Helping Healthcare Scale
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Helping Healthcare Scale
Navigating Dental Practice Expansion with Financial Acumen
Join us for a captivating conversation with Justin Coke, the dynamic CEO and founder of 7 to 7 Dental, as he unveils the strategic maneuvers behind scaling healthcare practices through private equity partnerships. Discover why partnering with GTCR Private Equity was a game-changer for his business and learn about the meticulous due diligence process that ensured alignment with the right financial partner. Unpack the apprehensions healthcare executives face when considering private equity, and gain insights into maintaining control while accelerating growth in the competitive healthcare landscape.
We dive deep into the art of crafting a robust healthcare business model centered on patient access and scalability. Listen as Justin shares the strategic advantages of having a unique story and a process-driven approach that enhances negotiation power and maximizes business value. Hear about the critical transition from cash-based to accrual accounting, a move that not only boosts company valuation but also attracts sophisticated buyers. As Justin discusses the transition, he emphasizes the significance of compliance and thorough preparation for smoother business operations and transitions.
Explore the broader financial landscape with us as Justin discusses the impact of low-interest rates on Dental Service Organizations and the resulting market corrections. Learn the lessons of cautious financial planning and the dangers of excessive reliance on borrowed money. From strategic growth decisions to the timing of business sales, this episode is packed with practical advice and compelling stories for healthcare professionals and executives looking to navigate the complex world of private equity partnerships and healthcare expansion.
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So they would go out there and they would just pay almost any amount of money for very average at best practices we're talking. I heard some of the wildest shit that people were getting for million dollar revenue practices they're getting. I saw one where it was like they got like a 10 or 12 X on their EBIT time acts on their EBITDA.
Speaker 2:The goal of this show is to help healthcare organizations scale by leveraging real estate strategies and interviewing high-level healthcare executives in order to pull out lessons learned along the way. If you'd like a free site selection analysis from our team, visit us at wwwreuniversityorg and drop us a line.
Speaker 4:Hello everybody, welcome back to another episode of Helping Healthcare Scale. I'm your host, austin Hare, and today we have a repeat guest. This is Justin Koch. He's the CEO and founder of 7 to 7 Dental. They've got nine locations in San Antonio and they recently partnered with GTCR Private Equity and now they're gearing up to have some really strong growth and I'm excited to get talking shop. So, justin, thanks for coming on the show.
Speaker 1:Thanks, Austin, for having me. I appreciate it. Always fun to be here.
Speaker 4:Yeah, if anybody wants like your origin story in more detail, they can always go back and listen to the first episode that we recorded together. But I think, like a lot of the audience may be wondering what's that partnering with private equity? Because you hear good things, you hear bad things. I'm sure it's a mixture of both, but it seems like the ultimate goal right Build your practice as big as you can, hold on to as much equity as you can until you get to a point where you are maybe looking for something's bottlenecking you and you're looking for a partner to really help you like relieve this bottleneck and move forward. So I don't know what's the process been like.
Speaker 1:It's actually been really good for us. I think I'm no different than anybody else who has been looking at some type of partnership with either an existing DSO but like a strategic partnership or working with private equity. For us, going in to the private equity side, we were looking to be a platform for somebody and I think we've built a really strong back office and a lot of process driven to make our company very scalable. And our biggest holdup has always been access to capital. We've always had a lot of money but a lot of cash on hand, but it's still very limiting when you're looking at a million and a half to even open a new office or to go acquire something so that can deplete your capital pretty quickly and so we were always limited our growth by how much cash we had on hand.
Speaker 1:And my partner, tiffany Winburn and I we came to that tipping point where we're looking at each other going okay, we're pushing 40 million in revenue and we can keep doing this one practice a year, or we can really we can look for. We can look for a partner and really make things happen and find ourselves with an earlier exit than doing this for the next 20 years one at a time. Both of them work great for me. I was okay either way. We could continue to do it the way we've done it, or let's find a partner.
