Anne: Hello everyone. It's Anne Duffy and this is Dental Entrepreneurs, the future of dentistry podcast. Thanks for being with me today. I'm very excited because I have a good friend. He's a new friend, but he's a great friend that I've known for, golly, a couple of years now, and I want to welcome Brian Kaleo for being here today.
Hi, Brian, how are
Brian: you? Hi, good morning, Anne. At least for me, it's morning where we are, and it's so good to be with you this morning.
Anne: I'm so glad you're here. You are a wealth of information. Before we get started. Let me tell our listeners a little bit about you. Brian Coleo is the director of Dykema's DSO group.
has been serving the dental industry for over 25 years and is widely the foremost authorities in the United States on DSO formation, DSO related mergers and acquisitions, and the full array of regulatory compliance requirements for DSOs.
Brian: Well,
It sounds pretty good, Ann. I hope it's all true, but it sounded pretty good anyway.
Well, I've
Anne: seen you in action and I know it is true. I think so many people around the globe, I, was surprised is that in the United States, I would say across the world, Brian, You are considered the expert and actually the guy that stirs the soup and the stew and keeps it all going over there at the offices of Dykema.
Tell me a little bit about Dykema because I love, first of all, love your conference. And when I tell people I'm going to Dykema, they're like what's Dykema? So tell us a little bit about Dykema before we get started.
Brian: I mean, Dykem is a law firm, but as it pertains to the people that would watch, you know, this segment, I'm, the director of our DSO industry group, and I've got 69 professionals that work with me, and we basically specialize in being full service to any possible issue that could come up with a group practice or a DSO, you know, we do a lot of mergers and acquisitions, people that want to buy, sell, invest, or lend in the space, we do a full range of compliance, any possible calamity that could come up, whether it's a dental board complain, a labor and employment issue, a tax issue, a health care regulatory issue, real estate issue.
I mean, just about anything that can come up in the context of a group practice or D. S. O. We do. And we also structure regulatory compliant D. S. O. Models across the United States. You know, and from our many discussions to keep it brief, there's lots and lots of regulations that apply to D. S. O. S. And we make sure the regulatory compliant.
Anne: Yeah, it's very confusing when I think state to state because I'm in Carolina, right? And I think they were prohibiting DSOs to really get started here until just a couple years ago. And now the doors are open. And, if you don't know that you would be surprised if you started the transaction and merger acquisitions.
think you have. Notice that dentists sometimes don't know all the legal ramifications. Is that correct?
Brian: Yes, it's correct, but there's no shame in that. I mean, Dentists went to dental school to learn how to be world class clinicians. They didn't go there.
To learn about the corporate practice of dentistry and the labor and employment regulations and illegal fee splitting and, real estate rules. And so, I mean, they really didn't go to school to do that. So it's no surprise to say that dentists, you know, are not really necessarily experts or well versed in these things.
Just like I don't know how to fill a cavity, but nobody would expect me to, I went to law school.
Anne: There you go. But isn't it interesting though, sometimes, a dentist will ask, you know, Uncle Harvey, if he can help them with their transition. And I fully believe that you need to work with a firm that is dental centric and knows the ins and outs, because dentistry is
Brian: different beast.
Uncle Harvey is a big mistake, and I'm glad you brought that up. As a matter of fact, because if you use your Uncle Harvey example, or even if it's not your uncle, somebody at your country club, your tennis club, your golf club, you've known this person for years, could be a very well respected attorney, but they don't do dentistry.
It's a really big problem. probably double or triple your costs. I've seen a lot of folks on transactions that I think should cost one X and they cost four X because they used Uncle Harvey or Somebody else and then two they don't know what's market or what's not market If somebody comes in and says here's the non compete we're going to do.
Here's the terms of your employment agreement Here's the conditions when you can be terminated or not terminated for cause without cause or here's the structure of your deal if You don't do this every day. You don't know what's market and what's not market. And I don't know how these folks actually represent their client.
