitable and well-run nhs or mixed practice again it needs to be very well run to actually make it attractive from a from a bigger corporate perspective. I think the only ones which kind of set are the private dental practices fundamentally are seen as conservative, considerably more attractive at the minute on that exit route.
Dr James:Understood. You said, location was important. Can we just drill down into that a little bit more?
Michael:Yeah, of course, I think from a dental group's perspective or a wider business perspective, there's a couple of things that they really want to consider or think about when they think about the location of a practice that they're going to buy. So if you're that kind of associates that's buying a practice, looking at location, where do you want that to be? You want it to be primarily somewhere that recruitment's not going to be a problem, right, that's one thing, I think. Being able to recruit the right team and get the right people in, you know whether that's nursing staff, whether that's associate dentists or whether that's hygienist therapists, across the board, thinking about strategically, where do you want that to be. You can then capitalize on the recruitment market in the area. Again, from the perspective of that, where is that going to be?
Michael:Really, dental universities right, those are great hotbeds for new talent coming out, right.
Michael:They're great places to root, great places to seek for new associates, new team members and new people who can help grow your business right. And again, it comes back to thinking about how to leverage their time. The best way Is their time best spent you know, nine to five every single day and just doing delivery or is it better for them to have a growing practice where actually you're leveraging your time to grow the business but you're also leveraging other people's time to deliver a much wider business opportunity for you as well. And again it's thinking about how you can spend your time but also how you can make the rest of your time earn money. And that's almost shifting the perspective of being kind of that owner manager delivering dentist associate. I think when you're earlier on you're probably in that mindset. But again pick up a business, drive some growth and then flip some of that time on to an associate which will still be earning you money as you can kind of look to grow the wider business opportunity as well.
Dr James:Absolutely. And there was another thing that you mentioned. You mentioned profitability, of course, but this is the thing. I'm just going to say something just before we jump into that. It's kind of like a double edged sword, in my opinion. Right, because if you buy the ultra profitable practice the way it is right now, there's not so much scope to add value, like there might be a deeper reason behind that which is very difficult to fix, so it's kind of like getting that little sweet spot. How can I add value? At least that's my perception from running podcasts and talking to people who facilitate practice purchases and accountants and everything along those lines. What are your thoughts on that?
Michael:um, I think you are 100 right, I'm not gonna lie. You've absolutely hit the nail on the head. That's's the challenge, I think. If you are looking at getting into a practice and you're buying one which is very profitable, well, what is the scope to grow that profitability? It's very limited actually, because you can't really grow the margins because there is a fixed cost kind of delivering. There is then a marginal cost rate of return that all of the revenue delivers. So how do you then grow the kind of the profits you've bought? Well, you'd have to look at revenue growth to achieve it.
Michael:Again, that comes back to kind of that other thing about the location how do you drive extra revenue? Well, think about the levers that you can pull. I mean, I'm turning into a football coach thinking about Barcelona and all their fancy levers, right. But you know, thinking about the levers that can pull to actually drive extra value in the practice, you know you've got. Well, you can drive prices up. That's one model. Another thing you could do increase the number of surgeries, right. That's another one you can do. Maybe then increase opening times. Maybe maybe you move and get someone in to deliver saturday morning, to start delivering yourself. You know, those are kind of really your three critical elements of how do you drive revenue growth in a dental practice. So if you've got a very profitable practice already that's really well run, you're probably paying a premium for that value, first of all. Second of all, it limits your ability to grow the profitability. And then, thirdly, you have to look at expanding that practice to really drive extra value for yourself when it would come to a potential dental corporate transaction.
Michael:And again there is always that scale element. Again I talked a little bit earlier. You know a four to five surgery site being kind of like the sweet spot for even single sites they'd want to look at. I think then when you look at groups, again, making sure each site has a good scale to it makes it more appealing from an acquisition perspective and I think that's really important. So it's almost looking at.
Michael:And again you pointed out the problem is oh well, great, I look for a business which is doing a decent level of revenue but isn't making that much money. Well, there's a lot of risk in making that decision right, because actually you need to really understand what's driving the profitability. Why is it not delivering what you think you could deliver? And I think when you get into that kind of situation, actually that's when you can lean on your accountant or someone that's a really good quality financial advisor to actually understand well, let's actually come up with a forecast plan for what this surgery could be, and I think that becomes a critical element. I think forecasting and planning becomes really important actually for making sure that people can make really sound decisions and actually invest in the right practice at the right time, but also they can get it at the right price for them fascinating, thank you.
