Dental Practice Partnerships with Invisible DSOs
This episode is sponsored by:
In this episode of “The Business of Dentistry,” Art Wiederman interviews Chip Fichtner, Co-Founder & Principal at Large Practice Sales, the largest transition company helping dentists find the right partners in the DSO world. Chip explains the concept of invisible dental support organizations and how they differ from traditional DSOs, bringing transparency to the complexities of the dental practice partnership landscape. Discover valuable insights on the financial and cultural considerations, challenges, and opportunities when contemplating a partnership with invisible DSOs.
Transcript:
And hello, everyone. This is Art Lederman on behalf of Decisions in Dentistry magazine.
And today, I am excited to interview my good friend, Chip Fichtner, who is the Co-Founder & Principal at Large Practice Sales.
And large practice sales is the largest transition company that helps dentists take their practices, and finding the right, partner for them to partner with in the DSO world. And I will tell you it is a jungle out there, folks, and I am just thrilled to have Chip on the program today. Chip, welcome.
Thank you, Art. It’s good to talk to you again.
And it’s good to talk to you too. So, Chip, tell us a little bit about large practice sales.
Sure. Absolutely. Large practice sales specializes in helping our client doctors partner with groups that we call Invisible Dental Support Organizations.
And an invisible dental support organization differs from, what you might think of as a regular DSO in that they wanna become your silent partner by buying anywhere between fifty one and eighty percent of a practice for cash upfront.
The doctor retains ownership and continues to lead the practice with their brand, their team, their strategy, and most importantly, full autonomy. The right invisible DSOs have no interest in trying to tell you who to hire, who to fire, what to do, or when to do it.
They’re just interested in investing in great practices that, they believe their resources can help grow bigger, better, faster, more profitably. And, this is a booming category. We, we’ve completed over a billion dollars of these partnerships in the last twenty four months.
That that’s a billion with a b. Right?
That is with a b.
Not not with an m, with a b. Nope. With a b. Now from and and one of the things, Chip, you and I are gonna talk about today is that, you know, you know the marketplace. Like, I’m a dental practice broker in California, but I don’t market, buyers sellers to to to DSOs because I’ve learned, in my years of experience, you do what you know.
And what you don’t know, you send the specialist like yourself because the DSO market is very specialized. It’s really important to know the players.
And we’re gonna talk a little bit today about some DSOs that you have on a blacklist, I believe. We’ll talk about that.
But, you you told us what an invisible DSO is, and how does an invisible DSO chip, differ from a traditional regular, if you will, DSO?
You know, the primary difference is ownership, and the invisible DSOs do not buy a hundred percent of any practices because their whole philosophy is built on the theory that a practice with an owner doctor will operate more profitably than a practice with an employee doctor. So the invisible DSOs differ from the traditional DSOs and that the doctors have meaningful ownership, which is held either at the practice or the parent level. You know? Number two, the invisible DSOs have no desire to homogenize their partner practices.
They’re not gonna change your name. They’re not gonna tell you who to hire, who to fire, what procedures to perform, what payers to take, and they’re not gonna tell you what software you have to use. They they truly become a silent partner. Whereas the traditional DSOs are interested in, having you conform to their rules.
There’s a four inch thick three ring binder that if you were to sell your practice to a DSL, which is not a bad option, especially for doctors with a short time frame. Because one of the interesting things about the Invisible DSOs is they are interested in doctors that have at least a five year practicing time frame. There are some exceptions to that. But as a general rule, they’re looking for doctors that have at least a five year time horizon to continue leading their practice.
And so if you want a short term exit, the Invisible DSO partnership is not an option.
No. And and and we’ve heard that, for for many years about that from doctors. If you, still have gas in the tank and you love being a clinical dentist and maybe you wanna, you know, give up, you know, get get some bring the cavalry in and get some resources. So what kind of resources, Chip, does an invisible DSO bring to the doctor that they maybe don’t have as a single practitioner?