Speaker 1:I think many people are very apprehensive when looking at private equity, because everyone's got a horror story of a private equity deal that went completely bad. Or private equity came in and they tried to just completely change everything that the organization was doing, left the founders and operators handcuffed to do what they wanted to do and do the things that they were doing, which actually made the organization successful to begin with, which caused the organization to fall or falter. And then obviously somebody's got to take the blame for that, and it's typically not going to be the financial sponsor, it's going to be the operator. So everybody's heard those stories. But if private equity didn't work and those partnerships were all bad, then private equity wouldn't exist anymore.
Speaker 1:And there's a ton of groups out there with a lot of cash looking to make a lot of investment in a lot of different areas. And it's no different than finding a business partner, or no different than finding a spouse or a partner for life. You've got to find the right one and you've got to do your due diligence. Everyone talks about the due diligence on the private equity side. They're doing their due diligence to make sure that you're going to be a good partner with them, but you have to do yours with them as well. You have to understand who these?
Speaker 1:partners are how long have they been in business? How many deals have they done? Have they done deals like yours before? How much access to capital do they have? If they don't have enough access to capital, then what's the point? I think the whole point of the partnership is so that you can grow, you have access to realistically, the way I looked at it is unlimited access to capital that is ready, willing and able to be deployed at any time, and so those are things that my partner and I looked at.
Speaker 1:And, first of all, we weren't actively looking for a financial sponsor. We were just running our business, doing our thing, doing our growth, and these guys actually, they actually found us and it was a funny story. I continued to, I blew them off for probably six months and continue to tell them I wasn't interested, not to them directly, but they were using a partner company to find, to find someone to buy. And I told this young lady several times I'm not interested, not interested. And she finally convinced me to talk to Kelly McCrann, who's our executive chairman, and kind of told me their story, what it was that they were looking for. And really what?
Speaker 1:intrigued me and I look at this and said, okay, these guys are worth having a conversation with, because they didn't tell me we want to buy your company and we want to buy your revenue, which is what a lot of private equity is they're just looking to buy revenue, want to buy your company and we want to buy your revenue, which is what a lot of private equities are just looking to buy revenue.
Speaker 1:They looked at it and said we're interested in your business model and our business model is an extended hour, extended day, very patient centric. You know, getting away with the idea of the doctor sets hours that are very convenient to them, kind of banker's hours, if you will, and the patient then has to work around your schedule. And that's never been our model. We started from day one as a very barrier-free entry to dentistry, very lowering the access to the care that they want. They have insurance benefits, they've got cash, but most of the people that are going to the dentist have jobs and their jobs are 8 to 5, monday through Friday, which is I know, yeah, the hours are always so the hours are open right, which makes it very challenging for busy people, busy families, to get into the dentist.
Speaker 1:And so they came to us and said we like your model. We think that there is a real need for a shakeup and you guys are already doing something and you're doing it really well and we're interested. That was a key indicator to me that this was a good group to start the conversation with, because they didn't just say, hey look, you've built a great company and we're not going to change it. They said we want to talk to you about what you do, which is different than what's in the market. We continue the conversation for weeks, weeks on weeks, and it's not fun.
Speaker 1:Anybody who's going to go down this road. They need to be prepared. It's very time consuming, it's very taxing, it's very stressful, it's very frustrating. A lot of back and forth and there's going to be a lot. You have to come up with a lot of money, pay for a lot of attorneys and accountants and acquisitions teams and all of these different things that those guys add up very quickly, and so you got to be prepared for all this stuff and, knowing that the process isn't going to be easy, it's not going to be fun. I think it's probably number one and probably the biggest challenge, I think, for most people who've gone down this path is it tends to take you away from your focus, which is to grow your business and run it. So many times during that due diligence process you'll find that your company starts to falter a little bit.
Speaker 4:I heard about that.
Speaker 1:And go fix it right. But overall, we did our due diligence on our side.
