Secure Dental-Perrin DesPortes and Adin Bradley: Audio automatically transcribed by Sonix

Secure Dental-Perrin DesPortes and Adin Bradley: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Dr. Noel Liu:
Welcome to the Secure Dental Podcast. Through conversations with the brightest minds in the dental and business communities, we'll share practical tips you can use to scale your practice and create financial freedom for yourself and your family. My name is Dr. Noel Liu, CEO and Dentist at Secure Dental, and also co-founder of DentVia. I'm your host for the Secure Dental podcast, and I'm so glad you're joining in.

Dr. Noel Liu:
Hey, everyone! Welcome to our other episode of Secure Dental Podcast, where we bring in many different talents from both inside and outside the dental industry. Today, I'm so excited because we have special guests today from Polaris and before we jump into it, just a big shout out to my sponsor, who I'm also co-founder. It's DenvtVia. DentVia is a virtual dental administration company that assists our front desk and our back-end staff with virtual lead generation calls, management, insurance eligibility, and all that good stuff. The stuff that our team hates to do. So, with that being said, make sure you guys visit them at www.DentVia.com. That's, again, www. D E N T V I A.com. Now, without further ado, I have Perrin DesPortes, and I have Adin Bradley, so both of them are here from Polaris. And I'm so glad and honored for them to join us here today and share some knowledge and some wisdom what it takes to grow and scale your dental practices. Perrin and Adin, I'll pass the mic off to you. So Perrin, let's get started. I'll start with you first.

Perrin DesPortes:
Yeah, thanks for having us on today, Noel. I've been looking forward to this for a little while, and obviously Adin and I know you very, very well. And we're big fans of the business that you've built. I'm one of the co-founders of Polaris Healthcare Partners. And for those who haven't heard of us or seen us speak or worked with us before. We're part consulting company, part transaction company, and we focus all of our work exclusively in the group dental practice space. We help entrepreneurial dentists build and execute on their growth strategy. So that's consulting services. It's associate equity models. When you want to bring associates and executives into the ownership ranks of the business and fractional COO services, which I know that Adin will dive deeply into, and then the transactional side of our business, we can do either debt placement or equity placement, debt placement, all of our clients, all of our core clients are what we call doctor founded and debt funded. So they're the entrepreneurial dentists who are using bank funds to grow. Bank funds are usually one of the Achilles' heels of every group practice. I think we'll probably talk a little bit about that, too. So, if they want to continue to grow through the use of debt funds, we can usually source lower middle market or middle market capital for them to do so. And at some point, maybe they want to take some chips off the table and find a private equity-backed, enterprise-level DSO or a straight private equity company to make an investment in their business, minority or majority. We can help anywhere along the way. So, think of Polaris as a general dentistry group. We've got the hygiene department, which is our associate equity and consulting services, and then we've got the transaction department, which is a lot like restorative and operative and a general dentistry practice.

Dr. Noel Liu:
I love the analogy. Yeah. All right, Adin. We had you last time in our show. You dropped so much nuggets, man. So today, tell us a little bit about yourself for some of our audience who've not heard the last episode with you.

Adin Bradley:
Yeah, firstly, thanks, Dr. Noel, for having Perrin and I back on individually and collectively. Yeah, it's been a great ride. I've been with Polaris nearly since its inception in 2021. So as we're heading into year four, you know, we continue to grow, not only, you know, as an organization, a boutique consulting and sell-side advisory firm, but also we have introduced new verticals as we've worked with a lot of clients like yourself that we have found that there's needs even beyond when we originally started. So I've been with Perrin, one of the co-founders, as well as Diwakar Sinha, our other co-founder, since the beginning, and been a great ride. You know, as anyone who knows that has seen or heard you and Dr. Jafri and Secure Dental on our podcast and on our website, one of the case studies. It was great working with you and your team, and always enjoy coming on to chat a little bit about what we do, not necessarily always what we did with secure, but how secure has grown your business, how we were along for part of that ride and hopefully share some of those challenges and solutions that you did in your group with our listeners.