You know, it’s it’s a growing gulf, to be really honest with you. So today, there are over a thousand invisible DSOs in the US, and some of them may have seven hundred and fifty partner practices, and some of them may have ten.
So they’re very different, not only in their size, but in the resources that they can bring to help their partner doctors.
So as an example, they are going to be able to reduce your supplies cost on average by twenty five to thirty percent. They’re gonna be able to reduce implant cost by fifty percent. Team benefits cost typically can be reduced with better benefits by about ten percent. But really one of the big changes that’s occurred post COVID is the larger invisible DSOs have been able to negotiate with the insurance payers to get reimbursed at higher rates than the independent dentist. And that can be very significant because a reimbursement rate increase falls right to the bottom line.
I’ve actually heard stories, Chip. I’m glad you mentioned that. I’ve actually heard stories of doctors who have sold to Invisible DSOs and who have told me, hey, Art. I’m making more money now as part of this Invisible DSO even though I, you know, gave up part of my ownership than I was making when I was in private practice. Do you hear that?
Yeah. Absolutely. And and part of it is the other resources they can bring. And one of the really ones that a lot of doctors have keyed in on lately is recruiting resources.
Some of these invisible DSOs will have a dozen or two dozen full time recruiters on their payroll in their headquarters just helping their partner practices recruit everything from front desk to associates, and that can be really valuable today.
Well, that’s beyond valuable. I I I’ve I’ve always told doctors, in my lectures and on my podcasts that I do is that the two biggest challenges we have is number one, dealing with these insurance companies and reimbursements and also finding and retaining team members. And if you’ve got a an invisible DSO that is basically doing the recruiting for you, I mean, that is huge because they they know how to write the ads. They know where to put the ads. They they have, like you said, you know, a a dozen or two dozen people that that’s all that they do. Now, Chip, let’s get into the discussion of, like in any business, there’s good players and there’s bad players that are successful, not successful.
And I wanna talk about the you you have a a a blacklist. That that sounds harsh, but you need to do that because you are only taking your clients, and we’ve had this conversation before. You are only taking your clients to the top invisible DSOs, the best of the best.
And there are there are DSOs that are they’re not doing the right thing, and and a lot of them are in financial trouble. So talk about your blacklist and how that works, and how does someone get on your black but I hope I’m not on your blacklist, of course. But, how does that work?
Well, you know, there again, with a thousand invisible BSOs across the US, each one is different, and some are obviously better than others just as in every other industry.
So one of the things that’s important to us is the long term success of our clients. These relationships are not just about the initial value and the amount of cash that you put in your pocket on day one. In all of our transactions, the doctors are gonna continue to be owners either at their practice level, the parent level, or a combination of both. So that retained equity that the doctor keeps, its long term value and its long term potential is really important in these transactions.
And in some cases, if you choose poorly, that equity could ultimately become worth nothing. So with the thousand invisible DSOs, we have a set of criteria, and we, every two weeks, sort of go through the list of all of them and figure out who should go on the blacklist and who should come off the blacklist. But generally speaking, we consider only a hundred of those to be qualified bidders for our clients, and that means there’s nine hundred groups on the blacklist. So question is, how do you get on the blacklist and how do you get off the black list?
I I yeah. I’m wondering it. And what what is it what is it on the blacklist? I mean, what is it that gets them on the bucket? What criteria are you looking at?
So it’s it’s a long list of criteria, but I’ll I’ll give you some real world recent examples. So Sure. Back in sixteen through nineteen, we did about three hundred million dollars of partnerships with a, one of the oldest invisible BSOs in the US. They’re about thirty five years old, and they have hundreds of practice partners across the country. And back in sixteen to nineteen, they were extraordinarily successful.
And they completed a recapitalization event, which means that our clients, had the opportunity to sell their equity, as that group, monetized with a larger investor.
And that larger investor came in and functionally replaced the entire c level section of of managers. So chief executive officer, chief information officer, chief marketing officer, just about everybody.
