The Group Dentistry Now Show: The Voice Of The DSO Industry

Perrin DesPortes, Co-founder & Partner at Polaris Healthcare Partners joins the Group Dentistry Now Show.

He discusses:

2024 dental market outlook
Consolidation trends
Where we are where we are headed
The impact of interest rates on groups & patients
Insights & advice
The Accelerate Conference in San Juan, P.R. – April 24th – 26th
Much more

To learn more visit – https://polarishealthcarepartners.com/

To contact Perrin DesPortes – perrin@polarishealthcarepartners.com

To find out more about the Accelerate Conference – The Premier Gathering for Healthcare Group Practice Executives. April 24 – 26 in San Juan, Puerto Rico – visit https://polarishealthcarepartners.com/accelerate/

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Full Transcript:

Kim Larson: Welcome to the Group Dentistry Now show, the voice of the DSO industry. Kim Larson and Bill Neumann talk to industry leaders about their challenges, successes, and the future of group dentistry. Visit groupdentistrynow.com for more DSO analysis, news, and events. Looking for a job or have a job to fill? Visit joindso.com. We hope you enjoy today’s show.
Bill Neumann: Welcome everyone to the Group Dentistry Now show. I’m Bill Neumann, and as always, we appreciate you listening in, or you may be watching us on YouTube. But without a great audience like you, we wouldn’t have great guests. And actually, this guest came back for a second time, so you must be a really great audience. But welcome back to the show for the second time, Perrin Desportes. He is co-founder and a partner at Polaris Healthcare Partners. Good to see you back, Perrin.

Perrin DesPortes: Thanks for having me, Bill. Good, good to be with you. Love the work that you and Kim do. Y’all provide such great information to the, the industry and love to be a small part of it. So thanks for having me on.

Bill Neumann: Yes. And thank you too. You, you do a lot for the industry too. And, um, we’ll, we’ll, we’re gonna talk a little bit about it, but I, uh, follow your podcast quite a bit, you know, being that we, we talk a lot here at group dentistry now about DSOs and group practices, but we don’t run one. It is good to really understand, you know, what’s going on behind the scenes and you really help. create some clarity around the different models that are out there, what’s going on in the space. So we really appreciate listening into that podcast. I’ll talk about a couple of my favorite episodes, recent episodes that I learned quite a bit about later on in this podcast. But maybe before that, let’s assume a couple of people don’t know who you are. So a little bit about your background, if you don’t mind, and what Polaris Healthcare Partners does.

Perrin DesPortes: Yeah, yeah, happy to do it. So I’ve spent the vast majority of my career in the business side of dentistry, if you will. My family, of all things, owned a dental distribution company headquartered out of Columbia, South Carolina. I was fourth generation in the business, started by my great-grandfather, James Perrin Thompson, in 1899. My grandfather was chairman of the board. My father was president and CEO when I came into the business in 1995. We ended up selling the business in April of 2002. to Patterson, not for operational or financial reasons. The company was performing quite well, but due to poor equity transition reasons. My father has two sisters, neither of whom worked in the business, nor did their husbands or any of their kids. So I got to learn early on about what a family business is like from the inside out. I was fortunate enough to stay on with Patterson after that acquisition for 15 years. I ran three different businesses for them. And while I always look back and you know, honestly wish I could have had a little bit more time with my dad and working in the family business. I probably never would have gotten the opportunities that Patterson gave me in those 15 years. So I’m always grateful for that. I learned about enterprise level businesses. I learned about industry consolidation. We’ll talk about it as it relates to group health care practices. I kind of learned it from the inside out and learned a lot about enterprise level businesses, the way they work, leadership, certainly being responsible for a P&L, a whole lot of other stuff over 15 years and had a pretty good career at Patterson. I left them at the very end of 2016 to launch a startup company called Tusk Partners. That’s an M&A advisory firm still in the space. And that was in January of 2017. and my current partner DeWalker Sinha and I, we were two of the three operating partners at Tusk. We decided to leave there and launch Polaris in March of 2021. And Polaris Healthcare Partners is both a strategic consulting and sell side advisory firm that focuses in the group healthcare space. Mostly, I’d say 90% of our work is in dental. We do do some work outside of it, ophthalmology, optometry, behavioral health, vet. a couple of other healthcare verticals. But we’re a business that focuses with entrepreneurs who happen to be healthcare providers, and they want to build a multi-location group. Or if they’ve created some level of success, they want to take some chips off the table and possibly transact that business. So we’re one of the few companies in the space that look at a client engagement through the lens of consulting, like how can we grow and improve the business or exit strategy? How can we ultimately help the client prepare the business to bring on a capital partner to exit outright? Let me take a pause there because that was probably a good bit to open up the show with.