Dr. Noel Liu:
100%. I remember when I was on your show there, Perrin, we spoke about in-depth about how we got started and how we got funded and all the problems and challenges, right? and I can still recall that time when I came to see you on that workshop where we were like, on our feet. So now the tables turned around a little bit. I would like to hear a little bit about your story, and how you founded Polaris, and what was like some of those challenges, and some of the work and successes behind it.

Perrin DesPortes:
Yeah, happy to give some background to it. It's a little bit of a circuitous route, if you will. I've known my partner, Diwakar Sinha, for probably over 15 years or so. He comes from the world of healthcare banking, predominantly dental, but had done a lot of other lending and other healthcare verticals, and he was in greater New Jersey, New York market for a while, where he worked with a couple of different lending institutions. And I actually ran one of the operating businesses for Patterson Dental Supply. That was, they called it Metro New York, New Jersey. So Staten Island, Manhattan and Westchester, and then central and northern New Jersey. And Diwakar was one of the finance reps who called on our branch. He thought about that finance relationship completely differently than anybody I'd ever worked with before, and that is Diwakar in a nutshell. He sees things differently. He has insights that are multiple levels deep and tends to be very solution-oriented, not just for the end user being the dentist, but also who is an equal core client. And that situation would be the distribution company. So our relationship goes way, way back to different lives that we both led at that point in time. You kind of fast-forward the tape. For a couple of years, I had moved out of the New York market to Charlotte, North Carolina, which is where home is right now for me. It was still working with Patterson. He also got married and moved out of the New Jersey market to Charlotte, North Carolina. So we actually found ourselves in the same city, and we're also having some of the same, maybe career challenges about the same time and contemplating leaving our cushy corporate America jobs, as I like to call it. And we decided to launch a venture called Tusk Partners with some other co-founding partners. And that was a business that I guess really came to the fore in January of 2017. And if you think about January of '17, the movement to consolidation was happening in dentistry across the board, and all of us had a little bit of a different insight into what consolidation was, Diwakar from the lending institution piece me from the distribution side of the world. And then our third operating partner from the aspect of valuation of these growing group practices. And, you know, there were a lot of people, there were a lot of individual dentists who were interested in building group practices, but I would say incorrectly, they assume that just because they had built a successful practice in and of itself, that it was easy to replicate times two, times three, times four. And on down the line, as you well know, it's not just twice as complicated to have two locations versus one. It's geometrically more complicated. And we were seeing those entrepreneurial dentists all making the same mistakes, you know, and along the growth path. I mean, and, you know, you sit there and kind of say to yourself, wow, somebody ought to provide business-level resources, because the challenges that they were encountering in building a group practice were far beyond what a traditional dental practice management consultant would offer in terms of solutions. Most of them hadn't worked in a multi-site environment anyway. None of us were clinical dentists, but we all came from big business corporate America backgrounds. And then if the target audience, the target dentist ever did reach some level of success in a multi-location group, and they wanted to sell it. There was nobody really there to help them transact the business because, once again, a traditional dental practice broker wasn't equipped to handle a transaction of that complexity to a financial type of a buyer. So you put the growth need on one side of it, and you put the exit need on the other, and you keep repeating that same message to yourself long enough. And then finally, kind of like Beavis and Butthead, you know, the light bulb finally goes off above you, and you're like, well, if nobody else is going to do it, why don't we do that? And so we built a business that helped entrepreneurial dentists start, grow, and sell their group practice. Diwakar and I left Tusk Partners in March of 2021 to launch Polaris. We had a different vision for what we wanted the business to become, and I mean, things end up the way they do. Launching Polaris four years ago gave us a lot more freedoms to create the business that we wanted to bring more people into the business, to look at subsequent healthcare verticals that weren't dentistry, but they basically operated the same way and had the same challenges, after all. And Polaris, we decided to call Polaris Healthcare Partners and not Polaris Dental Partners because we believe the application has an equal merit in a lot of different verticals, and that's what we're focused on pursuing right now. And I think the business finds itself at a wonderful point in time in terms of opportunity and certainly in terms of need. And we can talk a little bit more concretely about those services as this conversation unfolds.