Speaker 1:Obviously, they did theirs on the financials and when you're, when they're bringing you on as their number one acquisition and their platform there's going to be a significant more due diligence in place than if they're doing a tuck in right, If they're a DSO or a platform that's bringing another group in. They're checking to make sure your skeletons don't have skeletons. And I'm talking things that I didn't even know. I was supposed to know I had to find out, and so it was a very eye-opening experience for us. It actually taught me a lot about my own business that I was unaware of during this process.
Speaker 1:I literally got an MBA and M&A with these guys. I've learned a tremendous amount and I'm very grateful for that. They're very open and willing to share anything that I was unaware of or didn't understand. I had great attorneys on my side that helped me through this process, but ultimately it wasn't easy. But I'm glad we did it because I've been very happy with our sponsors. They have done everything they said they were going to do. They've not come in and tried to change anything in the organization.
Speaker 1:The only thing that we're changing right now is our financial recognition. So, as a, as an independent operator, you know running a midsize business. You know the things that are important to an operator of my size are way different than the things that are important to a, an SEC governed financial sponsor, like a private equity. These guys have got way more rules and regulations to follow than we ever did, and so understanding that and getting everything in line has been a challenge as well. We've been doing that basically since February. We're getting prepared for our first actual financial audit, which again not fun, especially for guys like me who those things are not interesting whatsoever to me. I don't have a. I don't have an accounting background, cpa it might be the most exciting thing to some guys, but to me it's not interesting, it's not fun, but it's necessary and we're getting through it.
Speaker 4:Man, yeah, that's cool. The yeah, obviously, if we you could tell stories upon stories. But I'm really just curious. Maybe we'll focus on what was the thing that you did the best and then maybe the thing that you did the worst or said differently. What would you have done differently? And advice that you give to others going backwards in time for you, or if somebody else is looking to private equity, first question then what do you think that you guys did really well that really helped this partnership come together, that made you attractive to them?
Speaker 1:that sort of thing really help this partnership come together that made you attractive to them, that sort of thing, I think from day one. I think we built a very good business model in a world that was not built around patient access. It was built around doctor convenience typically. So I think our business model was number one for us. It was exciting, especially in a space that was overrun with boring just the same vanilla, granola, just the same thing over and over again. And so we had a unique story to tell and we had a unique business model. That when you go to any DSO show, and that's what they talk about is differentiation in the market and what can make you different than everything else that's out there. And so we had that going for us from day one.
Speaker 4:And you're talking specifically about the hours, or is it a design component?
Speaker 1:So we so not just the hours. Obviously, if we, if all we were, were extended hours, extended days, but we did everything poorly, we wouldn't have been a successful business. So we started with a really good business idea and then we turned it into a really successful and scalable model. We're very process driven. We have process procedures. Everything's documented the way that we do it, the way that we train, the way that we build people within our company, our culture as a whole. So I think we did a phenomenal job over the last 15 years, building a very strong brand that is very differentiated in the market.
Speaker 1:And I think number two, this wasn't anything we did good, but it put us in a position of. I think an advantageous position during this process is I didn't need to sell to anybody. I wasn't in a position where I had to do something and I really wasn't even in a position where I was trying to do anything. So I feel that we were in a position of power going into that and I think a lot of folks they get to a point in their career where they're completely burned out. They're getting to a retirement age. They had an illness or a disability that kind of forced them into getting out, or they're just done doing it, and so they tend to not be in a position of power when they walk into those things.
Speaker 1:So I think that was good on us to to be in a position where, hey, look, if you want to do this deal, great. If you don't meet the terms that we're looking for, no, no, skin off our back, we'll just keep doing what we're doing, type of a thing. So that was helpful. Things that we didn't, that we were not prepared for, and I don't know if you can be prepared for this until it actually happens. It's one of those things.
Speaker 1:But I would have hired a CFO probably three years ago Because going into this, there was so many things that caused so many problems during the due diligence and understanding what is your actual AR, what is your actual? Because the dentrices of the world are not very good on the accounting side of helping you really understand your business. Have a controller but that's great. That's somebody that helps control expenses, but with some light accounting background. But I would have had a CFO in here three years ago to get our house in order before we ever went down this path and if I can give anybody.