And as they did that, you had a whole new executive group that you didn’t know what their plan was. You had a new financial backer who had put a billion dollars into this thing. And so they automatically went on the blacklist until we understood what their goals were and what capabilities of their management were and and what that billion dollar investor wanted to get out of that group.
And, fortunately, by them going on the blacklist, we made the right move because they are now hunting for their third CEO in the last twenty four months. And so this is a group that is not stable. It’s not growing. And so we’re glad we put them on the blacklist a couple of years ago. So it it could be a big old group that now has a billion dollars, and, they’re on the blacklist. Because until we know what they’re going to do, we don’t wanna take the risk of putting our clients with a group like that.
K. And there’s emerging DSOs that are coming out that are growing that you’re, I’m sure, aware of.
Some are like anything else. Some are good and some are bad. Right?
Yeah. Absolutely. So in twenty four, there were probably over fifty new invisible DSOs created, and our clients, were actually the platforms for two of those. And so the question is, how would we risk our clients going to a brand new Invisible DSO? Well, the answer is that the money that formed the Invisible DSO, in one case, our client became platform number eight, meaning they had successfully started, built, and monetized seven other Invisible DSOs over the last ten years. And the second group where our client was the platform practice.
He was, the platform practice for their successful invisible DSO number six. So one of the key things you wanna look at with, with any of these groups is who’s the money behind them? And a lot of them are bank financed. Well, if you have a bank financed invisible DSO, it’s pretty high risk because banks can change their mind, and you have limited growth opportunity. And, frankly, you don’t have the experience of of smart money behind you. So a lot of the groups on that, blacklist are groups that only have bank financing, which means they’re not probably not gonna be able to grow as quickly as a a group that may have other types of financing.
And so the the financing is important. The other thing you look at is the management, the track record of the management. You know, Invisible DSOs are not new. They’ve been around for thirty five years. And so you can sort of take a look at their management and look at what has their success been in other dental related businesses.
And in some cases, you have groups that are backed by lots of, private equity or other types of investors, and we’ll talk about that in a second. But, you know, we wanna understand what the investor quality is and have they participated in health care consolidation, provider based health care consolidation.
I I mean, I’ve seen Chip. I’ve seen some of these DSOs that get started with someone who has heard about this. Maybe it’s a dentist. And they’ve got a buddy who puts up a million bucks or a couple buddies that put up some money, and then they get their friends.
And the next thing you know, you’ve got fifty investors, and then they have to go get some part I mean, I you’ve seen it all. Right? I mean, what’s a bad scenario? I mean, what what’s the best type of invisible DSO that that as far as their financing goes for success?
Well, you know, it’s interesting. One one of the perceptions of doctors is that all of dental consolidation has been powered by private dental consolidation, but the reality is they’re not the only investor. In the last several years, we’ve done hundreds of millions of dollars of transactions with invisible DSOs that were backed by family offices, billionaire family offices. Yeah. We like dealing with those groups because there’s typically one guy who can make a yes or no decision in about thirty seconds.
Then you have sovereign wealth funds that have gotten into the game. So the country of Abu Dhabi, their sovereign wealth fund, they are the third largest sovereign wealth fund in the world after China, Norway, and Abu Dhabi. Population, two and a half million people. Pretty amazing.
And and then the the other investors that most people don’t realize is BlackRock, who is the world’s largest asset manager today with thirteen trillion dollars under management globally.
They, in the last thirty months, haven’t invested in four invisible DSOs. So the big smart, not necessarily private equity money is active in the invisible DSO world, and we estimate that over eight billion dollars of new financing and capital came into Invisible DSOs in twenty twenty four alone, which means there’s a lot of capital out there looking for great practices.
Right. And interest rates right now, everybody all the dentists I talked to, oh my god. Interest rates are five and a half or six percent. That’s so high, because they’re all spoiled of when interest rates were three percent.
