The Dental Amigos host their amigo Justin Weaver, Esquire, a seasoned attorney who has represented dentists in literally hundreds of dental practice sales and acquisitions, including representing DSOs and clients selling to DSOs.  In this episode, Justin, Rob and Paul have a wide-ranging discussion about trends in DSO deals and Justin shares some of his experiences and observations in handling these deals.  This is “must listen podcasting” for anyone who’s curious about the inner workings of a DSO transaction!

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Full Transcript

Rob: Hello everyone. I'm Rob Montgomery and I'm joined as always, by the head nacho himself, Dr. Paul Goodman.

Paul: Hey Rob, great to be here.

Rob: Good to see you, Paul, and welcome everyone to another episode of the Dental Amigos. Today we're joined by our good Amigo, Justin Weaver. For those of you out there who haven't heard of Justin, he is an experienced dental lawyer. Next to me who has represented dentists' and literally hundreds and hundreds of dental practice sales and acquisitions. Uh, Justin's a great lawyer and recently, uh, has taken the lead in representing a number of clients who are selling to, uh, DSOC. And today, uh, he's here today to share some of his, uh, experiences and observations from those deals. And you know, we've titled this show, uh, war stories from the DSO front with, uh, Justin Weaver, Esquire. So, uh, and now without further ado, here's Justin Weaver. Welcome amigo. And thanks for being on the show.

Justin: Thanks for having, I'm excited to be here.

Paul: It's good to have a heavy one. The other side of the wall. So while our new studio is being built out, Paul, which give you an update on that new office space, it's going to be great. But in the meantime, we kind of share the end of the, uh, of the, uh, of the suite with, with Justin, who is usually on the other side of the wall. And today he's, he's joining us, so it's good to have you man. Yeah, it's good to be here. I was going to say I'm an avid listener and it's not only because I'm on the other side of the wall and I get to hear your podcast before anybody else. I'm pretty loud. I know that. I know Justin, I, well we start with the hard hitting questions and I, they start with this. Uh, if we were going to have nachos here in our wonderful city of Philadelphia, where would you like to go?

Paul: If I was to join you in a, what kind of topping would we get if I was going with you? I think would have to at least consider Elvis. Nice. Yeah. You talk with so much affinity about that in the past. But, uh, I think my favorite is probably a spot that's very close to our office mission and it's a good place to, they have some, some good nachos. I really like their, their tacos, uh, but they're not as great as well. As far as my favorite topping, you know, I really go for the loaded nachos, but I think if I had to pick one, the jalapenos, I like some spicy, spicy guide. I like that. Well, maybe after, maybe after the podcast we can go now. [inaudible]

Paul: uh, yeah, that's a good call. They have a shuffleboard also games, adult games, games and nachos. They did it of course. Yeah. Okay. So, um, as we said, Justin, you know, you've, uh, you've been working on a number of, uh, of large DSO deals for, for some of our clients. And obviously we're seeing some trends in, in what, uh, what's going on in that, in that space. There's a lot of similarities I guess that we see too with the way those deals are structured and, and really some of the others kind of behind the scenes things with, you know, what it's like to deal with the law firms and the, uh, the terms that some of these DSS like to like to work with and use. Um, but, you know, so before we kind of get into, I wouldn't say bashing it, but some of the more deep rooted, critical, yeah. And it helps to solve it. You know, there, there are, uh, obviously, uh, some good things about, about doing the DSO deals and you know, and obviously there's a lot of, uh, there's a lot of money, uh, involved with them. But so, uh, wanting to tell, uh, our listeners a little bit about, uh, what the, the advantages are and kind of what you can expect from, from a DSO deal, from a positive side. Sure. And there definitely are, uh, some positives

Justin: out there. I mean, I think that the most obvious one is one that you touched on and that is just the, the, the amount of money, the total amount of money that a DSO is able to offer. I mean, these TSOs generally are not relying upon third party financing, uh, in the form of a traditional lender, at least, uh, they have private equity backing and so they're able to offer more than a, a, a private dentist might be able to offer in exchange for the practice. Now, of course, and I assume we're going to get into this in a little bit there. There's a lot of, uh, tradeoffs that you have to be willing to make in order to get that higher purchase price. But that's, that's the, the main thing that our clients are looking for when they decide to go with a DSO.

Paul: I'm excited to be here. Uh, I'll wear my a broker hat. It's a fedora and, uh, sometimes my dentist's hats, a top hat, but I can, you know, [inaudible] that like that, that cartoon presentation of the guys to look out for a second inspector gadget outfit. Here's what I want. Um, so, uh, but I think w you know, you guys being here as two attorneys is like, listen to sometimes two dentists talk like Musial distal terms you're not sure of. So just so our listeners can, um, cause I've been, you know, loved working on deals with you and just come visiting your office on announced Justin, which I tend to do. Um, but uh, you're the only client that I know who favorite clients, like and only only child. He, my favorite child. You have to be. Um, but, uh, I'm the only in-person client. Uh, but what I would like to listen to, to understand, cause now I'll put on the dentist has like, let's just say I have, you know, Paul Goodmans house of nachos and dentistry. It collects $1 million a year and has five operatories. Um, I'm gonna, you know, look to list this practice, uh, for $700,000, uh, to sell. And I know as a broker I do this, but you know, on your end when you have clients, uh, and they're deciding between a DSO and a traditional, uh, buyer, what are some of the things that we're thinking about or talking to you about?