Speaker 1:Any advice is do not go into this blindly. Do not go into this and let the buyer tell you what you don't know about your company. You need to be fully aware. You need to be, you need to have all your ducks in a row and when I say ducks in a row, I'm talking about from your financial function all the way through, the entire way that your company runs. Especially if you're a relatively decent sized group that's looking to transition. Your compliance has to be just spot on. Everything that you're doing has to be a spot on. Everything needs to be documented. That you do. You need to have anything, and everything that happens in your company needs to be documented and be prepared to present and provide it to your sponsors, because they will, like I said, they will turn over every stone, whether you even thought about it or not. So we were underprepared for this process, which made it take much longer than it should have and, hindsight, I would have been overly prepared for it, but again, I didn't really know what I was stepping into until it happened.
Speaker 4:What about cash-based versus accrual-based accounting? Were you guys had you been accrual before you guys started to look to go to market?
Speaker 1:Yes, we started to transition to accrual in 2018. From some advice I'd gotten from some people in the financial world. They said, hey, look as you grow you're going to look a lot more valuable.
Speaker 1:You're going to be a lot more valuable to a sophisticated buyer if you've got accrual accounting. Cash accounting is very hard for anybody to actually understand what the value of your company is For an operator. Cash accounting is way simpler. It's way easier for tax purposes, but it doesn't really give you a good pulse on if your company's actually in good financial condition, because you don't really understand your outflow versus your inflow and when things are doing, when you recognize a particular revenue stream and when you're paying a revenue stream or what period of time that expense went to. Understanding the accrual side. It took me a while to get there, but unfortunately we never got to full accrual. So I like to say we were accrual-ish and private equity is not okay with ish, so we've spent several. We spent a lot of time getting your full on accrual and full on gap compliant accounting.
Speaker 4:Yeah, it's like early on you don't even know what accrual means. But as you start to grow you get into private practice like single location. Yeah, it's easier, it's just common sense. Okay, I got this much money today and this much money left that cash base. But yeah, to your point, you don't. You don't really know what levers to pull as you start to grow and scale. If you're on cash basis Cause, okay, this money came in today but like when did we make that sale or get that treatment? There's a lot more. There's just no optics really into the business when you're operating on cash-based.
Speaker 1:Exactly, and it's still challenging because there's so many things that you have to accrue in so many different ways and it takes more know-how, it takes more bandwidth.
Speaker 1:You've got to have more people in your financial function to be able to do it and do it well. But ultimately I think if it does, it brings a lot more value to your company Because, like I said, a sophisticated buyer comes in and they can look at everything. If you're on a true accrual accounting and gap basis, they can look at it very quickly and understand yes, this is a business that makes sense and we're willing to pay for that where, if they're having to come in and dump a ton of money into changing something that doesn't work for them and as a seller, your buyer is always going to come in and they're probably going to lowball you because in the best interest of their investors they're going to get they want the very best possible price they can get for an asset and if you don't really have all of those that understanding they will, you'll probably get less for your company than it's actually worth if you're not, if you don't have all the place.
Speaker 4:So let's pivot a little bit, talking about your guys' strategy, which is pretty much all DeNovo going forward. I know a lot of groups like M&A, especially private equity groups, so maybe explain why you guys chose to do DeNovo.
Speaker 1:So early on. Obviously, denovo for me made a lot of sense, Very particular, with how I want things to be, even all the way to the design and the flow of an office. Even all the way to the design and the flow of an office. And I just found through the years that everybody that built offices they didn't utilize their space very well. They used a lot of square footage for a lot of things that didn't generate revenue. They weren't well thought out. A lot of them they would just push it on to say a Henry Schein or a Patterson Dental, and the Patterson Dental would give them some stock.
Speaker 4:And I've heard about guys having like full showers and bathrooms and their offices like that they never used yet.