Bill Neumann: Yeah, that’s great. It really leads into the next question. You mentioned something in that introduction was Polaris really is doing something relatively unique in the industry. I don’t know too many advisory firms out there that actually do the advisory portion and then the sell side advisory. So we’ve got strategy and then we’ve got sell side advisory. Typically, it’s one or the other and you don’t have both. So maybe let’s start with that. You do things a bit differently. What is the world of M&A? And that’s a good thing. What’s the world of M&A look like? from the Polaris lens and the people you work with on the strategy side and then on the M&A side.

Perrin DesPortes: Yeah, I mean, it’s, you know, M&A gets all the headlines, right? I mean, that’s the three inch bull print and the. uh, sexy metrics and typically a lot of commas and a lot of zeros around transactions. And so that’s the, the segment of the space overall that everybody’s most interested in, even if they’re not necessarily interested in exiting the business. Um, we tend to approach a client engagement when somebody comes to us and says, Hey, I’m contemplating taking my business to market and selling it. What do you think? Um, you know, if we were only a sell side advisory firm, You know, we would say, well, you know, the market’s white hot, you know, you’d be a crazy, you’d be crazy not to sell the business right now. And if we were only a consulting firm, we’d say, you’re a fool to sell the business right now. Look at the cash flow you’re generating out of it. This is a great time to keep operating your business. Being both, we tend to look at the possible client engagement from the consulting lens first. Is there something we could help you do to improve your business? Or is the business at a level where it will yield a transaction that would warrant what you want to sell the business for? And I think that’s kind of a nice balance of a way to go into a potential engagement with a client. We’re not in any rush. in other words, to close transactions. We want to do the right work for the right client and gain the right outcome for them. And when we track our weighted average EBITDA multiple, EBITDA multiple being one of the metrics of transactions in our world, obviously, when we track our weighted average multiple for the clients we work with historically, it’s in excess of nine and a half times EBITDA. So these are very well-run businesses, they’re very valuable businesses, and they usually command a lot of attention from the buy side. So what does the world of M&A look like right now, which is the nature of your question really, and maybe what do we see going through the end of 2023? And I would tell you that 2023 was a bit of a bumpy year. global M&A volume was down year over year. And certainly we saw that in group dental practices, in terms of both unit volume, the number of businesses being transacted, as well as dollar volume, the total volume of M&A. And there were a lot of deals that didn’t culminate in a transaction at the end of 2023. Because with the rise of interest rates, now the buy side has more pressure on it. When interest rates are really, really low, they can swing for the fences and they can afford a couple of misses maybe. Well, with credit boxes shrinking and costs rising of debt funds specifically, Their margin for error goes down and the due diligence process reflects that. So now due diligence is a longer, more thorough, exhaustive process than what it’s been before. And there were a lot of transactions that were supposed to close at the end of 2023 that pushed into early 2024. We have a couple of clients that are representative of that. It’s not a, it’s not a problem necessarily, but you got to be prepared for it. So I think that the world of M&A for 2023 was a year that was down in terms of unit volume and dollar volume. But it’s also still a world that is, at least for our audience here, that is very hyper-focused on dentistry as a healthcare service provider. The wave of consolidation in dentistry still has probably a good 10 to 15 years to go, and they’re changing dynamics around that that we can talk about. And those of us at Polaris feel very strongly about the clients we represent. the deal multiples that we’re still seeing, but I would say that our clients are arguably better prepared for that due diligence process right now than we ever have before.

Bill Neumann: Yeah, it certainly has been an interesting couple of years and it’s interesting the change that we’ve seen, the drastic change in valuations and activity, you know, from coming out of COVID, like shot out of a cannon, and then all of a sudden interest rates go up and things we put on, the brakes are put on. Specialty still seems to be really hot. If it’s oral surgery or endodontics, maybe you could talk a little bit about specialty versus multi-specialty or GP. I’d be interested to hear the trends that you see there. But so that’s one trend I’d love to kind of have you dig into. And then the other trend is just overall in the dental industry, from a consolidation perspective, where are we now? How much of the industry is consolidated and maybe fast forward five years and how much more will be?