Dr James:We're going to move on to principles, as in people who already have a practice, or maybe a few practice practices, momentarily, just before we do, I just want to ask and I have no idea what you're going to say right now, by the way to this, and you might say actually, james, everything's exactly the same. Or actually, james, you want to think about this, this and this as well. Does anything that we've just said differ, whether you're purchasing established practice or setting up your own squat? Is there any further considerations for somebody setting up a squat?
Michael:I think a lot of the things still ring true.
Michael:You still need to think about all of the different considerations of what you're doing, who you're marketing to, then how you're driving growth.
Michael:I think the element of additional risk you've got is there is that significant upfront cost in terms of capital outlay and actually there is going to be a limited patient-based day one right.
Michael:So coming back to that forecasting and planning element as understanding, well, how much cash have you got to go through that you can actually drive it. So I think that the problem you've got on squat practice development front is you need to kind of comprehend and forecast and predict the ability for you to actually drive value in that practice, bring patients in to then actually get it to a level where it's one cash positive on a month-to-month basis. That's that stage, one of that process. But then how long does it then take you to grow it to the level where it's actually generating the profits that you want it to? So established practice, while more costly the kind the converse of that is it's already built, it's already to scale and it's ready to then actually drive further growth. However, squat practice development absolutely a fantastic way to achieve a better result and get a better return on investment value if you can manage the kind of the new patient drive, as it were, to that practice excellent.
Dr James:And I've actually had another question that's popped into my head as well, which often comes up when people ask me about squat practices and they, what they say is is way easier to set up a squat practice when you have a following on social media or instagram or something along those lines, and and that might sound a little wishy-washy, but it's true big time. But anyway, we're going to circle back. Let's circle back to that a little, because it might actually fit in slightly better whenever we talk about principles, because I wanted to ask something along the lines of how do corporates look at that or how do they figure out? Right, let's separate the personal brand from the practice, something along those lines. But we can come back those lines. But we can come back to that. We can come back to that. All right, let's move on. You might not want to, oh okay, I see, I see, all right, fair enough. Well, we're gonna have to know, because I'm so intrigued, I'm absolutely massively intrigued, whether it's good or bad. I'm willing to accept that. It's on me.
Dr James:But anyway, principles, let's talk about principles. So principles that have the first practice and listen, it's such a yeah, there's going to be a real diaspora of principles out there in their situations. There's going to be people who are absolutely killing it multiple practices and there's going to be people who have one practice and maybe it's not doing as well as they'd like, and our unenviable task right now is try to trying to account, you know, trying to talk about things which are going to encompass all of those people. So I guess what's a good place to begin? Maybe if we just start out with somebody who's just got their first practice, what can they do? Do they really need, do they need to have multiple practices if they want a huge exit to a corporate? Is that a necessity, is that a prerequisite, or how does that look? How does that work?
Michael:yeah, oh, I mean, let's, let's, let's step, step back a little bit to that point. Start with the end in mind to a degree, right that the only limiting factor is ambition. Realistically, you know, what is it that someone wants to achieve? Do you want to achieve a kind of? You know you can achieve a really attractive single site exit to a dental corporate if you can scale your business to the right size.
Michael:And again, scale is always going to be important. I think, from from a corporate's perspective, you can kind of you can drive the best value once you kind of get to a kind of business which is worth two million quid plus. But I think even then it can kind of drive more. And again there's elements where the bigger you can drive the profitability of your group. Again, when you get to a group, you actually can drive even more value out of that transaction. And if you think about it from the perspective of a corporate buyer, you know what would, uh, what would be better for me to do? Would it be best for me to spend my time buying three different practices or spending my time buying one group of three practices from someone for a little bit more money? Right, the time and cost efficiency of me doing that is so attractive from a buyer's perspective that actually that becomes a really attractive piece of the puzzle as well. So again, value with scale is very important.
Dr James:I've heard that the multiples go higher as well. So again, value with scale is very important.