No. Five and a half I I bought my first house at sixteen percent back in the eighties. I mean, it’s so five and a half for me. Yeah.
There you go. So so so five and a half percent is good. Interest rates are good.
The economy at the moment is strong.
And, I mean, this activity I mean, you’re you see it every day or you you you have to, do something else. I mean, there’s still lots of like you say, there’s there’s, you know, billions and billions of dollars out there. And, talk about for a second, Chip, who is the right person to partner with an IBSO?
What what type of a practice?
Well, the you know, in our world, we will only accept clients that have a half a million dollars of EBITDA or operating profit after paying the doctor to do what they do every day. And that typically translates into, a specialty practice that has at least a million and a half dollars in collections and a GP practice that has at least a million eight in collections.
Yep.
Now they’re all different. They’re all over the map.
But in our world, the value of a practice is dictated not by its collections, but rather by its operating profitability.
And so you can have a practice with ten million dollars in collections that has no profits, and you can have a two million dollar practice that has eight hundred thousand dollars in EBITDA. It’s all about how well it’s run and what they do.
But, you know, today, the reality is every doctor should at least understand what an invisible DSO is, and they should understand what is the potential value of their practice in an invisible DSO partnership for the simple reason, it’s education.
And the invisible DSOs are growing rapidly.
They’re in your town today, and you should at least understand them. Now you don’t know they’re there because they didn’t rebrand the practice and they didn’t make a big announcement in town. Hey. We’re now partners with Acme DSO. Right. Instead, the invisible DSOs come in there quietly and help their doctors, pay less for everything, recruit better, market to new patients. That’s that’s one of the things that I think is gonna be important.
In the coming year is that your ability to draw new patients is going to be significantly valuable because in my world, if you’re not growing, you’re not creating value. And if you’re actually shrinking for whatever reason, I generally can’t help you.
Shrinking practices are really tough.
And one of the things and I I wanna take a minute, and we’ll do it at the end of the of the conversation too. Take a minute to give out your contact information because doctors, I’m gonna tell you, again, I’ve been a dental CPA for forty years, and I’ve actually been a dental practice broker for twenty. And, again, I do not do what chip and large practice sales does because I am not qualified. I don’t know the DSO market.
And, again, it’s like it’s like you doctors if you are, you know, maybe you do endo, but you don’t do third molars. I mean, you you do what you know and you do what you’re comfortable with, and it’s the same with with with me. But, you know, one thing, Chip, is is you you can you can look at you know, if we have somebody listening today and you’re thinking, I’ve heard about this. I really wanna know.
You’ll take a look at somebody’s financials, and you’ll tell them and say either, yes, you’re ready, or, no, you’re not. Right? You can do that easily. Right?
Absolutely. We do that every day. And, you know, and our entire process is confidential and without cost or obligation.
What we wanna take a look at is three years of p and l. And, I love to have conversations with doctors because I have learned something from one every single time I talk to them. So I urge any doctor to go to large practice sales dot com, and let’s set up a call. We’ll have a twenty minute conversation.
And if you qualify, we would love to take a look at your numbers and give you an idea of what’s possible today.
But more importantly, we’re gonna take a look at your numbers and give you an idea of where you are benchmarked against other practices like yours, either in your community or nationally.
And that little bit of advice and we are not practice consultants. And, again, this is all free, so you’re not gonna get tons of wisdom. But we’re we’re pretty good at looking at a practice and saying, hey, doctor Jones. You’re overstaffed by two team members here.
Your fee schedule should be raised. You’re a fee for service practice. When’s the last time you raised your fees? So we because we look at probably a hundred and hundred and fifty sets of financials a month, we have a pretty good idea of how your practice might be better.
So may not now may not be the right time for you, but we’re planting seeds for the future. I I signed clients last month that I’ve been talking to for five years.
Yep. And and and some of them aren’t ready for you. You might say to them, hey. Listen, doc.