Speaker 1:It's absurd yeah they build these, there's a bunch of space that can't be used for any revenue generation, which never makes sense to me. And then, second, for us, our business model does not align with 95% of the practices in the United States. So if I were to go in and do mergers and acquisitions, I would want to bring them into my model and take in a practice that the staff's been there and the doctor's been there for. The doctor opened the practice or bought the practice years ago and the staff's been there for a long time. They're very accustomed to one way of doing things and probably the the worst thing for any employee to do is the change management that comes with anything, because nobody wants any changes, want things to be the same all the time, and if I go in there and say, hey, this is great, I'm super excited that we're going to be partnered here.
Speaker 1:However, we're going to change the hours. We're going to go from eight to five, or Monday through Thursday, and now we're going to be open six days a week, or seven days. We're going to be open until seven seven in the morning, seven o'clock at night. I would have paid a premium for that practice and I would have lost all the goodwill that I paid for, which is all the staff, probably the doctor that I bought it from that agreed to stick around and then basically I bought something that I could have built exactly the way that I wanted it and scale it past probably the revenue that that office is doing, probably in the first 12 months. Anyway, for me for the last 16 years, denovo made an awful lot of sense Because typically this isn't every time, but typically we can get an office to cashflow positive within about 90 days.
Speaker 4:Yeah, a lot of people take about a year and a half.
Speaker 1:Yeah, so we can typically get a cashflow positive about 90 days and take an office from zero in revenue to probably two and a half to 3 million in year one, and most practices that are being purchased are about a million bucks in revenue to probably two and a half to 3 million in year one, and most practices that are being purchased are about a million bucks in revenue.
Speaker 1:But you're paying a premium for that. So to me it always made sense to just do our own thing. Now in this model, obviously we've got financial sponsors and with that we've come up with a game plan of where we would like to be in the next five years. They didn't tell me what I had to do. They said we sat down and we gained plan and said what do we think is reasonable, justin, what do you want to do? What do you think we can do? And our plan of action is for the next two years continue to do our de novo strategy and open about eight to 10 new offices in areas that we're not in right now, which we've got.
Speaker 4:Which markets San Antonio, or expanding.
Speaker 1:San Antonio. Right now we're really interested in the corridor moving up towards Austin. I'm not particularly interested in Austin as a city. That's more urban. I'm very interested in their suburbs. That's why our brand is more like soccer mom dentistry.
Speaker 1:It's super convenient for the busy parents. So I like the suburbs, the Georgetown's, leander's, bk, various areas of Austin, I like Kyle, I like Buda, south of Boston, new Braunfels, san Marcos, those are very interesting areas to me. And then we're looking far west, san Antonio as well, north of San Antonio in the Boulevard area, and we're just, we're looking at areas that aren't like super saturated and look like they're probably underserved but overpopulated.
Speaker 1:So I like that's where we're looking at right now and then probably in the next 24 to 30 months, we do have a plan to start doing some very strategic acquisitions of some group practices that are already running very similar models Maybe not as effective, maybe not as successfully, but they it is in their DNA to run this way. Their teams already do it. They already do it. Maybe they just need, they need some more expertise. So we bring them in, we require them, keep them, keep that dentist, keep their teams and then just continue to grow the footprint from where they're at.
Speaker 1:So I'd like to keep as close to home as I can, but if opportunities come in different states, we're definitely going to look at those. But probably what's most interesting to us in the acquisition front is probably going to be the Dallas Metroplex, houston things of that nature that aren't particularly close to us, that are going to be more challenging to do the de novo starts. So instead of doing that, find like-minded groups, like-minded operators that are not ready to just throw in the towel just yet and are interested in doing some continued growth in their regions, with some help from us.
Speaker 4:That's cool, man. It makes a lot of sense, especially when you get cashflow positive that quickly. Let's pivot a little bit again talking about changing valuations and maybe go a little bit more macro. But just so many groups found themselves in these difficult, difficult situations with interest rates and having to refinance and overpaying and all that sort of thing. So I guess a couple of questions there is how have you seen valuations changing and how did DTCR manage to stay? It sounded like maybe they stayed out of that. Were they not in dental at the time where you said you were their first dental partnership?