I mean, By definition, probably not very well because they just don't understand what market terms are. So they're grasping around in the dark and it can make for a very expensive transaction. And in addition to being expensive, it can make for a transaction that doesn't necessarily protect the selling dentist the way it should.
Yeah, because I've heard
Anne: heartbreak stories about the senior doc selling, and it practice was undervalued, or the younger doc coming in, and the practice was overvalued. And do you work both sides, Brian, in your firm?
Brian: Yeah, I mean, we have to follow conflict of interest rules, but we don't represent every single DSO in the world.
So we do a lot of I mean, last year we did about 250 transactions and at least half of them were sell side. At least 125 of them were on the sell side where we either don't have a conflict or we can get a waiver. Sometimes our clients, even if we represent them on the buy side, but the seller really wants to use us, they'll waive the conflict.
You can do what's called a conflict waiver and they'll let us represent them. So yeah we, do 250 transactions a year, which is about what we do, about half of them are on the sell side.
Anne: that's really interesting that bodes well for both people. So if our listeners, hear this, if you are thinking about selling, then you would actually reach out to you also to set up the process, right?
Because it takes a couple of years, I would think. If I'm not mistaken or how long does it take say I want to sell my practice I'm ready to sell and I think sometimes they think okay. Let's sell next monday
Brian: It could take 30 days or it could take a year. two years is maybe a little too long. That would be crazy. But It depends on your organization and this is why it's really great to be, on this show with you and talking about this.
They're going to pay you based on a multiple of EBITDA. EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization. And you got to look at your organization and do everything you can to maximize your EBITDA. And if a transaction takes a year, I don't want anybody to think we're typing up documents for a year.
That doesn't take a year, but it means there's tweaking and things that has to be done to your organization to maximize its value, and that might take a year or so to make sure your organization is properly prepared for a transaction. But in terms of the pure legal process, I would say the average is around 90 days.
Sometimes if it's a solo practice and it's simple, we can do it in 45 days. A group could be done in 90. Some very complex transactions, sometimes you're selling 100 offices or more. That could take four or five or six months if it's a really big deal.
Anne: so obviously we want people to go to dentalentrepreneur. com and read your article. the spring edition of 23. And when I saw the list, Brian of all the things comprehensive legal due diligence covers a number of issues.
Including but not limited to the organizations. There's a quite a long list there that I could imagine if you didn't have help, you would not be able to know that you need to do all of these things, have them in place before you sell
Brian: or buy. I hate to harp on it. But there's a difference between somebody like me. me or trained like me and somebody else, go read the article and you'll see all these categories. But if you're, an average dental practice in America, I can tick through those categories in about an hour or two and there might be a couple things we really have to focus on.
But I could take through those things and figure out exactly where we are. If you have somebody that's never done dentistry before, number one, they may not know. that list. You may be going through this transaction flying blind or learning as you're going at your expense Which is not a terrific thing to do, but if you know what you're doing it's not as daunting as it looks For the average practice out there that's selling now if we're buying 300 offices, then yeah We really got to drill down and you might spend Hundreds of thousands or a million dollars on diligence if you're buying 300, 400 offices or something, if you're buying one office, I can tick through that list in an hour or two and usually that's what happens.
I tick through the list. Sometimes I don't find anything. Sometimes I might find three, four, or five issues I gotta drill down on. But you know, I've gone through a list of like 30 or 40 things and narrowed it down to three, four, or five things, which is very manageable.
Anne: I love that you're making it very manageable.
sometimes you think out there that, Oh my God, this is going to cost so much money. It's going to be so arduous. again, we're not trying to sell Dykema, but we are trying to sell using a firm.
That knows dentistry because that's the way that our profession is going to, survive and thrive, versus having some transactions that don't work out and also the heartache and mental load that it wears people that have built
Brian: their legacy. I mean, it's a very important theme using somebody that knows what they're doing in their field.