You’re you know, here’s where you’re at. You need to do a, b, c, and d and get with a consultant or make some changes in your practice, and you’ll you’ll be ready to do this. The, you know, the the other thing is for a doctor let’s say I got a doctor in there, you know, fifty, sixty, seventies, and they’re you know, they’ve got some stuff left in the tank, and they wanna go five years. And and we need them to go five years because, you know, an invisible DSO isn’t gonna make the investment if the person holding all the goodwill isn’t gonna stick around.
But, you know, that doctor is gonna get some money up front. Right? Yep.
And then they’re either going to, be a partner and and get distributions from their practice with higher PPO reimbursements and lower overhead. And they might get, you know, ownership in the mothership, I call it, which is the the big invisible DSO that somewhere in the next year or two or three or five is gonna do what we call as a recapitalization.
And that’s where you you’ve made, I’m I’m assuming you’ve made many millionaires, I’m guessing.
We have just you know, last year is a good example. We had over sixty of our clients participate in recapitalizations with the Invisible DSO partner they chose. And, you know, my favorite story is the thirty eight year old doctor we got into, one of the good ones seven years ago. His equity increased in value by ten x.
Wow. Yeah.
Well So it it does happen if you choose wisely. And the trick is to choose wisely.
But but, again, doctors, I wanna be I wanna be real clear. If I sound like a broken record, then, guilty as charged.
If you haven’t been contacted by somebody, from these thousand DSOs, you will.
And if you are, once see, Chip, here’s a question. Once they sign a letter of intent, there’s not a lot you can do to help them, is there?
No. There’s really not. It depends on what the letter of intent says, but, it is a challenge. And, you know, the reality is in my world, our our clients will typically have five or more qualified bidders to choose from.
And having multiple bidders is important for increasing value, but more importantly, it helps you choose the invisible DSO that’s the right cultural fit for you. Because, ultimately, you’re gonna be spending the balance of your career with this invisible DSO, and you wanna choose one that has the same goals, vision, and values that you have. And they’re all different. So if you could have the opportunity to have five or more qualified bidders or just talk to one and get married, doesn’t make a lot of sense. You might as well have multiple bidders.
And you and I have talked before, and I’ve heard stories about so, doctor Wiederman gets a call from x y z DSO, and they’re offering me this deal.
And then I take the deal to you, and it’s a good Invisible DSO. They’re not on your blacklist.
And then you go to them and go, so, Invisible DSO, this is, Chipotle.
Remember me? I’m the guy that kinda knows what’s going on. Right? And so I’m sure you’ve got stories where doctors get offers from these Invisible DSO, you get involved, and you end up selling to that same Invisible DSO at a multiple significantly higher. I’m is that a is that a true statement?
Yeah. I’ll give I’ll give you my quick favorite story. I love it. In Northland, Florida called me up, and we had looked at his numbers, so I had a good idea of what he was worth.
And he said, you know, met with their CEO. And they’ve made me a great offer, and I’m thinking about taking it. But I just you know, I wanted to do a gut check with you. If you don’t mind, I’m not paying you anything.
But if you don’t mind telling me whether this is a good one or bad one, I’d really appreciate it. And I said, yeah. No problem. I’m happy to help, and, you know, we’ll pay it forward.
And if if I can help you, you can tell me about your friends even if you do a deal directly with these guys. But let’s start with this question. How many bidders did you have? He said, none.
Just just this one group. I said, okay. I’ll tell you what I’m gonna do. I’ll guarantee you I’ll get you at least five million dollars more.
Or if I can’t, I’ll help you get the deal closed for free. He said, you’re crazy. I said, nope. Happy to do.
He said, you don’t know who the DSO is, and you don’t know what the offer is. I said, doesn’t matter. A practice like yours, he was in Florida, you’re gonna have ten bidders, and the value is gonna be much higher than whatever you negotiated on your own. He said, okay.
Will you put that in writing? I sent him an email. And he told me he said, yep. The bidder is x y z, and the bid is nineteen million.