Perrin DesPortes: Yeah, there’s a lot to that. So the first part of your question around specialty versus general versus maybe multi-specialty is a really good one. And I think, you know, when we look at unique specialty groups, like endo groups, or multi-specialty groups, like maybe pedo-ortho-oral surgery, for example. You know, there are different constructs around that. Specialists, generally speaking, are more historically predisposed to work in groups. So the consolidation of specialty services, at least in dentistry, it’s a shallower pool. There are not as many of them, and they’re more mind-ready to join groups that would have a multilayered ownership structure. And I think you’ve seen the proliferation of private equity-backed specialty platforms bear that out. General dentistry, there are just more of them. And still, Even some of the ADA’s work going back to early last year, I believe, stated that about 47%, if I remember correctly, of the ADA membership was still in traditional solo practices. So, I think there’s a little bit of a longer ramp to outright consolidation for general dentistry than there is to specialty. And I think you’re starting to see larger platforms, mid-sized to even larger platforms, incorporate multi-specialty services as part of their overall offering. And that makes a tremendous amount of sense from a maintaining of a revenue and growing revenue standpoint. So our opinion is, honestly, that we’re at a little bit of an inflection point. And I’ll talk about maybe what we see as the trends, and this may influence some of the listeners of this show or viewers of this show. And that is that, you know, I think The last probably 12 to 18 months, the rise of interest rates has been, again, a three-inch bold headline. All of us see the impact of those increasing rates in our personal lives as consumers. And if we’re borrowing money to buy or build a house or buy a car or something, we feel it there. Well, private equity-backed ventures use a lot of debt leverage to get transactions done. It makes their equity investment go a lot further. if they can borrow money, especially borrowing money at low, low rates to make further acquisitions, to expand the platform. Most of those debt vehicles are akin to an interest only loan or a variable rate product. So when we see a rise in interest rates, it puts a lot of stress and strain at an operational level for these businesses because it directly impacts free cash flow. And when they rise as quickly as they did, it can have a very adverse impact in a short period of time on free cash flow at a clinic level and certainly across the platform. The other thing that people don’t talk about as much is that the lenders make lending decisions on what we call a credit box. And one of the primary matrix or metrics that they use rather is what’s known as funded debt to EBITDA. I don’t want to get too wonky on you. but when they start out lending at six times debt to EBITDA and then compress that to four times debt to EBITDA, now it’s not only that the rate, that the loan itself is costing the borrower more money, but there’s fewer available dollars to draw on. And when I said M&A activity was kind of down to close out last year, a lot of that’s driven by the shrinking credit box of these platforms. So what does all that mean? One of the trends of consolidation, we talk about consolidation, and you and I talk about it mostly from a private equity standpoint. When people say consolidation in dentistry, what they’re really talking about or what they’re implying is, you know, how many more private equity-backed groups are going to be in our space? You know, I don’t know the answer to that. I don’t have a crystal ball. But I would tell you it’s getting harder and harder to run a small business of any sort, and a healthcare practice is certainly no different. I think what we’re starting to see the early stages of right here, right now is an interesting trend. And we see this a lot on the consulting side of our business. If you rewind the tape pre-pandemic or coming out of the pandemic, like you referenced, everyone was interested in building a group for the sake of selling a group. And they had an exit intention in mind in a fairly short period of time, usually about three to five to six years. They want to build a group, to exit a group, and cash out. Nothing wrong with that necessarily, but there are a lot more health care providers, dentists especially today, that are interested in building a group to operate the group. Meaning they want to build a business for free cash flow purposes, and a lot of them don’t have any intention of selling the business if at all, at least not at any time soon. And I think that’s a different phenomenon than what we’ve seen in the recent past. And I think it bodes really, really well for the industry. And I think as rates start to recede, even if only slightly, there are going to be a lot of opportunities for these entrepreneurial dentists who are building group practices to acquire or build additional locations. And these are entrepreneurs who may only want to own four or five locations, not 40 or 50. And I think that’s a really, really interesting phenomenon. We’re seeing the early stages of it, like I say, a lot of our consulting clients who have no expressed exit in mind, or at least not anytime soon. These are businesses that are more methodical, they don’t have to buy two or three locations a year to make their number within a tight timeframe. They can afford to be patient, if you will, and really take the long haul approach. They can build a business that’s not dependent upon their clinical skills, and they can generate a lot more free cashflow doing it. And I think that’s one of the really new trends we’re seeing that bodes really, really well for the profession.

Bill Neumann: You know, this is a great topic, and I agree, it’s exciting. you have numbers that we see from the ADA and we see the trend downward from solo operators, right? So that just continues every single year for somewhere between like five and 7% each year, it seems to drop off. And so where, where are they going? Right. Some of those people are not hanging the shingle and they’re going to work for a DSO without maybe any desire to actually start their own practice. Some may get some pathway to partnership. You set those up, I know, for some of the groups that you work with, some of the small groups. But then there’s that, the entrepreneurial dentists that you mentioned. And I’ve heard private group practice. That seems to be a new term where there’s no private equity funding. So it’s very similar to solos, but they’re in a group setting and maybe a couple of docs that maybe knew each other and want to get together or a doc that wants to scale up. And, you know, I agree that that’s exciting. And I think it’s great for the industry because the industry is very used to selling to, you know, if you’re coming from the vendor industry partner side, selling to clinicians and It’s a hard shift for a lot of organizations to sell to a business oriented dental group. Now, the challenge is that with people like Polaris, you’re teaching them to be business people. the vendors are gonna have to learn how to deal with maybe smaller businesses. Do you see, so what happens? You’ve got this private group practice trend. And then I’ve also heard that there are some distressed DSOs out there, some that maybe will be consolidated by, so they’re gonna be gobbled up by another large group. So do you see some consolidation at the top, this private group practice growth at the bottom?

