Top 3 (not so) Obvious Reasons to Engage TUSK as Your Sell-Side Advisor
As you all know by now, there are more buyers for dental practices in the market than ever before. Additionally, the value of your practice or group is likely as high as it ever has been (and ever will be). And finally, it would shock me if anyone who is reading this blog (and owns a group or large practice) has NOT received an unsolicited offer from a buyer.
With all that is going on in the market, I am sometimes asked, “Why would I ever need TUSK to help me sell my large practice or group?”
Although there are some obvious reasons, like:
1. TUSK works exclusively in the dental market with DSO and Private Equity (PE) buyers and focuses their efforts daily on knowing everyone and everything in the industry.
2. TUSK has built a reputation for not just maximizing the value of groups / practices we represent but for delivering equitable deals that fit the needs of both sides through creative deal-making.
3. The team at TUSK Partners has worked on well over 800 dental transactions over the course of their careers.
4. TUSK has a long list of raving fans who have relied on us to help them sell a portion or all of their group / practice and guide them through this complex journey of a sale process.
Although these are all great reasons to book a call or give us a ring directly at (980) 296-1484, there are three less obvious but extremely important ones that I have grown to appreciate over time:
1 - There Are More Buyers Than Ever for Your Business
Depending on the size and location of your business, there are between 5-50 likely buyers for your business today. And if you have built a larger ($5M+ EBITDA) group, we know of another 100+ PEGs that would like to talk with you.
The number of buyers in the market is a great thing. But it is important to remember, that no two buyers are alike and they typically all come to the table with unique cultures, and equity offerings. TUSK works daily with buyers from across the country that focus on all different specialties in all geographies and we make it our business to understand what makes them tick. We regularly travel to the corporate headquarters of several DSOs each year to meet with their senior leadership, tour their offices and gain a better understanding of their infrastructure. We can speak from experience about what a transition is like with a particular group and connect you with previous clients who have sold to them in the past.
The great thing about the large number of buyers today is that there is lik
ely a buyer that fits both your economic needs post-sale and the cultural fit you, your team and your patients are looking for.
Sadly, if you only accept the first offer you receive, you may never find the perfect fit for you, your team, your patients and your growth strategy. The key to finding the right deal is to work with someone who knows the market and can not only connect you with the right partner but negotiate the best deal for you.
The 5-25 location DSOs are the fastest growing segment in the dental industry and some newly formed groups are built on a solid foundation, are well capitalized and enjoy rich talent throughout the management team, sadly most are not. This year alone, we have come across a sizeable number of new entrants to the market who are looking to enter and exit the market quickly and are simply building businesses to flip. Let me say that “capitalism” is not a dirty word. I’m a capitalist, and I assume (if you are reading this) you are too. But, many of the newer groups that are “built to flip” are not investing in infrastructure, lack serious deal experience and could end up costing you valuable time and money. They have lofty growth projections (“we are planning to add 20 locations this year and grow our EBITDA to well over $5M in the first 12 months and we are certain that we will achieve a 12x multiple on our exit in 3 or so years”) and have yet to close their first deal. They are overpromising and underdelivering on the promises and leaving a wake of dissatisfied dentist partners. Be on the lookout for these novices. At TUSK we make it our business to fully vet the buy-side and perform as much diligence on them as they are on you. A deal with one of these new, unsophisticated groups could result in financial disappointment and chaos for you, your team and your patients.
2 - A 10x EBTIDA Deal Could Be Worse Than a 7x EBITDA deal
Deals in the Group Practice / DSO space are much more complicated than deals in the dentist-to-dentists space. There are 4 primary reasons for this:
a. Every buyer looks at your Adjusted EBITDA through their own lens.
b. DSO deals typically include an equity roll, earn out, or seller financing of some type.
c. DSO deals typically include a post-sale Employment Agreement.
d. All of the items above drive the overall riskiness of the cash flows and the ultimate enterprise price a buyer is willing to pay.