Justin: Yeah, there's, I mean, there's a number of issues. I think the first one that generally comes up, again, aside from just the difference in the purchase price that they're able to offer is oftentimes you're, you're not taking home 100% of the purchase price at closing in a deal with a DSO. And again, when we talk about DSS, we're talking about basically any corporate practice, any, any non dentists that are buying dental practices. Uh, and so what they're able to offer and what a lot of our clients find quite enticing is that they're able to offer them an equity stake in their, their enterprise at large. And so their 15% stake that they may retain in their practice and at the same time they would sell their, the remaining 85%. And that's just an example obviously, but that, that 15% stake that they retained, that the DSOC are telling them that their goal is to go out and acquire very rapidly, uh, a number of practices and group them together and sell them together to, to the next DSO.

Justin: Uh, and so by doing that, they're able to increase the multiple that they're getting paid on their EBITDA. EBITDA is a, is a big word. Whenever your, your co, or a big acronym I should say, when you're talking about, uh, sales of practices to corporate buyers. Uh, and so clients are enticed by this ability to not only sell their practice but to take that remaining percentage that they're going to continue to own and potentially double what that's worth or or, or sell it for a higher multiple than they could get if they just sold the entire practice.

Paul: Well thanks for sharing that and I think you know, just to share when I hear that, you know that what happens is when I'm a broker or even think of as a dentist, it can be too good at deal to turn down because you also are required to stay on and work for two to three years. And if a dentist is approaching, you know, three to four years out from retiring, they also can work and earn in the us. I say this practice that we're talking about Paul Goodman is house of nachos and a dentistry. See if that's available. Cause now I would like to open one life called that and you know, you get your $700,000 and then you maybe earn another $250,000 a year for three years and your total earnings in this deal are much higher. Whereas, um, typically if you're a solo dentist and you sell your practice, you're not getting not to be able to stay as long because the person who has taken the loan out needs to work and see the patients.

Justin: Right. Yeah. And I think that's probably the third, you know, benefit that we talk about after, after the first two we already mentioned. That is the ability, if you're, if you're not to the point where you're ready to sell and kind of wrap up your career and move to Florida or Arizona or wherever it may be, uh, if you're not there already, uh, enjoy some sunshine, uh, then you know, you have the ability to continue to work. And these, almost universally, it's not always the case, but, but almost universally these DSS are going to depend on the seller to stick around and continue to provide treatment. Uh, for a period of time, like you said, three to five years is usually what we're seeing three years really being the minimum. Uh, and along with that, they're going to be willing to pay them a salary or compensation based on collections, but they're also who are going to be some contingencies in that agreement.

Justin: If, if they don't live up to that continued employment obligation, there's going to be significant penalties. And in some cases there's going to be money that's held back from the purchase price in order to, to ensure that that seller continues to work for that period of time. And so, unlike selling to a private practitioner where you may have some commitment, you know, maybe a six month to a year commitment to continue to work, uh, to a DSO, you're, you're going to get a commitment from them and they're going to expect a commitment in return that you're going to continue to work for a lengthy period of time.

Paul: I think there's a misconception. A lot of times people think like, I'm going to sell to corporate and, and they're gonna get rid of me. And it's the exact opposite. I mean, I don't think, you know, the, the big DSOC and even the small DSO is, it's not like there's this stable of, of, of doctors and dentists that are like ready to go. Like we've acquired that practice sending the team [inaudible] they have the same challenges and troubles finding dentists' to, to work in their practices. You do Paul, you know, it's totally easy, you know, and so they're not looking to to get rid of people. And I think so it's really, when we're talking about, you know, that opportunity to stay on it can be a really good thing if it's a, a one doc practice or what we see are like a really big one doc practice where, uh, if they were looking to sell, they would not, could not possibly expect to continue to, uh, to stay on for three years after the closing, you know, or, and then the other guy, I guess the other sort of variety of that is the, the, the practice that is, uh, has a group practice.

Paul: So you have a number of practices where, uh, if you sold them off individually, they would not be worth as much as selling them together because as you said, Justin, you know, EBITDA. Paul is what we're looking at here. And that's really a measure of profitability because unlike the, the dental world where everybody wants to talk about percentage of gross, the private equity world where the people's businesses money, they, uh, they're focused on profit and cash, right? Right. Which is what everybody should really be paying more potentially can't sell practice on potential. They usually won't go for potential. Yeah. They're a little sharper than that. But you know, so the, uh, and with that, as Justin said, you know, you've got, the more the profit, the higher the profit, the greater the EBITDA, the multiple goes up too. So you get this like snowballing effect that if there are two variables and the bigger it gets, the more juiced up they get. And so the ability to participate in the sale of your practice if you retain some interest is you could see, you know, arguably the same amount on your 15% interest as you got for your 5% interest. Or at least that's what the DSL guys will tell you when they're pitching that deal. Right, Justin? Yep. As we can

Paul: continue to focus on the positive and since, you know, I'm the only a licensed dentist in this, in this room here, don't want to brag or anything, but I am. But um, you know, as someone who owns multiple practices, my brother and you know, runs places, uh, from the focusing on the positive, there is help that DSL was offering. Sometimes, you know, I have two small humans live in my house and sometimes when people try to help you with them, you're like, I'd prefer if you stopped helping me. But other times you're like, sure, you know, if you take one of our daughters and just play with her, I can manage this meltdown over here. So there is some, for the first time in these dentists careers, I think it's important to appreciate, you know, they might've been the minute dentist 25, 30 years running these places on their own and the DSS will provide some, uh, help to them on running it. I know you guys know and you can share with the listeners that it's a double edged sword, but that's just how I want from a dentist perspective, listening to understand that there is some business help where they buy the practice.