Dr. Noel Liu:
Oh, absolutely. You know, like you guys with any kind of business, any entrepreneurial spirit or business, I mean, there are challenges, there are victories. Something along those lines. When you were expanding, would you say it would be the same kind of growth pattern like you would expect when a dental practice is growing with your Polaris?

Perrin DesPortes:
It's similar, and the reason I kind of hedge on that is because we can probably dig into this at a deeper level, too. But I think when you look at a group dental practice or a group healthcare practice, it's a wonderful blend of fixed costs and variable costs. And then most healthcare practices, certainly general dentistry, you don't suffer from what's known as concentration risk from either a variety of services standpoint, you don't provide one widget to one consumer. In other words, you do. Dentists do a lot of different procedures on a lot of different patients. And all of those patients most of the time, at least come from different payer structures, be they fee-for-service or cash pay or different insurance plans and employers. So, when you look at a group healthcare practice, and certainly, this is indicative of the world of dentistry. You have a nice blend of the cost structure that allows you to get some advantages around growth and scale, certainly, but you also don't suffer from being a one-trick pony from either a service delivery or a consumer standpoint. And I think that's highly advantageous of the model itself. A consulting company like what we have scales a little bit differently. The cost structure can be a lot less because we don't have as many fixed costs aside from wages and payroll, which doesn't come cheap. Adin's a lot smarter than he looks, I'll tell you that. And the price point for a guy like that is usually pretty high. So.

Dr. Noel Liu:
Steep. It's steep.

Perrin DesPortes:
Yeah, so, you know, while our payroll is our biggest expense like it is in a dental practice, we can flex that a little bit. And then the way we choose to scale can be a little bit more akin to like what a tech company would be beyond a flaw of initial investment. The more revenue we can pile on without adding on additional costs makes it a little bit different. Although our consumer is dramatically different, price point of services is different, so some similar, but some different based on the model, I would say.

Dr. Noel Liu:
Thanks for sharing that because, you know, a lot of times we always have this notion that, okay, consulting companies, how are they operating, what is going on, what are their fixed costs, right? So that kind of gives a little bit of insight. So we're going to switch gears a little bit. I wanted to kind of dive in a little bit into what you guys actually do. You help scaling grow practices and grow practices and doctor-backed offices, right? What are some of those biggest mistakes that you are seeing when you are actually consulting with a company when they want to grow from 2 to 3 to 4 to 5? I mean, we see this all the time. Everyone wants to grow, grow, grow, grow, grow. But what are some of those mistakes you're seeing, and how do we avoid them?

Perrin DesPortes:
Adin, do you want to take the first crack at this? And I'll add some to it as well.