Speaker 1:Yes, yeah, I would say 2020, up through probably some point 23, maybe 22 to 23, maybe even earlier than that.
Speaker 1:Interest rates were basically nothing, and so money was almost free. And so a lot of these DSOs, a lot of these private equity guys, they were real fast and loose with that money. And it wasn't about who can create the best organization, it was who could acquire as many practices as fast as humanly possible. And so, in an effort to do that, when you've got a myriad of groups out there with deep pockets or I would not call it real deep pockets it was an illusion of deep pockets because, you know, borrowing was cheap and yeah, and the banks were willing to do it, so they would go out there and they were. They would just pay almost any amount of money for very average at best practices we're talking.
Speaker 1:I heard some of the wildest shit that people were getting for million dollar revenue practices they're getting. I saw one where it was like they were getting they got like a 10 or 12 x on their ebitda and this is these are tiny little practices now, and so that was happening a lot. So what happened was is more people were ready to sell, so you got more and more people saying, hey, shit, for 10X of my EBITDA I'll sell you.
Speaker 4:whatever you want, I'll sell you my house, I'll sell you my kids. I'll sell you my practice.
Speaker 1:And so a lot more people came to the market and said, hey, like this, I'm going to sell. Which then there's more groups saying, hey, let's buy, buy. And which then there's more groups saying, hey, let's buy, buy. And then Al says, hey, we need to increase the interest rates, and they go. And a lot of these guys were outside of their covenants overnight in their leverage rates with the banks, and the banks are coming, they're calling due, and so what ultimately happened?
Speaker 4:Maybe could you explain covenants a little bit for people listening.
Speaker 1:Yeah, every bank has got debt ratio covenants against your revenue and that has to do with what is your revenue, what is the interest rate on the debt that you've taken out.
Speaker 1:And usually they'll put like a three or five times a revenue covenant where you can't exceed these certain limits and if you exceed these limits, then the bank can call your note due, which means that if they choose to, they can come to you and say hey look, you breached your covenants on your leverage with us and we're calling your entire note due. And I guarantee you, if the banks had done that to most of these DSOs, they would all be gone today, because not one of them had the cash to pay that out and there defends.
Speaker 4:a little bit like when your debt coverage ratios are obviously based on your debt, which is factored by the interest rate. So it does make it difficult if the bank who issued you the debt now all of a sudden increases your interest rate significantly. I don't want to defend bad behavior, but at the same time I think the drastic increase in rates caught everybody off guard.
Speaker 1:Oh, sure, and I'm not scalding these guys for it. I'm just saying when money's cheap, you do different things, but when it's expensive and scarce, you tend to make smarter decisions with the capital that you have access to. And when, literally, they're a bank, these guys are just printing money, they're getting it as fast as they can and they're just acquiring and the valuations of their groups are going up. But who cares about your valuation if there's no cash flow? And because you got so much debt, repayment, that has to come. So that's what they were doing. They were trying to build these huge organizations as fast as they could, to get their valuations high as they could and more power to them. Hey man, I probably would have done the same thing if I was in their shoes. I wasn't, and we were just playing with house money. We were just using our own money to build. So when you're using your own money, you tend to make way different decisions than when you're using somebody else's cheap money.
Speaker 4:Yeah.
Speaker 1:But, like you said, it happened very quickly and it startled a whole bunch of them A and it startled a whole bunch of them, a lot of them. They just went away. They basically there were some fire cells with some of these DSOs to larger DSOs that actually had the infrastructure to acquire them and they got great deals on some of these DSOs that just got out in front of their skis. But the DSOs have gotten smart. Now they're doing a postmortem of all of that, saying no, mas, we can't continue to operate this way because we can't be. And obviously the rates are where they are right now, but they're like, even if we see the rates go back down, where we can get cheap money, we need to be more conscientious about how we spend it and what we're actually going to pay for a practice, and is it actually going to be cashflow positive? Is it going to bring value to us other than just tacking on more EBITDA to our organization? Because it's easy to create EBITDA. You just put everything below the line and all of a sudden, you're going to get this great, miraculous, valuable company with no cash, and so I think that's what a lot of them have done is the best wood in their bag is their pencil right? That's what my buddy says on the golf course. He goes the best wood in my bag is my pencil and you can pencil with whatever you want on your P&L, but if you don't have any cash to support it, then you're going to be in a bad spot.