Justin: Yeah, absolutely. And I, and Rob and I were talking about this earlier today, I've heard heard Rob say this in presentations before and that is the simple statement that, that not all TSOs are created equally. Uh, and so like you said, there certainly are several DSS out there that come in and are able to provide this, this business guidance to help, you know, uh, increase the revenue of the practice. Uh, there are also some DSS out there that we've seen that come in and, and well put in all types of red, uh, all types of roles and regulations for the practice that will actually end up causing the practice to fail. Uh, and so when you're talking about the equity that you're going to retain in this practice moving forward, one of the things that we drill into our clients whenever they're considering a deal of this type is that they have to be aware that even though that that DSO has the same goal as them to make sure that this is a profitable business and that it grows and that they can sell it.

Justin: If they come in and do things and they're going to have total control over the practice moving forward, they can come in and put in certain mechanisms or, or just, you know, not invest in the practice the right way or make any decision that's, that's a negative decision for the practice, which could actually cause the practice to fail. And so while you retain that equity in the sales pitch is that you're going to end up selling it for much more than you would if you sold it on your own. There's always a possibility, especially with less established TSOs that you could end up losing some money at the end of the day if not losing everything entirely. And we've seen that in a couple of deals that have come come across our desk. Thankfully. Usually we weren't involved in the, in the deal itself. Uh, but people coming to us looking for help and there there's not a lot you can do once you get to that point and the, the equity has been diminished in the practice.

Paul: I mean it's a great point. You know, I want a quote, one of my favorite movies, forgetting Sarah Marshall or Paul Rudd is teaching Jason Segel to surf and he keeps saying do less, do less. It's just a very funny scene in the movie. And I use this in regular transitions. You know, the savvy DSS or the savvy new owners of a practice would not, I always say to my clients are dentists like, unless it's unsafe or immoral, you know, don't change anything for six months. And I, I, it's almost like they fiddle with it for a reason that they don't even know because they're buying what this dentist has been doing and then if they change too much, you know, that's just, just risk, uh, you know, disrupting the whole thing.

Paul: Yeah. I think you have to be careful too, that, you know, what you're saying is you don't get that equity piece that you've retained. It's not worth anything until it's sold. Right. So that's, you know, that's a big F. uh, but then with, as you said at the outset, Justin, if we have a situation where there's a provision where there's some sort of hold back, uh, at the time of closing a hold back being all the money's not paid. So if something's being held in escrow, uh, to make sure that there are no problems, the practice or it's not uncommon to see an escrow for a, that would require the practice to meet a certain revenue milestone after, after the sale. So in a DSS, when a buy this practice, they want to know that the, uh, the revenue and the profitability is going to be constant because that's what they're buying a year or two down the road.

Paul: And so essentially they're asking the seller to ensure that that's going to be the same and the seller doesn't have control over the practice. So most DSS that are well run and a good organization's trying to do things to not upset the Apple cart. But there are people out there that don't do the right thing, as we all know. And they can upset the Apple cart. And if you start to lose staff and there are too many changes made to the office and patients start to go, you may find yourself though you're supremely confident that Hey, revenue is never going to drop. You know, it's been increasing. I don't people, I'm gonna still be here. Everything's going to be great. Unless of course it's not. And that could have, depending on the way the deal is structured and the devil is in the detail with us. Right. Justin, you know, there can be a really significant penalty for failing to meet those, uh, those milestones.

Justin: Yeah. And it's just a way that, uh, again, unlike a sale to a private practitioner, most, most of those deals, uh, to a certain extent are going to be as is. There are going to be representations in an agreement that whenever you're selling to another dentist, uh, but for the most part, aside from making representations that your financials are correct, the tax returns you've provided are accurate, uh, that you've given them a list of personnel and what you pay and things like that, that you're not aware of any defects in the equipment. Aside from that, there's going to be language in your agreement that's going to say this is being sold as is. You're welcome to come in and do your due diligence, have your advisors look at my books. But as of the closing, it's yours. I'm making no guarantee that this business is going to be successful after I leave.

Justin: And in fact, generally there's going to be expressed language in the agreement that says you're acknowledging that once I leave there could be a decrease or that there could be a decrease. If you make any change to the business with a DSO, and I should say at least with, with a sophisticated DSO, which most are, uh, you're, you're going to see language in the agreement that's going to shift that risk back to you. So as Rob said, the most obvious example is either a hold back, which means from a, I've seen it anywhere from 1% to 10% of the purchase price is going to be held back so that they can ensure that there's no issues with the practice after the closing. In addition to that, there may be a specific, as Rob said, a revenue contingency that if you don't hit certain numbers during the years, fall in closing, that you have to pay something back.

Justin: And then there's a lot of less obvious examples. So there's going to be representations. Uh, just a few days ago, I was kind of having an argument with the opposing counsel and one of these deals about representations that to the sellers, it actually wasn't even limited to the seller's knowledge. It was just a provision that there are no facts in this practice that could possibly cause a material adverse effect in the future. And I read that and I say, how could we possibly give that representation? Because even if we're aware of something, uh, you know, we're aware of general economic conditions that that could potentially cause an issue in this practice. How could we represent that? Uh, nothing bad is going to happen. And at the end of the day, despite those arguments and discussing with them with a client, you know, they, they demanded that provision and my client had to make a choice whether to go forward or take that.