Perrin DesPortes: Yeah. This is a really, really interesting topic you bring up, and I’m glad that you did. The way we started describing this, maybe halfway through last year on our podcast and a couple of other podcasts that I’ve appeared on and, you know, some other stuff, I guess, is the difference in operators versus aggregators. All right. Operators versus aggregators. What I’m talking about when I say that is that probably everybody in your audience understands the acronym EBITDA. It’s a, you know, normalized operational cash flow. And it’s the basis for valuation in group practices. All right. So no longer necessarily a multiple or a percentage of collections, but a multiple of EBITDA. And we all know that the bigger businesses get and the larger volume of EBITDA they generate is the, at least in theory, higher multiple of EBITDA they can command as it relates to valuation. Now, it’s not infinite by any stretch, but these, you know, the larger businesses get, you get into the solid mid-teens of EBITDA multiples, and these are very, very highly valued businesses. Well, when funding is readily available and when it costs you next to nothing in terms of a rate to borrow the money. then you can afford to spend lavishly and quickly on businesses that may be marginal to underperforming. But the theory is if you can aggregate, buy enough of them and just kind of assemble them, now you’re generating more volume of EBITDA that values higher as a valuation construct. and you can recap or exit that business to somebody willing to pay more for it. So you make your money on the turn as it relates to an equity recap. Well, that’s all fine and good when money is readily available and it doesn’t cost you anything to access it, to borrow it. When all of a sudden it does now cost you something to borrow and there’s less availability of it, it starts to put a lot of pressure at an operating level based on free cashflow after debt service, right? Because the debt’s costing you more on a monthly basis now. Well, when you have people in enterprise platforms that are simply aggregating dots on a map and they’re not really operating the businesses or improving the practices from a revenue generation standpoint or a cost containment standpoint, they’re not creating any marginal benefit, they’re not creating any marginal improvement, they’re not really creating any additional value at a practice level other than aggregating a bunch of them and hoping to make money on the flip. And when that doesn’t happen, or it gets drawn out, now your operations aren’t profitable enough to sustain the growing cost of the debt service required to keep the business afloat. And when you mentioned businesses at the top end of the food chain that are struggling, could outright fail, or may be acquired by other larger groups, all of that is in play right now. And I think this is one of the key things that is driving those entrepreneurs that you mentioned. We call it doctor-founded and debt-funded. Doctor-founded groups, meaning founded by a dentist, owned and operated by a dentist or multiple dentists, and debt-funded, using bank funds to grow. So doctor-founded, debt-funded. When I prefaced in the prior explanation about this recent phenomenon, Again, if we rewind the tape a couple of years, I think there were a lot of people that were caught in the middle saying, hey, I’m a mid-career, I’m a mid-career dentist, I’m doing really, really well. I don’t want to sell my business. If I did, really a private equity backed DSO is the only buyer that’s going to be able to afford to pay. the valuation of the successful practice that I’ve built. And it’s kind of a binary decision. So should you stay or should you go? Right? Well, now, I think there are a lot of people saying, hold on, I’m not in a hurry. I’ve got time on my side. I’m 10 years, 15 years, 20 years from possible retirement. I actually kind of like doing clinical dentistry. There’s nothing wrong with that. But I don’t want the success of the business and the future viability of the business to be only based on my clinical skills. I might like to have additional associates as partners, minority partners in the business. And you mentioned our associate equity models, partnership pathways is what we call them. And we do create a lot of those for minority partners. The same thing could be said of maybe that entrepreneurial dentist wants to at an additional location every other year. And in 10 years have, I don’t know, four or five under a management company of their own, but still be using bank funds to grow and really not be in any hurry to do it. And I think this kind of middle way is a way for the industry to consolidate, technically speaking, consolidation meaning in group practice versus solo. And I think there will, you know, the vast majority of dentistry will be in group practice when all is said and done. But that doesn’t mean that the vast majority will be private equity backed. I think there will be a lot of them that certainly are and it may technically be the largest share of the pie. But I think they’re going to be a lot of dentists that decide they want to build and operate group practices that could be a legacy business for their kids who may be going to dental school. or to bring in multiple partners along the way and just create a business that has enough negotiating power with suppliers, with banks, with insurance companies and things like that. Craft a way for younger associates to become minority partners in the business, but still maintain some level of independence and not be part of a larger private equity backed group. So I think there is, based on some of the recent phenomenon at the top end of the food chain you mentioned, I think it’s creating a lot of that interest in what I would call emerging groups and mid-career dentists, yeah.