And I'll have lunches or dinners or at the dental conference, I'll sit down with the seller for an hour or two. And usually in that hour or two, I can tell either you're not ready for a sale. And I'll just tell you right, I mean, based on Questions I might ask you over a lunch or a dinner or maybe drink at a bar, you know, a happy hour or something.
I could tell you very quickly if you're not ready and what you probably need to do to get ready. And that saves you the time of spending money and going through a process only to have it fail. Or I can say, look, these are the things that are going to be an issue if we do this. So I usually, I mean, when I represent Transcribed Sellers can usually figure out very quickly, if they're ready right now, and if they are, what the process is going to look like, and if they're not ready, you know what they need to do and how long it's going to take. Yeah, I would
Anne: imagine they have to have a really great accountant all these years to make sure that their numbers line up with the patient flow and all of that And does that fluctuate now, right? Have you seen a change with interest rates those kinds of things influencing the world?
Brian: yes, we are not immune. We have mean, This is what I would I always tell everybody dentistry, filling cavities like in the mouth dentistry has been virtually recession proof pandemic proof, you know, people may be a little bit down, but people are coming to the dentist and, on the whole, practices are doing, relative to the rest of the economy very, very well.
But I always say, Okay. Don't confuse that with the M& A markets. Remember in the last 10 years, we created this separate thing. There's still dental practices, or patients go to, and there's a dentist and hygienist, and they treat the patients, and then there's the dental M& A markets over here, and that's this whole phenomenon of the evolution and consolidation of dentistry and, solo and group practices consolidating to DSOs, getting paid a multiple of EBITDA, and there's a whole market and things like that.
Yeah, that's Like the rest of the economy. It's struggling a little bit right now. There are deals happening. I say slow and steady I mean it was explosive in 2009 1819 even in 20 after they opened the offices up the last quarter of the year was explosive all of 21 was Explosive 22 not quite as explosive, but really busy.
This is the first year of it's down from where it used to be. There's still if you want to sell your office There's a market for it. as long as there's not a problem with your organization We could get the deal done, but it's slower, because of what you said the interest rates are up So the buying power of a lot of the buyers out there has been diminished in this marketplace, maybe they wanted to do 20 deals And their bank said you can only do 10 or 5 or a few organizations Have been told they can't do any deals for the rest of this year and then in 24 they can start buying things again So this has led to less buying power out there and because of that the multiples are a little lower Than they were even in the first quarter of this year.
This all happened around the first quarter of this year the first quarter we were closing deals about the same as we were doing in 2022 and then around the second quarter and we just finished the third quarter it's down a little bit but slow and steady. It's it's not dead There's still deals if you want to do one well, the
Anne: thing that strikes me is it's actually kind of like the housing market Actually, it sounds like this might be a good time with it a little slower because you don't have the competition maybe out there.
Does that make any
Brian: sense well, say this competition is good because it drives up the prices. I mean, if you're selling your office, you usually would like 10 people bidding on it instead of two or three because the likelihood of your Price going up is higher the more people that bid on it.
And I've seen situations where I use silly numbers where something should go for a hundred dollars, but the last three or four people just had to have it. And it goes for $150 because you know, there's a couple measures of value. There's the objective value of what it should be worth, and then there's a bidding war with what to a buyer and seller and an arms length transaction will pay.
And I've seen it where every house in the neighborhood. Goes for 300,000. We all know that, except there's two buyers that just had to have that house and it ends up going for 400 because they just kept bidding with each other. So you have comps where everything's 300, but this one house went for 400 because a couple people just kept bidding on each other.