Michael:I've heard that the multiples go higher as well when you have multiple sites, uh, they can do absolutely. I mean, let's, let's look at the way that that impacts and why. But then again, just just look at the logic for perspective as to as to why that would be the case. I think if you're looking at kind of like a single site operator which has kind of got a reasonably profitable practice which is doing relatively well, great, you know that could be a good acquisition again. Then from a from a buyer's perspective, I need to now integrate that practice into my group. And that is a single site practice being integrated.
Michael:Let's move to that owner, operator, whichator, which now owns five, six, seven sites. They have a central management function which can help operate and manage all of those sites as a buyer great, I've now got one management operation to integrate into my business. I don't have seven. So from that perspective, knowing that I've got a far more easier way to integrate that group into my business Makes a really attractive proposition. I now have a wider geographic fit. I'm now buying a larger amount of profitability, a larger number of people. I'm growing my top line quicker. I'm growing my profitability quicker. Actually, I can pay a premium for that because I can deliver all of that much quicker, more efficiently, more effective as well.
Dr James:Okay, and let's just talk about the principal's perspective for a moment, apart from, let's say, they get to a certain size where they've got, however many multiple sites, and apart from, whenever it gets to that stage, you're realistically limiting the pool of how many people could probably purchase from you, so in which case you have to default to someone bigger right. So, apart from that incentive you know, let's talk about these, let's talk about these smaller practices as well, maybe like one site, two site what is what's their big incentive? To maybe just to sell to a corporate, or is it? Is it not so much? Is it there's not so much necessarily advantages in that case? And it just so happens that maybe they could get something just as good from somebody who's not, you know, uh, not got private equity backing or something along those lines by way of a deal. They could get just as good a deal from someone else, or is there some sort of incentive there?
Michael:I. I think from the perspective of what you want to do you need to think about realistically is what transaction can you get delivered and how can you do it? I think once you grow a business to a certain size actually then help getting an associate group or a group of associates together who can buy that practice becomes quite challenging when you get to a certain scale. I think certainly it can be done kind of the sub the million quid stage up to two million quid. But then you need to start looking at how bank lending can leverage in extra value to help finance that right. Not a lot of people are sitting there with several million pounds in the bank. They think, great, we can go and do that. And I think when you start to look at kind of dental groups and dental corporates and again these are typically we're specializing and looking at those with kind of private equity backing, why do we look at those ones? I mean, that's even just an interesting point of question, right thinking. Why do we look at those ones? Well, the reason that those ones are there, what are they doing? They're backed by private equity to buy more profitability, to grow their businesses quicker, so that private equity house can then generate return when they exit to a larger business or whether it ends up listing or something else. So the exit strategy at the far end of the market is is is a different space. Well, you're looking at this space here as well. Actually, what they're doing is they're buying your practice, they're integrating and they're growing that profitability over time.
Michael:Now, private equity-backed corporates they have funding available already to spend on buying practices. You know it's a case of they have financing facilities available which just say you can go and spend 20 million quid on practices on a rolling basis. They'll always just say you can go and spend 20 million quid on practices on a rolling basis, depending on these conditions. There'll be banking covenants around that. There'll be spending limits, there'll be issues and things that you can contend with from a cash flow management perspective, absolutely, but they've got budgets and money to spend to buy practices now.
Michael:So facilitating a transaction with them is a quick, easy and efficient process and it means that you're not having to wait for someone to then go to a bank to try and raise debt against your business to help buy you out. You know it's. It's a time-consuming process which can be challenging to deliver, and the banking appetite can fluctuate up and down depending on a variety of different things. You know, business to business to business how much profitability, how much can you afford to borrow off that business as well often impacts what kind of transaction can be delivered. So there's a lot of factors there and that's why that kind of private equity-backed dental corporate group becomes a really attractive group to sell to, because the money is there.
Dr James:Right understood.
Michael:So the process tends to be that much smoother and with less moving parts yeah, and the other element of that, of course, is not just a case of what happened. It's been, isn't that great. It's also because they actually have dedicated teams who are already employed to kind of actually manage and deliver transaction processes. So the time investment that they can spend getting comfortable with the acquisition is much higher. They've got retained advisors, typically from a legal perspective, whether or not they're doing financial due diligence as well and financial DD. That's kind of when you get an accountant or whatever to go and look at the business from an operational perspective and get comfortable with the performance of it.