Justin: We were able to get some limitations on it. Uh, but that risk was shifted over to my client that if something goes wrong in exchange for us paying you, uh, you know, a premium on this practice, you're going to have to take that risk. And so that's, that's another example of how they, they build in this, this risk shifting mechanism so that the seller doesn't just get away from the practice when they sell, they're still bound to the practice. And if the practice doesn't go well, they're going to be at least on the hook to, to summit.

Paul: It's important. I mean, I'm, I'm not here to toot my own horn on what that means about tooting your guys' horn. Toot away, I think would've been what I've learned from working with you guys. And I mean, I'm just, I'm grateful for it because I wouldn't have known it and I'm, I'm lucky to be the live client here, uh, because it shows why having a dental focus attorney prior to this happening is important because you, you would be able to guide your clients. You know, one of the things when I've done some large practice sales, multiple DSAs want to purchase it. And it's not always easy to tell the client which is the best one. They have to decide for themselves anyway, like dating. But this is just a, a real advantage of having, uh, you know, advisors like you guys who have been around the block.

Paul: Again, don't know what that means, but still, um, you know, I like throwing in these witnesses or these catch phrases, they've been around the block and say, Hey, we've had some people transition when this with DSL and here's what happens. Posts post-sale. And that might not be something that you guys are into because I would have wanted to ask Justin like how many often is a practice? Like we'll go Paul Goodmans house of nachos and dentistry. How many DSOA are they engaging prior to an LOI? They're usually looking at three or four or just one. Um,

Justin: yeah, the, that, that varies. I mean I certainly have clients that have only looked at one and they've signed up with them right away and they've kind of bought into that, to that buyer. And I'm sure you would know as well as us some then do look at, I've had clients that have looked at, you know, seven or eight different things.

Paul: I only say as a broker and when I have a, when I have a good practice listing, you know, I just know it's like who's going to knock at the door next and there's going to be five of the representatives emailing me, asking you to do it within a short timeframe. Uh, because they, they don't miss those out there. Listen on broker sites or things like that.

Paul: It depends. Like, it depends on the practice. Obviously if you're talking about a large multiple location practice, uh, with, with a lot of revenue and a lot of EBITDA, um, you really should be thinking about putting that out to bed. You know, it'd be foolish to only talk to one, uh, to one potential buyer, smaller practice, you know, where it's a single owner operator who's got, you know, a solid, you know, the one point $2 million grossing practice. You probably don't have the same kind of leverage and an audience, you know, it's still good to talk to multiple people certainly. But, uh, the, uh, the large group practice is a hot, uh, hot commodity and you know, so, and you know, before we start to probably take a tar turn for the dark, so I hear on some of this stuff, I'll say, you know, we have a client that, uh, that listened to our, uh, our podcast, Paul on a multiple practice ownership and he said, you know, it was a couple of waiting for you to talk about the good parts, Rob.

Paul: And so I, I promise client, you know, who you are, we will get, uh, we'll get a DSO guy on here to talk at some point on our show. And there are good parts. I mean, the, there can be just an enormous windfall when it comes to, uh, comes to, to selling the practice, which can be a great thing. And I think, uh, but that's, uh, has to be balanced with realistic expectations. As Justin said, uh, that, you know, there's, there's a price for that and there are certain expectations and certain things you have to be willing to, to kinda live with if you're going to start to deal in that, in that kind of world. Right. Absolutely. And in full disclosure, Robin, I represent some DSS. Yeah. You know, this is, this is a world that we live in and it's just, it doesn't necessarily mean that it's a [inaudible] selling to a D DSO is bad. You know, as we talked about, there's a lot of benefits to doing so for, for some dentists and some sellers. It is the best scenario for them.

Paul: And we all sort of, our DSS are always nice guys. What's good for the goose is good for the Gander. I don't know what that means either, but, no, I'll think of it. But yeah, that's my, um, but what I would say is, you know, Dennis and I try to help my, whether it's brokering or Dennis sting or just being a human, you know, try to help people dial down the drama. I mean, it's just a buyer. At the end of the day, it's a buyer of your business and you have to decide what fits into use. Or sometimes, you know, some on a lot of these Facebook groups, you know, they'd say, you know, DSO is route ruined dentistry. And I mean, if the SOS, they're not a people person, but they would just laugh because they're just out to do what they want to do. It's not, you know, like a sinister, you know, um, evil villain from a, from a superhero movie.

Paul: It's just that there one thing that Rob has said in one of his lectures, uh, we had last year was to embrace some of the things they do well. And I actually say as a, as a broker who talks to buyers, you know, they're very active in searching for practices. And you know, I've gotten calls at my office. I mean, just out of the blue, unrelated to being Paul Goodman. I know that's hard to believe, but it must be, we must have revenues, places listed somewhere and they, and they, they're sneaky. They get through my front desk and I, I remember when that was sitting in my office, mayor's office and like the third person who called out and like, Hey, we're from XYZ DSO, we mounted by your practice. I'm like, how many people called out today? I'm like, maybe I would like to sell it today. But it was just showing how, uh, active slash aggressive they are in searching for these opportunities. That's why I tell, you know, young dentists looking for practices that they have to mimic some of that behavior, whether it's going to local study clubs or connecting with people because they have their eyes, their ears to the ground. There's the last, that's my last one. [inaudible]

Paul: ground. Right. They had their ears to the ground and I see that. I mean, that's great that I was cold called to buy my practice. I mean, that was about three years ago when I was, you know, I was, I was actually just totally shocked. Um, but it just should tell our listeners and dentist how much is at stake here, I guess with these transitions. It's a great point. I mean, that's the competition. If you are the dentist that's sulking about the fact that you can't find a practice to buy, you know, meanwhile it's because somebody else's hustling or than you then, you know, take a big step back. You know, you have to, you have to play that game. And as you said, Paul, that's right. I mean, they do a lot of things well and some things you may not like why they do it, but you know, you kind

Paul: of have to, you know, sometimes if you can't beat them, join them.