I said, oh, doc. Alright. I gotta change my guarantee. He’s like, what do you mean?
You’re you’re not gonna guarantee me at least five million more? I said, no. I’m gonna guarantee you ten million more.
And so we put that in writing, and and my pitch was real simple. You’ve got a nineteen million dollar offer. If I don’t get you twenty nine million net of my fee, then you can pay me nothing, and we’ll do all the work to help you get closed. He signed.
We did a deal. We had eleven bidders. The high bidder was forty three point five million. And in that process, I went back to the nineteen million dollar bidders buyer and said, hey, Joe.
I I see you bid nineteen million for my new client. He goes, shit. And I was like, my new client here, really thinks his practice is probably worth more than that. Would you like to revisit your bid? He said, okay. We’ll go to thirty million, but not a penny more. So one call, his original bidder went from nineteen nine to thirty.
Eleven million. Yeah. Because they know they know that the, the advanced class is involved.
Yeah. And so I said, Joe, I’d I’d love to have you, but you’re not even gonna make it to dinner. We always do dinners for the three finalists.
They said, what do you mean? I said, I’m gonna get him a lot more than that. And we did. We got him and he was he was an older doctor, and he was interested in heavy cash components.
So he was about to take nineteen, and we got him forty two point five million with ninety five percent in cash. Ninety five percent in cash?
Ninety five percent in cash, which is not normal.
Not normal. Unheard of. I mean, usually, the cash component is fifty, sixty percent, maybe, seventy. I don’t know. Like, it depends.
You know?
They’re all different. Right?
They they are. They’re all different, but the trick is you gotta know where to look, and you gotta figure out who wants what, when, where, and why. We we did a deal for a great practice in New York, third quarter last year. And we got this group about ten million dollars more than I thought we could only because the buyer was getting ready to go through a recapitalization.
The money for recapitalizations is often in New York. This practice was in New York, and they wanted to showcase practice in New York to show investors this is what our practices look like.
And so we got them an absolutely extraordinary number, and it’s just because we knew the right place at the right time.
Well, that that that’s the whole key is you know all the players.
You know what they’re doing. But, again, doctors, please don’t sign an LOI till you talk to Chip.
So, Chip, we were talking about your blacklist. Right? And we now know how they kinda get on. I’m assuming that you take some doctor some, invisible DSOs off your blacklist. Right? How do you how how do I get off the blacklist?
Absolutely. So oftentimes, the best way to come off the blacklist is you have a new investor.
You complete a recapitalization or you get a large new credit line. So all of a sudden, you have the capital to expand.
And, really, ultimately, you wanna look at the groups that are growing because that’s how you create the equity value, like the story of my thirty eight year old doctor whose value went up ten x in seven years. Unfortunately, we had dozens of other clients with that same invisible DSO that recapitalized last year. And some of the guys who were in there for three years made three times their money on their equity. Some at five years made five times their money on their equity. But when you when you choose wisely, the upside in these things is is very attractive, which is why eight billion dollars of new money came into the game last year from very sophisticated investors like BlackRock.
Well and and and, I mean, BlackRock does I mean, they’re they’re money managers. They’re in the real estate.
I mean, the the the BlackRock is Everything. Event cloud.
I mean, they’re they’re amazing. It’s it’s like I maybe you compare them to Amazon in that world. I mean, it’s just amazing, how how sophisticated they are and how powerful they are. And, but, again, private equity loves dentistry because they create cash flow.
And, I mean, I remember in twenty o eight and even during the pandemic, I mean, our dentist and our CPA practices, yeah, in twenty o eight, they were down five to maybe ten or fifteen percent, but they came back. I mean, you know, dentistry is resilient. Now with the risks of the links between periodontal disease and Alzheimer’s and dementia and liver and I mean, all this stuff that’s coming up as a dentist or about total health. And and so, you know, they they love it, and there’s and these invisible DSOs can also bring in other specialties. I mean, if it’s a GP practice, they can some of them may have a perio, endo, ortho, and and they can make it turn the practice into bigger numbers, which is bigger for the for the GP. Right?