And practices can be like that. It. If they're sought after, if they're premium, if you're in a location or you've built something a little more special than the average thing out there, you'll get people that just bid against each other. And sometimes the price, in a way that we can't always predict just goes a lot higher So the more bidders generally the better. And in this marketplace, like I said earlier, deals aren't dead. We do have bidders, but you may not be as thrilled with the results. If three people are bidding on your office instead of 10 people, that's all I would say there. I guess I
Anne: never even thought about that, Brian, because this is, I mean, a lot of our listeners really don't know too much about this.
you hear Dr. Burns office down the street is up for sale and they start to work on that. Then how do they find the extra bidders? I always thought it was like behind closed doors that you would do deal.
Brian: no, it's not. We want it. Oh, we tell the world, show up and b So,
we should talk abou talking about legal, but a good broker. I mean, so somebody shows up and they make just an offer you can't refuse as the old saying goes and you're thrilled with it Then you know i'm not going to get in the middle of that But if you're exploring this process and you're like, I don't know what the value of my practice is You know, I have a practice in chicago or dallas or los angeles or houston and I don't know what this is worth You know, how do I know, know that i'm going to get the right price?
Well, Then you got to get The right broker got to market it and brokers can be tricky sometimes because Like they say your mileage may vary some of them are very good and some of them have a couple people that they go to and they've got deals going every which way and maybe these people they've done deals with You know, and they get an extra commission if they send it to this person.
So you've got to make sure you've got the right broker that's really going to market your practice across the industry and really get everybody that's an available buyer interested in your practice. That's the first thing. that's the best way to figure out if you're going to maximize the value of your organization, but to your question, Ann, no, it's, you don't want it behind closed doors.
You want it where, you know, if I'm in Los Angeles, attention every available buyer that's interested in a practice in Los Angeles, I want you showing up here and bidding on it because that's how we're going to get the highest amount.
Anne: That is so interesting because I think a lot of docs, what I've heard is that somebody down the street decides that they will give you the offer that you want.
And that's just not the way to do it. Not
Brian: in this marketplace. Okay. I'm glad you mentioned that, Ann, because the old way for like the last hundred years. So I don't fault anybody if they're thinking this way, because it was the last hundred years before the last 10 years when this M& A market was created as yeah, a dentist.
down the street will knock on your door or call you up and say, this is what I want to give you for your practice. But the higher returns come through DSOs. And the reason that's the case is DSOs allow for non dentist investors. I mean, that's one of the key reasons we have DSOs. They allow non dentists to participate and think of it like this, and I always say it.
If you're selling your office and you know, you're in South Carolina or something. there's two potential markets. If before DSOs, you're in South Carolina and the market is every licensed dentist, in South Carolina, that's interested in buying a practice.
That's a real specialized buying pool. I mean, South Carolina dentists I mean, there might be two or three or one or something, but it's not a big universe. What if the universe was the world? Anybody that's interested in making an investment in dentistry, obviously the second universe of the world, including non dentists, is going to be a lot bigger universe of potential buyers.
And a lot bigger universe of potential buyers gives more competition and more opportunity to drive the price up and maximize your value. And if you did a cross section of
the marketplace right now, and you looked at traditional dentist to dentist transactions, one dentist buys another dentist's practice, They're returning a lot lower than the DSOs. The DSOs are paying a lot higher across the board. So most of the time, if you want to maximize the value of your organization, you've got to go to the DSO marketplace and let them bid on your, office.
And that is not done behind closed doors. That's done very open, very public to get the most people interested as possible.
Anne: Wow, I'm just learning so much. that's a key element. so then what comes first? The broker? Or the law firm or how does it all come together?
And then answer that one first.
Brian: What comes? No, that's a good question. I will kind of want to answer that. Yeah. The, broker comes first, you know, it really does we're really doing this, what comes first is you decide in your mind, Hey, I'm interested in exploring a transition.
I'm interested in selling this. Two, you want to sit down with your accountant, and if you have a really good broker, or you might even consult with somebody like me, we'll look at your office and figure out what homework you need to do. Is it ready to go market right now, or is there anything you need to do, like we sometimes will look at it and say, oh gosh, you're not ready right now, it's going to take three, four months, I need you to clean a couple things up.