Bill Neumann: But no doubt there’s a lot of pressure on the solo practitioners. Operation costs are going way up, whether it’s cost of human capital, cost of supplies, just about everything, right? We know reimbursement’s not going up, which is a shame. might consider it a crime, but it hasn’t gone up in years. So it’s pushing, I think, some of these dentists to make a decision, right? Do you become an associate, kind of go that route? Do you start your own group practice? What do you do? And so this is definitely, you know, I think it’s a pivotal time. And solo is probably not the best option out there. So if we have a lot of people that listen, all kind of shapes and sizes of dentists, you know, I’m a dentist, I’ve got one location and we always call them the DSO Curious Dentist. We’re here and we’re trying to figure out, you know, either how to compete with a DSO, or maybe we want to start our own group practice, or maybe we want to sell to one. So they’re here trying to gain information. But if you had to, and I know you can do this because I just listened to the podcast where you talked about this. If I have one location and I want to maybe either get to two or start a group practice, or maybe I don’t even have a single location, how would you start that group practice today? What kind of insights can you give somebody that might want to start a group practice in 2024?

Perrin DesPortes: Yeah, and this is going to sound a little bit counterintuitive or ridiculous, however you’d like to categorize it. It’s probably both. We have the benefit of working with a lot of group practices, all shapes, sizes, manners, and forms. And some are very well run, and some maybe less so, and some have outright challenges. even though my world is group dental practices, I don’t, I’m not being an advocate that you should build one. Uh, I see a lot of messes. Um, I see a lot of challenges and some we can help with and candidly some we can’t. So just because I’m in the world of group practice doesn’t mean it’s the right thing for everybody and that everybody should be doing it. All right. That’s the first thing. Specifically, if you’re, five years from retirement, near retirement, something like that, and you’ve got a successful business, I don’t know that it’s worth the risk, candidly, of personally guaranteeing more debt to acquire additional locations at that latest stage of your career. But what you said, Bill, is 100% true. that it is getting harder to run a small business of any sort due to wage escalation costs and all those staff members that we had to give guaranteed raises to or additional bonuses or what have you in the last couple of years to keep them as part of our business. they’re not going to be given back those wage gains anytime soon, right? And the cost of supplies, the cost of employee benefits, all of that good stuff isn’t going to recede in the future. So, you know, when we when you talk about insurance reimbursement declining, or at best case stagnating for a solo practice, because they have such a hard time negotiating fee increases, you know, if your revenue line is sort of capped and you’ve got growing expenses, that marginal pressure hits the owner right in his or her back pocket in terms of personal income. And that’s a challenging place to be. So I think if you’re 10 years, 15 years, 20 years out, you owe it to yourself to at least explore building a group practice And if so, if you decide to do so, then have realistic expectations around the timeframe, what you want to build, why you want to build it, and a lot of other things that we take our clients through and some of the programs that we offer. So, you know, if I were going to build a group practice, what would it look like? And maybe what what advice might I give, you know, and you’re right, I did record a podcast episode about this, because I do get this question a lot. Okay, genius, if you’re so smart, what would you do? And the way I would answer that is, you know, I do think there is a lot of power and might, and to a degree, a defensive strategy in a multi location group. That being said, more locations can create more chaos. So when we think about a practice in and of itself, the first thing, the first risk profile we want to minimize is something I call provider dependency. So if you’ve got, if you’re a general dentist and you’ve got a four operatory practice, you may be generating a lot of revenue out of it. But a general dentistry practice with four operatories probably has two hygienists in it, and there’s no additional room for an associate or another provider in that practice. If you leave that practice and hire an associate behind you, and he or she gets struck by lightning or hit by a bus or they quit or you have to terminate them or they have a health scare or whatever else, You know, it’s probably going to be dark revenue days for a little while in that business. So the opportunity to expand it days and hours or through additional providers is very, very limited. So the first thing we want to make sure of, whether we’re acquiring practices or building practices, is not to create so small the confines that you have provider dependency there. I get to work with a good number of larger footprint solo practices. These are businesses that could have like, you know, call it eight to 10 ops. I’ve got one that’s got 38 operatories under one roof. That’s a massive business. It’s huge business, but I, you know, specifically if we’re talking maybe eight to 12, 10 to 16 operatories all under one roof, you know, that’s something that probably employs three or four or five associates in it, multiple hygienists, if it’s a general dentistry practice. You have the ability to bring in additional associates and expand days and hours. You have a revenue volume that gives you some negotiating power, both for revenue construct as well as cost containment. And the business isn’t dependent upon one person’s unique skill set for its survival. And I think if we’re starting out with one, you’re not going to build a 16 operatory practice right out the chute. But if you’ve got a successful, say, six op practice and you acquire a second 6-op practice, maybe the strategy is you’re acquiring the second 6-op practice with the intent of merging those two businesses together at some point in the not too distant future to create something that might be 10 to 12 to 14 ops all under one roof. And if you can replicate that type of a strategy methodically over some extended period of time, maybe six to 10 years, and you end up with something like three practices that have, call it 15 operatories, 16 operatories all under one roof. You can also build some aspect of a multi-specialty type of a business or something where you employ a specialist or several, to do the specialty work and kind of keep all of that in-house. But you limit the amount of chaos due to additional locations that you can’t be everywhere at once. And to me, that’s a very viable business model. It’s a methodical approach. We’re not in a hurry to get there. It would value very highly, I’m sure, if you ever did want to sell it. But there are a lot of people that are building businesses like that, that, again, they’re operating them for cash flow purposes, and they’re possibly looking to bring on some level of minority partner along the way through a buy-in or an earn-in structure or a hybrid of both. And I think a business of that size gives you a lot of flexibility as it relates to all of that.