Speaker 1:So I think they've all looked back and said, hey, look, we made some bad decisions and we can't do that moving forward. And so by that meeting, hey, we're going to do better due diligence on these practices. We're not going to do these 30-day closes, we're not going to find it and buy it by Tuesday. We're going to actually see what's in this. Let's go, let's look under the hood before we pay top dollar for this car that doesn't even have an engine. So they're actually taking a look under the hood and then they're saying, okay, we're not going to come in and pay 10x for a practice that 10 years ago would have gotten a 65 of last year's revenue valuation.
Speaker 1:You got that same practice seven years ago. Six years ago would have sold for 650 to 700 000. A million dollar practice would have sold for 650 or 700 000. They were buying them for a million and a half bucks, it was crazy. A million and a half or 2 million, whatever it was. And so now they're saying we're not going to do that anymore. We just can't. It doesn't make any sense financially. Our financial partners are going to say no to this. Everybody's become more responsible because of this slap in the face that everybody got, and so evaluations they're going to come down to realistic. They're not low by any stretch of the imagination.
Speaker 4:Do you know of anybody who exited at the peak Because, really, the IBG, ybg, I'll be gone, you'll be gone, kind of mentality, or the greater fool theory? Right, yeah, I'm paying this much, but somebody else is going to pay even more, and that's how these bubbles get created in the stock market. And we see bubbles all the time and that's just a part of human nature, right, there's just always bubbles and bursts. But just curious, did you know anybody who actually? I guess my point is I don't, I think people realize that it couldn't last forever, right I? The thought must have just been like let's, it'll keep going a little bit more, keep going a little bit more. So do you know anybody who was able to essentially sell at the peak and keep their chips on the sideline?
Speaker 1:their cash on the sideline or anything. I don't know anybody personally that did it, because the groups that I run with they're all still operating their practices. They all toyed around with it, maybe talked to a couple of groups, but at the end of the day they were all scared to death of partnering with private equity because they'd heard the horror stories of it. So they're like no, I'll just keep doing my thing. But the reality is just because I don't know, there were thousands of groups and individual practices that exited and made way more money than their organizations were worth. And maybe they were just smart, maybe it was just, maybe they were just lucky, I don't know. Maybe someone looked at it and said now's the time. If I don't do it right now, I'm never going to get this much money, and if things don't work out, I'll just go build another practice and do it again.
Speaker 1:So yeah, yeah, that's the hard part, because I think I had two buddies that sold kind of at the peak.
Speaker 4:And they didn't get back in.
Speaker 1:One of them was in Maryland and one of them was in Michigan and they both made out like bandits and they had good groups but got way more money than they probably should have.
Speaker 4:But did they keep any other equity in the group, like, did they keep any chips on the table?
Speaker 1:Both of them got out. That was their bargaining chip to say we got to get out. And they both had, I think five-year commitments to not compete Right.
Speaker 4:And that's such a hard decision because you think about the situation that you put yourself in, which is we don't need to sell. You're building to last, and so your mentality is almost I'm not going to sell. But then you have a situation where somebody knocks on your door and they're willing to pay more than market, or even if the market is crazy high now, if you stick to your principles that you've made, you could miss out on an opportunity. And so it's really hard, I think, to always be balancing those decisions of we're building something long-term With us in real estate. It's the same thing. Yeah, we want to build, we buy stuff and want to hold it forever.