So you've got to figure that out. Assuming you've done all the cleanup that's necessary and your practice is ready to go to market, then yes, the broker will take it to the market and advertise and promote it, and then the buyers will come in and they'll do what's called an LOI, and it's a letter of intent.
And they'll come in and they'll say here's a non binding letter of intent. The reason it's non binding is they have to complete satisfactory financial and legal diligence to make sure the finances as you state them are correct. You would hate to say my EBITDA is a million dollars and then we find out it's 100, 000 when we look at it, you never know.
It
Anne: sounds like somebody else I know that's running for office. Okay, go on, keep going.
Brian: I try not to make this a political show. It's not. It's not. That's a good example. I could reason. Your practice is worth a million and then we audit it and it's worth a hundred thousand dollars. You know, I don't think you're gonna go to jail, but nobody's really gonna want to buy it or the.
Price is gonna go way, way down. So you get a non-binding letter of intent and then that's when I get involved or my team gets involved and we look at that and we make any necessary changes to the letter of intent. We sign the letter of intent, then the buyer will do due diligence, the whole article.
They'll look at your practice and they'll do financial diligence to make sure you're financial performance is as was represented and if it's not they have a chance to retrade the deal There's nothing underhanded about that it says right in the loi if you said your value is 1 million dollars and we really looked at it and maybe your accountant made some mistakes or There's something in the values really 800, 000.
We have a right as a buyer at that point to renegotiate the deal. You don't have to take it. You can say, no, I reject it. I'm walking away. No problem. But it's not unfair. Sometimes people say, how can they come in here? And the letter of intent says a million and now it's 800. those bastards, that's dishonest.
It's not. If your financials were off and you said they were one thing and then it turned out they were something else. It's fair to come in. And lower the price, but assuming it checks out and a lot of the buyers in this marketplace if it's close I mean it could be a little off, but if it's generally in the ballpark They're going to honor the original price.
And once we get through what's called quality of earnings financial diligence and the buyer says Yeah, i've checked this out. It's close enough. It looks about right to me at that point in time then legal gets involved and we do the deal. We actually start putting together usually it's a Asset purchase agreement and an employment agreement and some related documents But that's when we would get involved and actually do the deal and it usually takes like we said and anywhere from 45 to 90 days For average practice from the point in time that the accounting diligence is completed.
The financial diligence is completed
Anne: that sounds pretty easy if you're working with the right people and experts in the world of dentistry. I mean, so, Kudos to you to setting this up and having a place for us to go. And then one other question I had. If you start with a broker, what would you recommend to somebody that is looking for a broker?
Would they reach out to you? Is it word of mouth?
Brian: will never on a public show say, Hey, this broker is better than that broker. I mean, that's, just can't do that. But if somebody did reach out to me, there are brokers that we'd have really good success with that do a really good job.
And, you know, you want to get one that's highly recommended. That's been in the dental field time that will fight with brokers, they k and that's it. They're just like, hey, a to A. B. C. D. S. O. Here
Call me when it's time for my commission, I don't like them as well as the brokers that will sit there and hold your hand through the entire process and say, I'm introducing you to ABC. Here's the yellow. I'm here with you. We're going to call Brian up. We're going to talk to him together. and they stick with you the entire way through the process.
Those are the best brokers. And, there's many that again, we're not gonna talk about names on this show, but there are those that we work with. And I would want anybody listening to this that's wanting to do a transition to get with a broker that's really gonna sit with them and spend time and assist them through the process as opposed to just making an introduction and then disappearing and saying, here's an intro.
You're on your own. Tell me when you know, closing happens. Those are not the brokers. I would want them to work
Anne: with that's really great for everyone to hear. really appreciate that, Brian, because you just don't want to jump into something that you don't have somebody having your back because transitions are hard it's can be simple if you know what you're doing, but it's know, emotionally physically.
there's a lot there because it's a lifetime of your work and your achievement.