Bill Neumann: Yep. We’ll make sure we drop that episode that you recently recorded regarding this in the show notes because Yeah, it’s definitely a much deeper dive. The whole podcast was regarding this versus this one question, but certainly important information and really a great, I think, a different way of looking at things and maybe what I’ve heard from others. So I appreciate that insight and makes a lot of sense. If somebody already has, let’s say, four or five practices and they’re committed to building a group, And where do they go from there? I mean, do you take a look at what they currently have and is there a strategy maybe to add operatories, kind of your strategy where, hey, maybe we can bring multi-specialty or we can do more dentistry under the roofs you already own versus adding to the chaos, as you call it, which certainly makes a lot of sense. So what will be a strategy for somebody that maybe is like, hey, we’ve got a group practice already, but we still want to do more?

Perrin DesPortes: Yeah, so this is a another good question. I’m glad you asked it, because I mentioned in the prior answer, the minimizing chaos, minimizing stress, to a degree, at least, and trying to still maintain some level of control. So when we work with clients, at a consulting relationship, strategic consulting, it’s really about growth strategy and EBITDA maximization, you know, and that’s both, sometimes it’s footprint expansion, so it could be acquiring or building additional locations, and sometimes it’s just simply improving what you got, because that’s kind of newfound free money. It’s newfound free valuation, if you will. You don’t have to usually take on a lot more debt, if any at all, to to get that out of the business. So we build a full financial and operational model on every client’s business and every location in that business that we work with. And we’re looking for incremental gains, right? I mean, this is tightening up some of the expense structure, gaining a little bit of efficiency, understanding are we really generating maximal revenue generation out of the chairs and days and hours that were open? Is there some level of productivity that could be gained? This is kind of low hanging fruit that, you know, before you go adding on to your house, you might want to look at all the rooms you got right now and really decide if you’re living in all of them before you added an additional wing to it, right? Same thing in the business. So when we work with clients to think through and really model out what the inherent potential of the business is right now, and see where the low hanging fruit is, we may guide the client to really focus on that in our next strategic planning session for the next four quarters, you know, and maximize what they have available to them under one roof. And some of it could be adding specialty services, like you mentioned. And then when we start thinking about actually expanding the footprint A lot of that is built around the five-year growth pro forma that we build for clients. So if somebody says, Hey, Perrin, you know, I, I do want to sell my business in five years and I’d like to put $20 million in the bank after debt service, after taxes, after advisor fees, anything like that, 20 million bucks in the bank. Okay. Let’s see where we are right now, the valuation, the debt load, and an operational structure standpoint. And let’s figure out what we’ve got to buy or build over the next three to four to five years that would yield a business that would be valuable enough to warrant a transaction that would net you the $20 million that you’re looking for. And it’s really an analytical approach at business forecasting to be able to guide a client factually, analytically along the road that they must take to yield the outcome that they’ve verbalized to us. I only halfway jokingly say that we crush a lot of hopes and dreams along the way because sometimes when somebody says, you know, I want to build a business that nets me $20 million, that may sound really great at the 19th hole in the golf course. But if I tell you, well, that’s great, you got to just buy 20 locations over the next four years to get there, then maybe that’s not the best growth strategy for you. Or maybe you’re not really in it to win it from that standpoint. So I think this is an analytical way we look at business building. And really, we’re not trying to tell the client what the businesses that they should build. we’re trying to corroborate the vision they have for the business and what it means when we reverse engineer all the numbers back to today. Did that answer your question close enough, or did I leave anything out there, Bill?

Bill Neumann: That’s great. That makes a lot of sense, and I think that’ll help the audience.

Perrin DesPortes: One other thing, Could I interrupt? One other thing you mentioned that I did leave out. Somebody who’s maybe already at three to five locations and thinking about the next phase of building. And this is a point that people do kind of, they run up against another inflection point. Because a four to five location group is relatively easy to control. But when you really want to build a bigger business, you’re going to have to make investments in the operational infrastructure. Think things like call centers, a C-suite leadership team, centralizing operations, really gaining economies of scale and building a true management company that fulfills the operational promise of any business. And I think that inflection point happens around you know, maybe four to five to six locations? Are you going to commit to that or not? And if you do, are you in it for long enough to make sure that that investment pays off from an ROI standpoint? In other words, are you really committed to taking the business from five locations to 20 or more, for example. And there’s a lot more to it at that stage. The complexity is geometrically more than just operating a daisy chain of three or four or five practices. Sorry to cut you off on that. The light bulb went off on me there, so I had to get it in.