Michael:And again, it's part of the risks and balances of of making that decision because while you know, as the, as the principal owner or the associate dentist we talked about earlier, I know my business is running really well, I know it's growing, I know I've got the team in place and everything's like fantastic, fantastic and operating well. I've kind of I've really invested in that business and I'm, you know, kind of growing over time. I think from a corporate's perspective, it's like, yes, I've been told that I don't know that, so how do I get to know that? I need to look at the accounts, I need to understand from a cash flow perspective. I need to understand profitability and then look at kind of the actual delivery results from kind of. You know, looking at a fee, almost at a fee level, understanding what is that trend over time.
Dr James:Understood. Thank you so much for that. I wanted to ask on branding as well, because I've seen this before. I've kind of seen whispers of this, maybe not the most au fait with how it's viewed whenever it comes to transactions like the one we were just describing, but you know huge exits. So I was wondering.
Dr James:So when it comes to a dental practice and when it comes to, let's say, you've got that principle with multiple sites, what they'll often do is they'll have some sort of branding, right that's, that's similar across multiple sites and they'll have, like mr smith, dental care, I don't know, something along those lines. And then what that means is you've got one, two, three, four and five, uh, of these practices that are all the same, or sometimes they don't, sometimes they just keep the old independent name off the dental practice. So it's always going to be one or the other or a little bit of a mixed bag of those two things that I've just described. If they have five sites, three are branded the same, two or not, something along those lines. What's the? How do the corporates view that? What are the pros and cons? Is it better to have consistent branding, independent branding?
Michael:will the corporate just come in and change it anyway, so it doesn't matter it really depends and this is where you probably get quite big differentiations from a variety of the different kind of the dental groups, the dental corporates, and however we kind of talk about them, in terms of their strategy. What do they see as value, what do they see as positioning? I think when you look at, kind of you know, for instance, bupa right, one of the biggest owners of dental businesses in the UK, what do they do? Well, typically when you go to see a Bupa dentist, you're going to see Bupa dentist, right. They're not thinking I'm going to see this brand, that brand, that brand, that brand.
Michael:I think when you start to look at some of the other players elsewhere in the market, kind of going through, you've got Portman Dentex. Now, again, dentex was part of the brand, portman was a brand, but then, underneath that as well, they own a whole bunch of different dental practices as brands. You know, I think, looking up at me and my dentist is a Portman Dentex practice, I wouldn't really know it without actually going on the website and seeing that detail. It is very much branded as the business and this is who they are. There are 23 cosmetic up in the Northeast right and they are branded very much as their own business. Why are they branded as that? Well, they've got a good reputation, they're known in the marketplace. When people go to the dentist up in the area they know, oh, I'm going to that one.
Michael:I think from a dental group's perspective, they really need to think about their target audience and what kind of people they want to be bringing into their practices, post-transaction as well. Again, if it's a case of our brand's, the really strong one that everyone looks for and everyone just types in this company's types of practice, then who is branding the buying doesn't really matter. Except when you've grown your business to a scale it's got a reputation and it's actually got a really strong and attractive brand. It is 1,000 percent better for them to keep that brand. Because why would you spend a premium value on a business which has grown a great reputation, a great brand, to bring it into your network to then say, great, now you're just going to be one of our generic brands. You've immediately lost all of that value that you've kind of just bought, and all you've really bought then is a patient list. So actually, from that perspective, I see the strategic value and a lot of the dental corporate transactions now looking at.
Dr James:Well, unless there's a problem with the brand, like let's try and keep it, try and maintain it and actually try and really leverage it as best we can in the marketplace so even my dentist and bupa, which have really strong brands, as you say, right, and it feels like you walked on every high street and you see one of those, yeah, whereas portman dentics I don't think I've ever seen a portman dentist, a practice that says portman dentics on the front. Perhaps they exist, do they?
Michael:I mean to be fair, I can't think of one. But if you look, then if you consider in the dental market, what are the brand names that you know about? People know Portman Dentex. Well, I guess this is the thing People in the dental community know Portman Dentex. But does your average retail consumer really understand that branding and that positioning?
Dr James:So would my dentist or Bupa or something along those lines be happy to purchase practice? Keep his original branding, but it'd be in my dentist or bupa or something along those lines be happy to purchase practice, keep his original branding, but it'd be in my dentist practice. Does that happen?