So,
Brian: do in a collaboration. I mean, just to finish that thought, if you know, somebody works with us, we work with the brokers that will sit there the whole time. They're going to defend your even a number if they do quality of earnings and they come back and say, Hey, we got to lower this number.
The brokers we work with say, No, you're not. You didn't consider this or that. The number needs to stay high. And then We work with really good accounting firms. mean, don't despair If you're using like a mom and pop accounting firm and they've been your accountant for years I mean, that's terrific.
Don't worry about that But if when the time comes for a transaction if we've got to get a specialist involved, you know the brokers I work with we know several specialized accounting firms that will get involved and help defend the EBITDA or if you know Let's say you're doing cash accounting and it should be accrual or you've made a couple accounting mistakes And then if you've got a whole bunch of people at work and you've got a team that's making a list of mistakes that worked just fine for you all over the years when you were running a solo office, but now at the time for a sale, you can't do it that way anymore.
We can go in and get all that fix. And that's really what maximizes your value makes for a smooth transition and ends up with the most efficient fees possible. One thing I will say is doing this right is not the cheapest. there are firms out there that.
their weapon is price. That's it. They'll come in and I might say, you know It's going to cost three hundred dollars and they come in and they're like no it costs a hundred dollars And I know they're not going to represent the seller's interest And again, I always say this it's not an infomercial you don't have to use me But you have to use or you should use somebody that knows what they're doing And the folks that come in there and if you talk to a few people and they're out i'm just using silly numbers They're at three hundred dollars and then somebody comes in and is like no i'll do it for a hundred I would run as fast as you can from that because they're not going to help you when you sell an office and you can do it as easy as you want All you have to do is sign the documents that the buyer puts in front of you I mean if you said brian, what's the lowest price you could charge somebody it would almost be nothing I would say just give me the documents.
Okay, let's sign them and move on but you don't want that because there's clauses in these documents that If you just sign whatever they put in front of you and don't put things in there to protect yourself They can claw back the purchase price in some cases you might think oh I got Two million dollars for this and then a year later you get a letter No, you owe us a half a million dollars You owe us a million dollars back because you signed this thing, but it wasn't true I it's one of those things where if you know what you're doing, it'll go smoothly and everything will be okay You'll get your money And you won't hear from these folks again.
If you just sign whatever they put in front of you, potentially you might be subject to having to return money if you're not careful.
Anne: those are all great points. And someday we're going to bring you back just. Tell some horror stories.
I think those stories really tell I don't want to scare everybody.
Brian: I know.
Anne: I know. But I mean, I've heard him and I think that can happen. And so again, you do get what you pay for it. You do get the expertise that you bring and to firms like yours. And again, the brokers. That's such valuable information for our listeners today.
I appreciate you so much. You're not only very knowledgeable, of course, but you're just really fun to have on this program today. So, how do we find you, Brian? Like, how do we find Dykema? How do we get in touch with your, firm? If we need more information and again, read this article that we have in Dental Entrepreneur and get a taste of what you guys do.
Well,
Brian: a couple of things. I mean, Anne, always a pleasure to be with you. And thanks for everything you do with the, dental entrepreneur women. I really love that organization. So terrific on that. If you want to get a hold of me, it's really easy. Go to DykemaDSO. com. D Y K E M A D S O. com. And my bio will pull up and my whole team videos.
You'll get more than you ever bargained for if you go to that website. But you'll be able to get a hold of me really easy at that point.
Anne: That sounds great. We'll have all that in the show notes, everybody. So, Listen, out there, just be careful. Be, trusting in that this is a great process.
And it's something that could work for you on both sides of the aisle. So thank you, Brian, for being with me today. I appreciate it. Listen, have a great meeting year coming up. Let's get into 20, 24 on a great note. And if you're listening to us today, remember to keep doing you. Thank you, Brian.
Thanks, Anne.