Bill Neumann: That’s great. That actually leads to kind of a follow-up question with that. If somebody is going to make that leap, and you talked about centralizing, you mentioned call centers, there’s some things that you need to do. What would you recommend? And I think you said that three to four location. What’s the first thing you recommend centralizing? What would be like that one thing as we start to scale up, where do we start?

Perrin DesPortes: So centralizing administrative services is a long, it can be a long and drawn out process. The reason you do it is because, and this is going to sound a little bit ruthless, but the reason you do it is to minimize the additional head count you have to add back into these businesses. Okay. And. Wages, our team, is the biggest line item on everybody’s P&L. And while it’s technically a variable cost, we don’t want to go through layoffs and rehires like we’re one of the enterprise-level banks, right? When we think about centralizing things, low-hanging fruit is typically around operations. There are ways to phase in a call center. And the key piece of this is that when we think about clinic-level operations, call volume ebbs and flows dramatically according to day of the week and time of day. Yet we’re all spending a lot of money on marketing plans that make the phone ring and when there’s nobody there that can take the call for the new patient appointment. then a lot of our marketing spend has gone up in smoke, right? So how you think through the different phases of call centers, and I say call centers, but it’s more like call routing and call performance, right? This is one of the services we offer and we understand the ROI and the impact behind it. And it’s mission critical to really gaining the most out of marketing spend and also using your team most efficiently, I would say. So operations is the short answer, but specifically operations as it relates to the impact of calls being answered is more specific. And then you get into things like you know, controller and bookkeeping services, and you get into procurement for supplies, and you can start to centralize some aspects of marketing spend and the human capital necessary to generate that. And then you get into things like business development. If you’re going to build a multi-location group beyond five or six or seven locations, that means you’re going to add locations. Well, who’s responsible for going out and finding the locations where you’re going to build your next practice? Or who’s responsible for going out and making connections with, establishing relationships with the potential sellers in your marketplace that that may be interested in selling their business in two or three or four or five years. So business development is the is really one of the mission critical pieces of taking it from, say, five to 20 locations, just as an example.

Bill Neumann: Great. So as we start to wind down the podcast, people are going to have a lot of questions, and I think there’s a really great opportunity for whether you’re, again, a solo practitioner out there looking to add somebody that’s three or four wanting to make that leap. You have an event coming up in San Juan, Puerto Rico called Accelerate, and it’s in April. this would be a great opportunity for anybody that really wants to find out more. And it’s a unique event. And if you’ve been to a DSO event, there are a lot of them now. I mean, it’s its own subculture. It’s amazing. But you could go to a dozen DSO events in a given year and see a lot of the same content, unfortunately. Not in all cases, but in some cases. So let’s talk about Accelerate and why your event’s so different.