Paul: It's also, yeah, there we go. It's a whole thing, whole thing and cat phrases. Uh, but I think, uh, I think just to say it's for them, that's normal business and to Dennis, we're just so shielded from normal business. Even networking that, you know, they're thinking actively trying to by Paul Goodmans practice is, you know, that's a good idea. Call this person up and see if they want to sell their practice. I'm probably gonna say no, but Dennis would, you know, kind of think that's crazy. But it's just because they've never exercised those muscles before. So that's what I am asking, what should be there.

Paul: But you know, the thing is though that when you talked about that, that there is a higher pressure thing going on with them. I mean, that's sort of level of aggressiveness, you know, which is what, you know, I'd like to talk about for a little bit with Justin, you know, how the trenches with, with some of these is that also pervades the negotiation process that also is kind of indicative of, you know, w what we're dealing with for the, the, the lawyers and the negotiations on the, on the other side with some of these deals. So, you know, the things that, uh, you know, and I think in our practice we actually straddle two different worlds. You know, we, we deal with the, the absolute mom and pop is unsophisticated as they could be from a, from a legal standpoint on the other side too, as sophisticated as could possibly be.

Paul: And, uh, it's definitely a different ballgame with them. And, and you know, some of the things that you're saying with these claw backs and, and having to meet a certain milestones. And the penalties and what you're actually agreeing to it is so absolutely crucial. It's always crucial, but now it's absolutely crucial when it comes to these DSO deals is to fully understand what you're, what you're agreeing to. Understand every detail. You can't let one word or one document go by without, without paying careful attention to it because there are so many potential gotchas in this. So, you know, if you can Justin speak to, uh, speak to some of that and what your, your experience has been, uh, over time?

Justin: Yeah, that, that, that's very, very accurate. Uh, I mean, I guess starting at the most basic level when, when you're dealing with a deal with a DSO, and let's just say that we have two deals that are, that are equal in all other respects, they're both $1 million purchase prices. The, the amount of documentation that you're going to see in most DSO deals, uh, is going to be, you know, seven, eight, nine, 10 times the amount that you would see in a deal. No exaggeration, no exaggeration at all. And you know, there, there's going to be basic documents in the form of asset purchase agreements and employment agreements. And those are going to be much more detailed than you're going to see and have many more requirements in there than you would see if you were just negotiating with a, a private practitioner. Even if you're negotiating with a sophisticated private practitioner who has good representation.

Justin: Uh, not only that though, but then you're going to have all of these ancillary documents and the, the word ancillary documents to me is incredibly misleading. Oftentimes when you're on a conversation with, whether you're talking directly to a representative for a DSO or you're talking to their attorney, they're going to say, well, we've negotiated the asset purchase agreement. I'm going to shoot you over some ancillary documents, and these are all standard. Uh, we don't really negotiate them. So if you could just pass them along to your client to sign, and then they send you over 10 to 12 agreements that are ancillary agreements that contain additional representations, uh, contain, uh, uh, waivers of representations that the DSO has made. And so despite the fact that you may have spent, uh, you know, two weeks negotiating an asset purchase agreement every day and you've agreed to certain representations, they now have a provision in one of these ancillary documents that waves every representation that's been made by the DSO.

Paul: The one thing I've said is, maybe it's true. No, I watched a lot of Elliot laws of kids. I don't know if that qualifies me, but like what I would say to you guys, so you lawyers talk to each other a lot more than Dennis talk to each other about what they do. Right. You know, and these, you're working with a lawyer and the other side, you ever just want to say like, come on dude, how could you try to ask me this? Right. Like, like, I mean, do they just feel like, I mean, I couldn't, if I say to a dentist, I don't even know make the guy's tooth blue, he'd be like, what? What are you talking about? So like I, I'm, this is just more of a, something I'm confused about. Like, I understand their goal is to get the best deal for their client, but sometimes it sounds like they ask for things that are just so outlandish that it would just be like offensive to you as a person with a brain. You know? I don't know. It just is that there's this stuff happen.

Justin: Oh yeah, absolutely. And look, I think, uh, you know, you have to push back and you have to stand your ground with, with these guys, with these groups. And I certainly will straight up tell them, look, come on man, this is crazy. Uh, but at the same time they, they know there's a couple things. First, I don't think they're used to being told no. And so these groups, which are throwing around a lot of money, usually when somebody sees that, that price tag on the other side, they're going to say, I don't care what's in there. I just want to sign it. They're blinded by the money and they want to sign and sometimes look, it's okay to sign some of these agreements. If you understand what's in there in exchange for a higher purchase price, it's okay to take that risk. Sometimes it makes a lot of sense to take that risk.

Justin: Uh, what is more concerning to me though is that oftentimes when we push back on something as obvious as the example I just gave, and I didn't mean to get too far into the weeds with that example, but, uh, w we pushed back on that and they say nobody has ever asked. First of all, they're either straight up lying to me. Uh, and I, I hope that's the case. If that's not the case, that means that most people that are selling their practices to these groups are not reading and analyzing these agreements. They don't have advisors who are making sure that they're actually looking for what they're being, what they're being bound by because they were, it's not rocket science for an attorney to look at one of these documents and see that there's this waiver in there. It's a matter of actually reading it and understanding how they all apply.

