From Hunted to Hunter...
During my years in investment banking, I worked with a series of private equity (“PE”) backed companies across multiple industries. Their business models were always the same: (1) buy one large platform business with adequate infrastructure and solid leadership; (2) buy additional businesses in the same industry and roll these companies into the larger one; (3) ultimately sell the business to a larger private equity company. These PE investors made money by buying the acquisition targets at the most affordable prices possible and selling the resulting platform at the highest price possible and make money on the spread, defined as arbitrage. Sound familiar?
The investors behind these businesses prided themselves on buying businesses at the lowest possible prices from uninformed owners. They kept score of how many deals they sourced on their own (these were always much more affordable) and how may they have bought from brokers or advisors (these deals always came at a premium). I always found it interesting that they labeled the companies that they were thinking about buying as “targets” internally but called them “partners” publicly.
A “target” is hunted and taken down – it is the prey. An acquisition “target” feeds a higher economic purpose. It has a strikingly different connotation than the word “partner”.
Back in 2007, when I began brokering dental practices, DSOs were just beginning to take shape in the U.S. As DSOs began to grow in number, I saw these concepts and vocabulary enter the vernacular of the dental economy. As I saw DSOs look to acquire “targets,” it dawned on me that there was a way to turn the hunted (“target”) into the hunter.
The Hunted
DSOs have a mandate from their private equity partners to make money for their investors. The fastest way to grow the value of the business is through acquisitions. Oh, and the less they pay for their acquisition targets the more money they will make. Today, there are 100s of business development people around the nation working for DSOs whose sole job is to source acquisition targets, woo them over steak dinners and bottles of $100 wine in hopes that the target will sell to them directly rather than take their business to a broader pool of buyers. There are some groups that will even send the private jet down to pick you and your family up for a trip to their corporate headquarters – true story. The best business development guys make the “target” feel as though they are getting a great deal and have the doctor sign a Letter of Intent without asking too many questions. This is capitalism in its rawest form.
For dentists and groups who sell to the first buyer they meet, I believe that they will forever wonder, “Could I have gotten a better deal?”
Become the Hunter
Alternatively, practice owners that elect to go through a marketed sales process become the hunters. In working with an advisor, they prepare the business for sale, decide when to go to market (it matters), tell a story that they want the buyers to hear, and what they want in a deal regarding economics, post-sale employment, associate equity opportunities and deal structure. Together, with our clients, we are hunting the right culture, price, and deal structure. By bringing multiple offers to the table, we create leverage and negotiating power for our clients. This is a seismic shift which leads to richer economic outcomes, stronger partnerships, and client satisfaction. By the time our clients sign a Letter of Intent, they can rest easy as they know that they have surveyed the entire market and have made a well-informed decision. Clients who go through a marketed sales process exit without regret.
Conclusion
My guess is that most of you reading this article have already received an offer from a local group or DSO and have been viewed as a “target”. If you are contemplating taking that deal, I encourage you to ask the potential buyer, “would you ever sell your business to another PE company without representation?” I’m confident that the answer is “no”. DSOs don’t want to leave a single penny on the table when it is time for them to sell but are more than comfortable if you do. If you are considering a sale, engage an advisor, take control of the process, and exit at the top with the right partner at the right price. Otherwise, you will always wonder, “Was I the hunter or the hunted?”
About TUSK Partners: TUSK Partners (“TUSK”) provides M&A Advisory services in the dental industry. TUSK has completed over $650M of transactions across all specialties. With an in-depth understanding of the marketplace and access to 100’s of buyers nationwide, we help our clients confidently pursue M&A transactions that maximize their long-term value. With our significant collective experience of over 40+ years of dental practice transactions, we offer our clients solutions that help them achieve their strategic and financial objectives. For more information, visit https://tusk-partners.com