Perrin DesPortes: Yeah, and thanks for the opportunity to plug it a little bit here, because we have high expectations for it. We’ve built the event to be a little bit more unique, and I’ll dig into a little bit of the why behind it. You and I have the privilege and the pleasure to attend a lot of conferences. You more so than me, but I speak at probably a half a dozen of them a year. My, our approach at Polaris, honestly, is to be very educationally driven. For those who listen to our podcast or have seen a webinar or seen a presentation that I or any of my colleagues have given from the stage, You know that we’re very application-oriented. We typically present a lot of numbers, a lot of math, a lot of data. There’s a lot of depth to the presentations that we share. And we really believe in being a content-forward type of a marketing approach, candidly, and really going deep within our subject matter. And what I find at most conferences that seemingly everybody attends is that they’re panel-driven. There’s not necessarily anything wrong with that when you hear from experts on a stage. But if it’s just an open Q&A on a panel, then the question for me is, if I’m in the audience, what’s the key takeaway? What changes on Monday morning when I get home to my business? What did I learn and what can I apply? And I think a lot of the industry conferences fall a little bit short on that, if I’m being honest. Accelerate for us. You’re right. The dates are April 24th through 26th in lovely San Juan, Puerto Rico. So we can all go and get a work on our tan while we’re down there, Bill. But it is a conference that is oriented at a specific subset of the market. It is that subset that is the call it five to 50 locations. It’s probably seven million dollars in revenue or more. But these are the people who are either at that inflection point that I mentioned earlier. Do I want to build a business that I’m going to take the distance, really? And or am I happy where I am right now? You know, do I have a decision point to make, stay at five locations or, or commit to the journey that’s 10 to 20 to 30 locations? If I am wanting to learn what that journey looks like, Well, what all is involved in it? I mean, how do you build and operate a call center or phase one in over time? What about a true C-suite leadership team? What is a C-suite leadership team? Where do I find them? The director of business development, like I mentioned before, who is that? What do I pay them? What do they do? Where do I find them? Do I need a CFO or a COO? and on and on. What about the real critical key to making any group practice work is recruiting associate dentists and developing them, not just recruiting them and turning them over, but truly clinical skill development. Can that be systematic? Is there a programmed approach to that? You know, what about if I’m going to build this multi-location group and it’s a valuable business right here, right now, today, How do I use equity as currency? And by that, I mean, how can I bring associates into the ownership structure of the business? And how might I be able to use the value of the business right now, the equity on balance sheet, as a catalyst for making further acquisitions where a seller might actually roll equity into my group? You know, so these are heady business concepts that somebody who wants to build their own platform that’s going to centralize back in administrative infrastructure, how do they go about that decision tree process of whether this is the right next step for them in their journey, or if they’re already along in their journey, what should they expect next? And this is a conference that’s going to be detail-oriented. It’s going to be content-driven. You’re going to die in data. You’re going to drown in data. And you’re going to have a lot of access to presenters who are not a panelist on a stage, they’re there to share their wisdom, share their educational content, and really make sure that we give you the decision points to do something different when you get back to your business on Monday morning. So I think it’s going to be a different context of a DSO-type conference than what you’re probably accustomed to seeing. For those that are still in the one-to-two location, you know, should I build a group practice or not? That’s a little bit different decision point. We have a variety of subject matter offerings, educational offerings, one called the Catalyst Project. That’s a web-based sort of a group, usually about 15 people. I teach those, about a six-week course on some of the fundamentals. And we’ll be launching a group coaching model probably further into the, further into the spring, excuse me, that’ll be more educationally driven at the emerging market space. But for those that are committed to the journey, you know, five locations or more, I would say, and they’re looking for that next step in the business and next step for them as leaders, Accelerate 2024 is the conference for you. It’s April 24th through 26th in lovely San Juan, and I’d love to have you join us.

Bill Neumann: And you can find out more information about that event. Go to your website, which is PolarisHealthcarePartners.com. We actually have the event listed on GroupDentistryNow.com in our events section. So either way, you can find out about that event. Sounds great. And for anybody, five locations or above, and like you said, want to see what that journey looks like or committed to that journey, you’re going to take them through that. Anything else you want to mention before we end the podcast? Actually, Perrin, how do people get in touch with you? If they just want to email you because maybe they, you know, aren’t at that five location, you know, they want to find out about the Catalyst, get involved in that. How do they do so?

Perrin DesPortes: Yeah, our website is PolarisHealthcarePartners.com. I jokingly tell people that when we launch the business, we look for the longest unclaimed URL, and I think we found it at that. So if you can remember PolarisHealthcarePartners.com, there’s a form fill. You can see almost all of them dead end into my email address. So I see all of them that come through. That’s an easy way to get connected with me. Just the the form fill box that’s on their Contact Us page. My email address is perrin, P-E-R-R-I-N, at PolarisHealthcarePartners.com. I probably get, I don’t know, 15 to 25 emails a week. from people with various questions about group practices. I probably take between five and 10 calls a week from people who are, you know, wanting to explain where they are in their journey and things like that. So I’m, I’m wide open about doing that, do that very often. The Catalyst Project, like you mentioned, is a web-based educational offering that we, we piloted back in the fall. The first class kicks off this Friday. It’s full, but we’ll be doing another one in, in May. And it’s a really user way for people to kind of dip their toe in the water. The people who think they want to build a group practice, but they don’t know what they don’t know, and they’re They’re also not committed. They’re not sure yet, and they’d like some unadulterated time with somebody to give them guidance. So, there’s a teaching component over six weeks, and there’s a group discussion component over six weeks that’s usually a lot of fun. So, Catalyst is a nice vehicle for that, and I’m sure we’ll advertise with you all the next time we open one up. We’ll take some early registrants on like a waiting list for the class that will probably kick off in May.

Bill Neumann: And we’ll make sure we drop the email address and the URLs and you make sure you check out his, the Polaris podcast, because like I mentioned, I don’t listen to a lot of podcasts, but I do listen to yours and it’s been very, very helpful. And I know that our audience could glean a lot of knowledge from you. So I appreciate it.

Perrin DesPortes: You’re kind of say that, Bill, because I know you get a deluge of them. It’s called Group Practice Accelerator, and you can find it on our website or on any of the, you know, Apple, Spotify, TuneIn, Stitcher, all those outlets. And if you’re having trouble falling asleep at night after you listen to me for 30 minutes, you’ll be out like a light. So it’s good for that use, too.

Bill Neumann: Thank you, Perrin. Thanks. Thanks for joining us for the second time. Again, all that information will be in the show notes. And thanks everybody for listening in or maybe you’re watching us on YouTube. We appreciate you. Until next time, this is the Group Dentistry Now Show.

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