Justin: All the documents apply to one another. And so to answer your question, yeah, we tell them that, uh, and sometimes they'll, they'll play ignorant and say, Oh, okay, of course we can take that out. Sometimes they'll say, that requires board approval and we're not going to go to the board to get approval on this. These are our instructions. We're not going to change it. I understand what you're saying. I understand the implications, but we're not going to change it. So talk to your clients if your client's willing to accept it. But I think there are larger sense. I mean, I do think that they try to, obviously, you know, they tell you

Paul: sir aren't the case. But, uh, I, I do believe that a lot of people just go along with it. I think that we find, you know, we kind of inherit this band prep bad precedent that, you know, nobody else has called us on this and it's, it's, you know, look, it's a challenge to, to, to deal to deal with these deals and the way we staff work in our office. There's a reason why, you know, Justin is dedicated doing this because he makes it his life for, you know, however long it takes to get the deal done, you know, and there's a level of, of focus and that that's required with that. You know, I, it's a, if you're just kind of checking in, sort of looking at this like you would in any kind of other smaller, medium sized firm like you would with any other deal, you're, you're in trouble, you know, because part of the issue here is, and all of a sudden, okay, these are all generalizations.

Paul: They varies from deal to deal. But you know, you could sometimes have these deals where there are five or six lawyers on the other side, you know, and it's kinda like playing a hockey game. You would never play hockey five on one. Right. You know, it's just too hard. And so with them cranking out these documents, uh, you, it's hard to keep up with and they at the same time, you know, what makes it even more challenging is their lawyers are cranking out those documents while the business people are pressuring the dentist, the seller, the client say, Hey, do you want, you want your millions of dollars next week we're ready to go. We got the money. Is your lawyer ready? You know, and it's like, meanwhile, you know, the stuff is flooding in. You have to eat, as Justin said, you have to review it. You have to make sure it's right.

Paul: But the pressure is there and it's no, it's no accident. You know, this is set up to kind of stack the deck and it's really just a, it's a total different, totally different philosophy from what we see typically, which is most dental deals that we see where we have owner operators that are selling to each other. You know, it's, you set it up so that there aren't, that doesn't necessarily need to be a winner and a loser. You know, you want to succeed, you want to have a successful transition, right? In this world, there they are negotiating these deals and setting them up to win. And that's a bad goal. School, WWF, wrestling, wrestling, how Hogan verse the junkyard dog. So it's like somebody has to be the loser at the end. But what I want

Paul: to say, uh, Rob as a broker who's learned a lot from you guys and does any of these deals is I encourage my sellers to not to get too attached emotionally to one DSO. And the reason I tell dentists out there listening is, you know, if, if you're going to sell to a private buyer, maybe you think, okay, Justin's the best dentist, he's gonna take care of my patients. And at the end you say, I don't feel like buying this practice anymore. I can see how that's a let down. You have to go and find another dentist. In this scenario, they're the dentist, right? So at the end of the day, it's, it's just a business buying them. So, but unfortunately, Dennis, we're very emotional creatures. We get very dramatic and you know, they, they almost will make, make decisions not in their best interest instead of saying, Oh, I'd rather go have this DSO. So I, in my message to them is just don't become too attached to one buyer because you guys will, you guys will uncover things that make them not such a great buyer anymore. And if I brought them three good choices, then they can sort of have something to fall back on. And, you know, that's, you know, I've just, I just from a dentist perspective,

Justin: yeah, that's a good point. I would say though that, you know, once you, once you start down the path, uh, and you've made it down the path, this is something that, that the SOS will hold against these clients once you get down the path and, and it's kind of like running a marathon at the same speed that you would run a a hundred meter race or something. You know, you're going full speed the whole time. It's a long process, but then towards the end it just picks up and you know, the bulk of the work, despite the process itself taking, you know, seven to eight to nine months is going to happen in a time span of maybe two to three weeks. And that's when everything's going to go down. And you've now committed to seven months to this practice providing all kinds of due diligence items, planning for your future and your now they've got you committed and it's no, it's, there's purpose behind this on their part of course.

Justin: Uh, but, but I guess the answer is you have to be engaged from the beginning. You know, there, there's no way we advise our clients and in every sale that you should not sign a letter of intent without having somebody review it and analyze it regardless of whether it's nonbinding those terms or what the deal is going to be sitting around. And so the time to, to really look at different potential buyers is pre LOI. And that's when you should be using the LOI as against one another, uh, and ensuring that you're getting a deal. And those LOI is need to be pretty detailed because getting, you know, if you, if you're negotiating with, with a private practitioner, you may get to the point where you say, I didn't realize that was in the LOI. We just signed it to get the deal moving. Let's negotiate that point. And you might be able to do that with a corporate buyer. They're going to say this is the deal, this is what our board approved. We had to put the LOI before the board and we're not going to go back on this. And so it is really important to consider different options, but you really have to do that from the outset. Once you get, you know, you can certainly back away. There's nothing binding you once you get to that kind of final two to three week period. But it's much harder.