Yeah. But it’s important to understand that they’re not gonna force their partner doctors to do anything. They’re not gonna say, hey. We wanna send in an Endo and a Perio and whatever.
They’re not gonna do that. You’re gonna have a conversation with a series of prospective partners and figure out which one of those where you share the same goals. You know, you don’t wanna partner with a group who says, we’re putting endo in your practice when you don’t want endo in your practice or or whatever it is. So it’s important to understand that the right invisible DSOs are not gonna dictate anything, but they’re gonna wanna have a conversation with you long before you get married.
What are your goals? How can we help you grow?
Absolutely. Well, again, it’s it’s important that you know the good players and the bad players, and you’re saying that basically ten percent of the invisible DSOs are who you will deal with. That tells me something. That’s that’s crazy.
Yeah. And it doesn’t mean that the other nine hundred are about to fail, but some are better than others. And, you know, our mission is to make sure our clients go to the best invisible DSOs so that they have the best experience and have the best long term upside.
Because the long term equity upside is really the only reason a hundred and fifty million dollars of our partnerships in the last twenty four months have been for doctors in their thirties. Everybody’s always shocked at that number. But the reality is Invisible DSO can be a great partner for a thirty something year old doctor who wants to grow because that thirty something year old doctor can access the capital and the resources of that Invisible DSO to go build an empire that he can own up to forty nine percent of, and he takes no risk.
No. And and Or she. Right. Exactly. And and and sometimes, you’re gonna get as much money in the cash component of the sale as you were gonna get from the entire sale of your practice if you just sold it to another buyer.
Correct. You’ve seen that happen too. And then and then if you’re willing to leave some chips on the table, no no pun intended, if if if you’re gonna leave some money on the table, you know, and and have you seen multiple recaps, Chip? I mean, have you seen I mean, so so a doctor goes and, you know, you have an invisible DSO, and then they go and they recap.
And then, you know, three years later, they do it again.
I mean Absolutely.
So the biggest invisible DSO in the country now with seven hundred and eighty offices, we partnered practice number, I think, fifty one with them seven years ago after they had just completed their first recap. And then they had a second recap thirty eight months later and a third recap forty two months later. So, our client was there for three different recapitalizations in seven years.
And they still probably own a percentage of their practice.
Absolutely. You bet. You know, with the kind of returns that they’re getting, this group just is gonna continue to grow. I don’t think they’re gonna get the same kind of returns given that it’s harder to move the needle when you have seven hundred and eighty practices rather than fifty something practices. You know, they’re so so a lot of the younger doctors are eager for the smaller, younger, invisible DSOs, and there you really have to choose wisely. And and I’m not saying size is good, bad, or different, but generally speaking, there is gonna be more upside with a smaller group than a bigger group.
Now you said one point five million for a specialist. Talk about the specialty market for a second. We do have a lot of specialists that are, I’m sure, gonna be listening to this.
What do the specialists need to know about going with Invisible DSO? I know I know that they have a lot more opportunity. They have a lot of opportunity there.
Yeah. It’s you know, specialty, has really changed dramatically in the last eight years. So eight years ago, we had the first of this generation’s ortho only Invisible DSOs, and they’re now up to about four hundred and fifty offices in eight years. And there are thirteen other ortho only Invisible DSOs in the US today.
We consider ten of those thirteen unqualified to bid on our clients. The ortho business has been hit pretty hard the last three years. And if you’re an ortho only invisible DSO, it’s been painful.
On top of that, there are seventeen oral surgery only invisible DSOs today, up from one five years ago.
Yep.
So then we have the the what we call the surgical trifecta, invisible DSOs, and those are which oral surgery, perio, endo in the same communities. And then my favorites, the dental trifectas, which are interested in pedo ortho oral surgery only in the same communities. And the so a specialist is gonna have lots of different options, not just the multispecialty groups, not just the single specialty groups, but the trifecta specialty groups.