These deals come with many more “bells and whistles” than a traditional asset sale from one doctor to another. Ultimately, many of the DSO content providers (at conference, on the web, or in print) have everyone focused myopically on one variable: EBITDA Multiple. It may come as a surprise to learn that the highest multiple is (in many cases) not the best offer.
Let’s look at an example of a situation we recently faced. We had a client with $2.0M in TUSK Adjusted EBITDA. A TUSK Adjusted EBITDA means that we looked at the numbers, distilled out the personal, one-time and non-operating expenses, normalized the revenues and finally we made an adjustment for normalized owner doctor compensation to come to our Adjusted EBITDA.
We then took the deal to market and had many offers on the business, but it is worth highlighting the difference between two very different bids and bidders: A Private Equity Group (Financial Buyer or PEG) and a DSO (Strategic buyer). Both had access to the same data room that contained the same financial and operational information. Both asked us a sizeable amount of follow up questions and gain deep insight into the historical success of the business and likely future financial outcomes. The Private Equity Group was eager to share with us and our client that they we happy to offer a 10.0x multiple on their Adjusted EBITDA. The DSO viewed the opportunity differently and were only willing to pay a 7.0x multiple on their Adjusted EBITDA.
Based on the language above most would assume that the 10.0x deal was much more attractive than the 7.0x deal, but a look at the numbers below tells a different story:
In the PEG example above, they assumed that in order to scale this business, they would need to hire additional leadership and add infrastructure to get the platform prepared for growth. The DSO, on the other hand, already had built the infrastructure (call center, centralize services team) and was led by a strong management team, and they identified some synergistic savings (lower costs of supplies, etc.) and synergistic benefits (higher PPO reimbursement rates) that they were willing to pass along to our sellers. These two very different views on Adjusted EBITDA drove two wildly different valuations. Neither is right or wrong, they are simply striking different.
Knowing what you know now, are you sure you want to take that 10x deal?
3 - Working with TUSK is a Bargain
We have been lucky enough to work with many sellers who have already been approached by DSOs and PEGs to buy their practice. They come to us with what seems to be a reasonable offer to them. Once they share the offer with us, we point out any pitfalls and riskiness of the deal and our experience with the buyer. Even if they love the buyer and the offer, they are still curious if they can “get a better deal” or if they are “leaving money on the table”. Although the economics of any transaction are important, we remind all our clients that who you are partnering with is as much or more important than what the economics of the deal are.
When clients work with us, we survey the DSO landscape to bring them the best, most qualified buyers in the market and maximize the enterprise value through a competitive sales process. When a client comes to us, we can bring them a buyer who is the best fit at a higher valuation. The best fit might be the original DSO who submitted the initial unsolicited offer. But after going through a marketed process, the client can be confident that this DSO is in fact the best fit for them, their business and can support their future grow. On the economic side, we have been able to on average increase the purchase price by 35%. For clients who choose to look at our fees as an investment, receive over 430% return on investment on average with TUSK. In one instance, a client enjoyed over a 60% improvement in enterprise value over the original offer returning her a 680% return on her fee to TUSK Partners. We feel good knowing that an investment in TUSK Partners yield our clients a higher return then the stock market over a 6-12-month period.
It is hard to calculate the total economic benefit of working with TUSK when considering the economic benefit along with the peace of mind of knowing that you have found the best partner at the best price, but we have been told, it is a bargain and an investment that our clients would make again if they had the choice.
Know that we love what we do and that we are passionate about creating value for our clients in the space and take on each new engagement as though it was our business we were selling. -
If you would like to learn more about TUSK Partners, the M&A Market or what your practice or group may be worth, do not hesitate to reach out to Ryan Mingus, Manager of M&A Business Development at (980) 296-1484. Or tune in to the TUSK Partners Podcast!
About TUSK Partners: TUSK Partners provides industry-leading resources to group dental practices and DSOs. We help you START, GROW and SELL your DSO. For an overview of our services, please click HERE or visit our website, blog or YouTube channel.