Michael:pardon me, yes, it does happen. Oh, absolutely it's not. It's not consistent across the board, I think. And again, looking at the way probably my dentist grew, or I mean they went through a tremendous amount of growth there was. There was a significant amount of money put into that business to help it grow. I think back it's been through about seven rounds of private equity investment, mydentist just as a piece, and that means kind of the amount of interest and investment they've had over the business over time has been astronomical.
Michael:But again, what were they doing? What were they growing? They were growing their brand, their business, the my dentist positioning, as it were. Over time, you know they were bringing in practices to expand their business, to expand their network. I think if you, if they look at buying a practice now which has a really strong and attractive brand, I would like to think they would just destroy it because that just seems counterintuitive to what they want to do. I think they would put their branding next to it. I don't think they would kind of stop their branding being there, but I don't think they would just cut it off day one.
Dr James:There we are, good to know, interesting. We said we would talk about this earlier and now it feels like a good time. Social media Instagram, tiktok potentially which is growing nowadays Obviously those are going to be entwined with the brand of the practice. These situations when you've got, because inevitably with uh tick, with tick tock or instagram, what's pretty common is you'll have the principle of the practice or one of the dentists in the practice with an extremely strong personal brand and naturally that's going to be part of the goodwill of the practice, of the evaluation of the practice. So what happens in that situation? Do they just take the hit or do they try to tie them down for a few years like an earn out? Or maybe they're both?
Michael:I mean, you've kind of hit a little bit of the strategic thought there, right. I think there's a really interesting play there. Again, you know, I think let's think what kind of exit someone can deliver if they're looking at one, right, there's. You know, there's a few different ways. One, you know you can transition to an investor. If you're not looking at that exit, great. You kind of step back from the business, you operate it, you can generate profits from it. That's great. But again, you're not generating that day one cash, you're not really generating that huge lump sum value.
Michael:Another model you could look at is kind of a partnership model, which kind of is that halfway house whereby you're probably selling like 50% of your practice to one of the partnership dental groups and there's a few of them that now employ that kind of model where they're not buying 100% of your practice day one, they're buying a share of it and then you, together or combined, are growing that business with a view to an eventual exit for you down the line and they're paying you value for that half of that business of buying now, right? So from that perspective, that dentist that has that strong brand in terms of whether it's TikTok or Instagram, that's where you can kind of capture it, because actually they're very tied in already and actually then that dental corporate group which owns that share well, from their perspective they're like, well, they're comfortable because they're sharing in that partnership until probably an eventual transaction exit for everyone right, and there's a wider business model in terms of the way that would operate. So and that's probably when you have that partnership group being acquired by an even bigger player. It's like what they always say there's always a bigger fish, you know. So from that perspective. So you've kind of got your, but you've built this partnership model. They own a whole bunch of practices, a whole bunch of shares of different practices. All of the people that are invested, win, are also tied into the same terms that they ultimately exit on. And then what happens is when the bigger fish comes in and says great, we'll now buy your whole group for 100 million pounds or whatever the number ends up being. That's distributed by 50 of the share for all the 50 shares they own, and then the rest of it gets divvied up on a basis, probably from a profitability perspective, across all the rest of the practices in that network. So from that perspective they will look at it and think, well, this is great because we tie someone in with their branding, their marketing, their instagram, their TikTok and all of their followers in all the way until that eventual exit to a larger, larger corporate coming in at the back end.
Michael:There's also a couple of ways that could work. Then look at the full corporate transaction, and I think that's the one you were kind of talking around there, I think. If you're selling 100% of your practice and you're very critical to that business, so you've got a strong brand, a strong presence people come and see you in the practice. From a dental corporate perspective, they're not going to be very happy that they sell to you and then you disappear the day after the transaction. Right, they're not going to want that because actually a lot of the value in the practice is held by you. So how do they do that?
Michael:They typically look at putting in a tie-in structure, tie some of that into an earn out as well. So and there's a variety of different ways that earn out could work you know I think you talk about 70, 70% of that can be kind of day one payment, then maybe 10%, 10%, 10% If it's three, three years, or even, depending on how important the dentist is fundamentally to that business. You might be talking five or longer, you know it can really change the way things work and it's really interesting actually about the ways which can have gone through negotiations with a variety of dental corporates and dental groups to actually facilitate transactions, the types of different structure you want which you can actually end up with. I think there's elements of that time which can get really interesting in terms of incentivizing just keep delivering this business for us all the way through to get us more growth.
Dr James:Well, I've.