Well, and and the thing for the specialist, Chip, that I’ve learned as a a a broker who sells single practice single practices is that, like, you know, I’m in California. You know? In in California, there are seventy seven hundred and fifty pediatric dentists.
Not enough.
Not enough. So and and and to try and sell a periodontal practice today to find someone else when you I I had one I had one periodontist who I was talking to about buying a periodontist I was which was, like, six or seven years ago, and he says, I go from office to office. I have no overhead, no employees, and I make six hundred thousand a year. Is your practice gonna do better for me? And I said, no.
So so that is why a lot of the specialists are going to these invisible DSOs because I’m I mean, it it that’s the that’s the best option out there. So, It is.
You know, it’s it’s kinda interesting. In oral surgery, which is the fastest consolidating of all practice types today, because the recruiting problems. You know? Yeah. Of the two hundred and fifty graduates from residency in June, almost a hundred and fifty went to the invisible DSOs. Twenty five went into public service, and that left seventy five for the five thousand independent oral surgery practices to retry and recruit doctors to either grow or to replace themselves.
Very challenging.
Yeah. So so if you’re a specialist, this is an opportunity.
If you’re a general dentist and you wanna look at this, but what what do you say to a general dentist who’s doing a million bucks?
And and you’re a little small. Grow. Yeah.
Grow.
Grow. That you know, because there’s, you know, there’s a big difference between if you do a doctor to doctor transaction, and this is what you do, so you can tell me if I’m wrong. You’re probably looking at a value on the high side of a hundred percent of collections.
Wow. Yep. Yep. In in q three of last year, we did over a hundred and twenty million dollars of transactions for practices just in q three that were valued at over three times collections or three hundred percent of collections. Because in my world, it’s all about profitability, not collections.
So if if you’re a a smaller GP, grow because you’re gonna get a much higher value when you qualify for an invisible DSO partnership.
Well, as a CPA, from what I remember from accounting school back in the seventies, three times collections is more than one time collections, I think. Is that right?
Yeah. That that’s back when you had those mechanical calculators. Right?
Or as I like to say, back before Color TV.
No. Exactly. No. We we used to have these Hewlettracker machines, little little handheld things that would do all the the mathematical So we don’t need to get into that.
But, anyway Hey.
Let’s see. I’m old enough to remember.
Yeah. You and me you and me both, my friend. So so, final thoughts here. I mean, we covered a lot of ground here.
Some final thoughts, and I want you to give out your contact information because doctors, I, you know, again, it doesn’t cost you any money to have a conversation with Chip or his team.
And, as you can tell, he’s gonna take you to the right partner, and he’s gonna tell you if you’re not the right person to do this too. I mean so, you know, last comments, and then let’s give out your contact information, and we’ll, call it a recording.
Fantastic. I appreciate it. You know, the, to me, the number one risk to a practice value today is the potential that we enter into a recession or our bubble pops because we are in a bubble, and you can write that down. Yep. And if that happens and your practice revenues or collections declines, your value in my world either evaporates or declines dramatically.
So that’s the big reason I when doctors say, well, I’m thinking about this, I may wait a year. And I’m like, I’m not sure I’d do that. I I would consider it now because the potential value of your practice can go down considerably, and it may delay your ultimate exit by years. And you may not wanna do that. So we’ll have a conversation. I urge every doctor, go to large practice sales dot com, and there’s a button where you can set up a call with me. And, we’ll have a twenty minute call and learn something.
And that’s anywhere in the United States?
Yes, sir. We, we signed clients last year in twenty nine states and DC.
There you go. Well, very good. Chip Fitchner with the large practice sales. You are a wealth of information. I hope, to our listeners out there across the United States, if this is good information, I would encourage you to go on to large practice sales dot com and just have a conversation, folks. Chip, thanks for the time today. Really appreciate it.
Thank you, Art. Have a great week.
Alright. You too.