Paul: Yeah, I can see that enormous investment of time and money. Yeah. Know which is the

Paul: other thing that these deals from a legal standpoint, from a legal fee standpoint are much, much, much, much more expensive. As Justin said. You know, there's just so many more documents. But the other thing that I think that people need to be aware of if they're considering doing one of these deals and selling to one of these, uh, uh, big groups, and again, th all these groups are different. Yeah. Right. But is that, you know, you have to carve out time to be available to, to meet with and speak with your, your advisors and to deal with this. You can't go into this thinking, I'm just going to continue to, to practice dentistry five days a week. You know, and then I'll deal with this DSO deal, you know, after seven o'clock, you know, uh, four nights a week because as Justin said, this is going at, you know, warp speed and decisions need to be made and you need to make yourself available, uh, in order to really be able to make informed decisions about whether or not certain things are going to be acceptable to you.

Paul: And the only way you can do that is if you have, have a lot of time carved out. But I think too that, you know, I think people would be well, uh, well served if they realize that Hey, you know, you have to deal with this DSO from the outset in a way that's going to be something that's sustainable throughout that, that however many months process and then specifically the several weeks where it's a total fire drill and just not be, uh, not let them pressure you and overwhelm you and just lay down, you know, be beat, be firm and say, look, you know, you may say that you're going to close this next week. I'm not ready to close next week. You know, I, my, my advisors are not ready to close next week. You know, [inaudible] to have the ability to, to put the brakes on and not be absolutely blinded by, by the dollars, you know, to the point where you, you make beds

Paul: decisions. Is there a good point? So after we talked about building your team, that's why it's so key to have people on your team to rely on, cause you know, sometimes just feel like you're on an Island by yourself. It's just not going to make the best decisions. I want to ask you, Justin, um, uh, I know you come to me for free. Nacho advice. So I'll take some free, uh, uh, legal advice or, or, or broker advice. What do they usually do with the real estate? And I'm genuinely curious. Let's say this, we're back to this Paul's house at dentistry and nachos, and then we have a building that is appraised at $420,000 to do this. DSL usually say, we want nothing to do with this building. Keep collecting your rent, or do they say we want to buy it at the time purchase? I'm, I'm curious about that.

Justin: Yeah, that's a good question too. And I'll give you a free attorney answer and that is it.

Paul: Thanks. Yeah, you got a [inaudible].

Justin: So what it really depends on, I mean, a lot of DSS look DSO is, and this is to their credit, a lot of dentists don't realize this. They're in the business of making a profitable dental practice so they can sell it. So a lot of DSPs have no interest in owning real estate. They don't want to be a landlord and have to sell that real estate at some point. And so a lot of times they will to lease the space.

Paul: So just say, this is something we talk about a lot in different contexts. So I'll interject. You know, these are the people that know how to make money, right? They're not necessarily, they're not obsessed with owning the real estate. You can make money in the dental world without owning the real estate. Go on. I'm sorry Josh. Exactly. Uh,

Justin: now with that said, what I've started to see more often, uh, recently is that oftentimes they will come along with a, uh, know it's an unrelated entity, an unrelated enterprise that is in the business of buying real estate to lease to, to dental practices. And they're looking for that cash flow. And so that group is not in the business of operating a dental practice. They're in the business of real estate holding and leasing. So what they believe are very profitable and, and longterm, uh, business entities. And so we do see that there, there are the, the real estate piece is critically important. If you own the real estate and you're selling the practice for a number of reasons, uh, if you are going to lease it, oftentimes unlike a situation where you are selling to a private practitioner or, or a group of dentists or a smaller group that's coming in and is willing to lease upon commercial terms, you know, triple net, they're willing to pay for expenses and, and they're willing to give you a personal guarantee and you're secure, you're secure, they're going to pay that rent.

Justin: Uh, what we often see with corporate buyers is they come in with a completely different entity, an LLC that is created for the sole purpose of being tenants on their locations so that that business owns no assets other than leases. Uh, and so, and will not give you a personal guarantee or at least will try very hard not to give you a, a, I shouldn't say personal guarantee, a corporate guarantee from the practice that has just bought all of your assets. And so one of the fights that we often have initially, uh, on these deals is we need a corporate guarantee from your practice. On this lease because my client's not going to be stuck repairing damage that you've done or, or not being able to relate this space because you have a longterm lease. And they always say, again, nobody ever requests this. Uh, okay, well maybe, maybe we're a genius, may maybe not a, I like to think that we are.

Paul: Yeah, sure. Well first off on the back Justin, but uh, you know that that's something that you have to be with

Justin: aware of. And then after that, what does the lease say? You know, despite the fact that, uh, we negotiate these leases all the time on both sides, uh, often on behalf of a tenant who's doing a startup or a practice acquisition and we're very aware of what's customary. Again, when you're dealing with this, this group on the other side, they're going to try to give you their form of lease, which is going to be a tenant friendly document and it's going to provide that. They're not really responsible for anything.

Paul: It's crazy. It's kind of like if, if like you, if you had a bank loan and you're like, you went into the bank and like I wrote up my loan documents, can I have my money? I just did this on my own computer. I just saw

Justin: this is what, this is the way this should be. Like it just doesn't, it doesn't work that way. I excepted in this sort of like altered world that these guys will existed. Exactly. And then just to add one more piece is that generally they're, they're not gonna want to give you that lease or even talk about the lease until a few days before the closing. And so they're going to give you this lease and they're going to say, here's the lease. It's standard. This is what we're willing to do. And you'll go back to them with comments and they'll say, we don't have time to negotiate this lease. We have a closing schedule on Tuesday and we've scheduled plane flights and we're going to close on Tuesday. And you say, we're not going to close on Tuesday. And they ignore you. You know, they're, they're just going to keep pushing forward and attempt to force you to go forward without having something in place. And again, this is a, a meaningful thing that what you're going to do with the real estate is incredibly important.