Speaker 4:Our favorite holding period, and thinking back in hindsight, is man. There was a couple of properties that we had. We probably could have sold in 2021 and did much better off, but like we stuck to our quote unquote principles, and so I think it's just like a lesson in in. I don't know how to explain it exactly. I want to say everything's for sale, but that just sounds so crude. But my takeaway was like everything should be for sale at the right price, right, if somebody wants to make you an offer, even if you're not publicly listed or publicly selling. Like if they want to make you an offer and it's like more than you thought it was worth. I think it's maybe it's almost greedy to hold on, and I feel like maybe we were. We might've been a little greedy, it's no, let's hold onto it Like it'll keep getting worth more and more later. So I don't know like that's such a hard. I think it is something that's very interesting to think to actually do in practice.
Speaker 1:It certainly is, Because if you looked at it during the heyday you could say, okay, it's only going to go up from here. Yeah.
Speaker 1:It's only going to go up from here. And then it's me playing with this and with my little gambling E-Trade account and so if I sell it now, I might miss out on all the upside down the road and then it all just plummets and I should have sold it when I had a and that's a million dollar question is do I sell? Do I? And for me, this, my business, was never intended to be generational. I and it my. My kids don't want to do it. My partner's kids don't want to do it.
Speaker 1:This was always. We built this business to to scale and sell. It was built that way and I got into it. I just enjoy operating it so much that I was like man, I'm selling, I don't care, I enjoy what I'm doing. I love coming to work every day, I love the people I work with.
Speaker 1:But my partner was like Justin, she's way smarter than me. She's like slapped me in the face and says we have like almost all of our network is tied up in four walls in this company and if we don't, if we don't carve out some of that, well, there's basically we've got jobs for the rest of our lives and that's how we built this company for it and I was like not bad advice at all. But the cool thing is we still get to be here. We still get to do what we were doing. We just get to do it at scale.
Speaker 1:We do it at a bigger scale and, from everything I can see right now, we've got great partners supporting us to do that. They really like what we've done. They like what we're doing and I'm excited. I'm excited to work with them and now I've got the. Now I've got the ability to do a lot of things I wasn't able to do before with my family personally things like that and still get to run the company that I built and still have opportunities to to build it, scale it, grow it and then still get opportunities to to make more money when there's another transaction that happens. So to me it was a situation, it was the right time, it was the right group, it was the right partner to do it with and I'm really excited that we did it.
Speaker 4:This has been really great. Is there anything else that you wanted to talk about that we didn't get a chance to talk about yet before we wrap?
Speaker 1:Man, I don't really know what else we're on that selling side side. But again, if I can give anybody any advice, first, for starters, anybody who's looking to sell just know that you're not going to get those crazy valuations that happened a year or two, three, four years ago. It's just this is not there. So you need to realign your expectations if you're planning to exit and maybe now's not the right time to exit if you miss, if you miss that heyday, and maybe you're not ready to do it right now but you need to realign your expectations to what you're really going to be seeing out there.
Speaker 1:Otherwise you're going to be, really disappointed as these groups come in to give you offers. You may still have an outlier out there once in a while. That will get kind of a crazy valuation. But as a whole, those aren't happening much anymore. They've come back down to reality, aren't happening much anymore. They've come back down to reality. Number two if you're at that point to where you are ready to exit and you want to get the very most, even though the valuations are maybe not crazy anymore, you still have to make sure that your house is in order, all your ducks in a row. Otherwise, even at realistic valuations, you're going to get less money than you should or could if you don't have everything in order. That's my biggest suggestion to everybody. Is as good as you think it is, it ain't good enough and it can always be in a better position to give you more leverage when you do actually decide to go sell.
Speaker 4:Guys, that's great advice. I appreciate you being so open with us about it. If there's any resource that people want to use to reach out and find out more information, what's a good way to get in touch with that?
Speaker 1:I don't know the resource, but they can reach out to me, they can send me an email if they want to. And that's j coke at seven to seven dentalcom great, hey, man.
Speaker 4:Thanks so much for your time and happy holidays and we'll talk soon, hey thanks again for having me, Austin.
Speaker 1:It's always fun.
Speaker 3:If you need help finding the perfect location for your practice or you're ready to invest in commercial real estate, email us podcast at leadersreecom R-E, as in realestatecom, or go to leadersreecom and fill out our form. See you next time.