Dr James:Actually it's interesting you say that because the traditional structure is the earn out right and that's the one that most dentists are familiar with, and it's like, just as you were saying 60, 70% upfront, 10% after year one, 10% after year two, whatever right, and it varies, but it's all using that formula roughly.
Dr James:So it's all roughly looks like that. But then what I've come across recently and apparently this is more established in America and there's been a few instances where this has happened in the UK, and I want to run this by you to see if you've come across this but it can also be the case nowadays where they'll hit you with a proposition and they'll be like right here, and I'm not too sure of the exact sort of specifics of this and you'll be able to enlighten us. No doubt it's something along the lines of right, here's your two million, we'll give you everything, or maybe like the vast majority of it, like 80 and they're right. They'll be like right, you can only get the extra 20 if you hit this ebitda after one year and this ebitda after three years or something along those lines. Have I got that right?
Michael:yeah. So we're getting into the fine nuance of how various different dental corporate groups want to try and structure growth. But again there's there's the other thought process and preside from from as I'm, as I'm as a buyer, and again I've acted for both, from a buy side perspective, so acting for a group buying a business all the way through to that thing that practice owner selling to the dinner. So I kind of know, from both perspectives, I think absolutely it can be a profitability tie in. Again, looking at that, the way you would do that, what would be the reasons for doing that? Well, from the perspective of business economics and the way you run a business, there's three elements and you kind of talk about the classic, the classic idioms. You know you've got, revenue is vanity, right. Profit is sanity, but then cash is king, right. So at the end of the day, everything comes back to how much cash that business can generate. So if I'm a dental group buying a business, I'm making an investment decision to spend, you know, 5 million quid on a business. Well, why would I spend 5 million quid on a business? Well, why would I spend 5 million quid on a business? I want to know what return I'm going to get for that money. Right, if I'm buying it, I expect this level of profitability and if it's a multiple of profits, you're paying right. Well, that business kind of needs to pay my money back and deliver me extra value in the longer term. But again, how does a dental corporate get value out of it? There's that element I just talked about. It's pure cash in and then over six, seven, eight years I get all of that cash back and I still own the business, fantastic. But the other way is well, I buy your practice Great, that's for a multiple, say, you know, six, seven times, whatever it is. I big dental group, I'm worth 10 times, I'm worth 11 times profit, you know. And that number can be all range depending on wider markets, wider strategies. You know, historically that number has even been as high as 15, 16. I think you look at some groups. It has definitely been even higher. I think one of the original transactions so Oasis Healthcare when it sold to Bibl, when they created that wider dental group, that was at a very high premium of pricing uh, that was about goodness was that like an 800 million transaction or something that was like a 20 times multiple? So from that perspective, premium value can sit there. But I think if you look at that from that perspective as I can buy your business today instantly as a bigger group that business is now worth more from that perspective because I own it and I am worth more on a profitability multiple level. So from that perspective, that's how it goes.
Michael:As that buyer, how do I want to protect myself in the value I've just paid you for that business as well? There's two ways. One, if I'm helping to manage that portfolio and that business in a in a more tightly kind of group structure, so I'm having input on. You know your costs, how you run it, where the practice management is great, you know I can help you drive that revenue growth because I can get a lot more comfortable with how much profit the rest of that's making right. So I know the makeup of your costs, I know the makeup of the staffing and all that kind of stuff. That's that's a more hands-on approach.
Michael:For a less hands-on approach, dental group who kind of says we'll buy your business but you can operate, operate it. You've got flexibility for the next three to five years to drive the growth in that business and we'll pay you for that growth. You do it for us. Great. We'll give you more value, we'll give you bonus payments. We can deliver that. Why do it that way? You protect your downside. Is that dental corporate? I'm making sure that you're the one giving me extra value of profitability. You know, my business is worth a multiple of that revenue and that multiple of profits, sorry, well, the more profits you can drive for me, the more it's worth to me too. So that's that's kind of where that profitability sign comes into it, and paying for more profit, because actually that's even more valuable guys.
Dr James:There's been so much to get through on this podcast and so much value and we wanted to do it justice and do it in depth and as a consequence of that, it looks like and it's my fault because I've asked so many questions I've fully busted us. Today we're gonna have to make a part two, so be sure to look out for that part two. It's going to be released around about the same time as this episode, with my guest, michael mcculloch, looking forward to that already.