Paul: No, that's great. That's great. If the client tells me that, Dennis, Dennis asked me that and I think it's just adds a layer of, of complexity to it that a seller needs to be aware of in this whole sort of going from owner to selling a DSO is quite the, uh, you know, wild ride.

Justin: Yeah, that's, that's a great way to put it. Yeah. Yeah. I would just say on the, on the real estate there also, if you own the, and they're selling the real estate, you know, that kind of lets you off the hook post-closing that you're no longer responsible for maintaining this relationship. But at the same time, one of the things that often comes up there is a delayed purchase of the real estate. And so you may initially agree to purchase both at the same time and then you get close to closing. They say we're ready to go on the practice, not the real estate. And you have no solid commitment at all on the real estate. There's not even a signed agreement. And so what that, you know, at that point you're obviously going to have to negotiate a lease, but if you do not want to be a landlord moving forward, you need to make sure that there is an obligation and unconditional obligation to purchase that real estate in the future. And so that's something that often comes up again in terms of we have a set closing date, this issue may need to be addressed but we're not going to address it. We want to close anyway.

Paul: It takes us back. I mean when I said a few minutes ago, it's just, you get the sense of how much of a rush this is at the end. And you have to, as a seller, you know, create and have open bandwidth to deal with this. You know, and this is, these are business people and lawyers that are used to their full time job is dealing with this stuff. And you know, you just have to temper your expectations here and, and be realistic that if you're going to continue to practice throughout this process, it's, it's just, you're not going to be able to do it at that same pace that they're trying to make you go at, you know, and, and you really have to, you know, say it again. Stick to your guns. Yeah. Okay. We're going to break down today and, and, and, and make this work at, at a pace that that's not going to just absolutely allow yourself to be run over.

Paul: I mean, one of my all time favorite clients stories and this, this, you know, backup for a second. The never falling in love with the deal and still keeping eyes wide open and making the right decision. That's the DSL. It's any deal that you did. Yeah. And one of my all time favorites. You know, I had a client that we worked on a deal for for, geez, it was probably six months. And here we get to the closing and all these people from the other side fly in, you know, it's this big deal, we're gonna have this giant ceremony. And one of the things that he wanted in there at the last minute wasn't included. And he looked at me and said, is it in there? And I said, no. And he just, he turned around and walked down and they said, where did doc go? And he said, he left.

Paul: Did he coming back? No. Yeah, right. You know, and they said, why not? I'm like, well, he's not happy about that one provision. He was entirely willing to walk away and three weeks later, guess what, we were sitting, you know, not at that same table, nobody flew in, but we had a closing and he got exactly. We want it, you know, and because he was willing to, to walk away, you know, it's, but it's easy to say that, you know, not to over commit, but as you said, Justin, you know, you go through seven months and spend tens of thousands of dollars, you know, on a deal and you're right there. It's really hard.

Justin: Hard. Yeah. You get fatigued. I mean, I see it all the time in these deals towards the end, you know, I may be spending some of these deals towards the end. I may be spending, you know, 11, 12 hours a day on this deal just to get it done. And during that period of time, I'm going to need to talk to the client several times. And so when the client's phone keeps ringing and they're working, they're treating patients and it just keeps ringing and we keep having to address new issues. And I keep coming back and saying, what we proposed wasn't acceptable. You know, it gets tiresome. And so you have to be ready for that. Your expectations certainly have to be, uh, put in line with what this process is. Um, and then at the same time you have to know how to prioritize what, what you should push back on and what you shouldn't because there are going to be a ton of issues in the deal. There are going to be things where I'm going to tell a client, look, I don't like it, but I've seen it in every single DSO deal I've ever done. There's no way they're going to back off on it. Are you willing to live with this? And usually you you can be willing to do,

Paul: I mean, that's so fantastic. That's my whole thing. Theme of life is managing people's expectations. So when they have people like you on their side or do this, you manage them well, we say, Oh, that's normal. I mean that's everybody's thing in life is like, is this thing normal or not normal? And that's just such a great asset for them to have people like you to, to share that with them because uh, these are the first time in their life they're hearing it. And also it's a kind of our theme that, you know, Rob my talk about like don't mess up on your once thing and this is the once time they're going to do it. You know, the only time I know one style is not even the ones. This is the last year last even better. Wow. Even scarier. So, uh, uh, I agree. Thanks Justin.

Paul: Yeah, this was awesome man. Thanks for uh, thanks for being on the other side of the wall today. Yeah, thanks for having me. Good having you on here to go. And uh, anybody that wants to uh, contact Justin, you can uh, reach them through our website. Uh, your dental lawyer.com and his email addresses justin@ourmontgomeryhyphenlaw.com and there's always that stuff will be up, the show notes.

Speaker 2: Thanks Jess. I'll see you tomorrow in person. Thanks guys. Thanks for listening to another great podcast with the dental Amigos

Speaker 3: and don't forget to tune in next time to have the dental business demystified. If you're looking for more information about today's podcast, you can find it on the dental, migos.com. If you're looking for Paul, you can findPaul@drpaulgoodman.com and if you're looking for Rob, you can find him@yourdentallawyer.com this podcast has been sponsored by orange line media group, helping dentists and other professionals create content people love. Find out how we can help you take your business to the next level@wwwdotorangelinemg.com until next time,

Speaker 7: [inaudible].

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