Adin Bradley:
Yeah, I'd love to, and it's a great question. And because we are, you know, what we would consider a white glove consulting group, we generally, not generally, we always tailor our output to what the owner wants or what we think the owner thinks they want. And to answer that question specifically, no, I think a lot of times what we try to do is get them to really identify what type of group practice they're looking to build. Is it a lifestyle business? Is it building to grow just to scale, potentially exit, maybe just optimize it as much as they can, and then make a decision? And the reason why I say that is what I've seen out in the field. And then I'll touch on a couple new verticals that we have started, basically out of necessity, with some of the groups that we worked with that needed a little higher touch. Is it really is going to have a commitment to how dollars are allocated and in dollars are spent, so those that are looking to scale and grow are going to have to be disciplined and reinvesting back in the business? If you're trying to scale and grow while paying for, you know, the new Mercedes and the country club membership at the same time, it's going to make those a little bit more difficult to do. And, you know, I say that, and maybe we get a chuckle out there, but that is the reality with some, so really defining who you want to be when you grow up is going to really determine the path on how you're going to operate the business from the time of our engagement and post engagement because what we're our goal is to leave you with the tools to be able to eventually have us leave and have, as you and Dr. Jafri have done, continue on that journey with precision based on the things that we all worked on together. And all we really did was kind of ride side saddle with you to just open up some opportunities and looking at things through a different lens with full confidence that you'll know how to execute on that. So once we've been able to define from the owner or owners purview what they want to do, you know, we set out to really focus on the levers that are going to make change in their organization. The type of dentistry that we do is absolutely paramount. The type of payer mix, you know, are we a fee for service office? Are we a PPO office? And then recruiting and retaining top talent that can ultimately push you out of the chair so we can replicate your skill set? I think in the past, no, you've used the 70% rule, or at least 70% as good as you. So you've learned a little from me, and I've certainly learned a lot from you along the way. So, I try to implement the 70% rule with clients and talk about that. And then, you know, down the road, once they start to really see that this is attainable, you know, we'll down the road talk about setting up legal structures, accounting structures, how they want their books to be, whether it's a cash basis or accrual basis. But really, it's getting a good foundation of my target acquisition profile, my access to capital, the human capital, our team that we have, and really skilled docs that, along the way, I'm going to want them to be part of my journey and potentially offer them a piece of the organization that rewards them for the incremental growth or additional growth that we've experienced prior to them coming on. And then from there, you ask the question to Perrin about the similarities between consulting and owning a group practice. We have also changed a little bit over the three years and brought in different verticals, because what we found was the needs of clients went beyond what we traditionally offered in consulting. So, you know, fractional SEO, for example, is a new vertical. And anyone that's heard our podcast on Group Practice Accelerator, Perrin summed it up perfectly. Consulting is done with you like we did, Noel, right? You and your team, we advise, you execute. Some, I would say most group practices, the owners are still in the chair that don't have the time to devote to the execution part. They want to do it. All their intentions are great, but time is finite and the team may lack the ability to execute. So you're going down levels, right? You're going from Adin, Perrin, or whoever, down to the owner, down to the team, a lot of information is distilled through there. So, what we introduce in our fractional COO vertical is a done-for-you model. It's far more integrated. The team I've been deputized to be the conduit from the team to the ownership, and we are really deep into the operations, revenue cycle, retention, turnover, doctor production, ADA codes, payer mix, AR; we run the whole gamut, and what we look for are areas to optimize the practice or the group, but also, at the same time, we're assessing the leadership team and the management team and developing them to a level that they can continue to scale and grow. And either they accept the challenge and can do that so they can continue to integrate new offices, whether it be de novo or acquisition, or unfortunately, if they've kind of hit the limit of their capabilities, then how do we identify the type of leadership team members that you might need to bring in from the outside to help you grow? So, you know, obviously kind of painting with a really broad brush there. But what we've tried to do is be able to offer our services for every, kind of, every step along the journey that a group practice has. We want to be part of that solution and not turf it to somebody else. So, we have a complete data and analytics team. We have transaction executives, growth capital solution team members, myself that does consulting and fractional COO, as well as associate equity ownership, whether buy-in or earn. So, there's not really anything that Polaris cannot help or guide throughout the life cycle of that relationship.

Dr. Noel Liu:
Absolutely. I can attest to that, Adin. No doubt.

Adin Bradley:
That's awesome. And I'll tell you, you know, from a couple of things that I said, you and you shared your journey about the tough times. And I was fortunate enough to see you when you had kind of come through most of that, right? You were sort of on kind of the execution part. And what I was really, you know, enamored by was the emphasis that you put on the team, the human capital, the branding, and the autonomy given to your team with a clear vision and set of core values like this is who Secure Dental is and this is who Secure Dental is not. And you guys have continued to grow and capitalize on that. And I'm a big follower of Secure Dental, as you can tell, and also the things that you have done to give back to the community. You know, we just experienced a Veterans Day about a week ago, and I saw that Secure had done a lot of work in providing implants and dental work for, you know, our bravest men and women out there. And I think it's wonderful to see that you've gotten to a place that the business is strong and healthy, and now your purpose is become more noble and giving back while still growing the business and having your team involved in that. So you are my poster child, if you will, for groups that really have embraced the process, executed on it, and then, on their own, continue to take it to a next level.

Dr. Noel Liu:
Oh, thank you very much, Adin. You know, I feel like it's a blessing. It's a blessing because when, once, when we can provide this opportunity to our veterans, it just comes back like tenfold for us. It's always been like planting the seed and not worrying about the cost at that time, because most of these procedures that we are doing, I mean, it's just me and Dr. Jafri, we initiated this ourselves, and then all our associates, they followed and everybody worked without pay that day except for our team members, of course, except for our like DAs and front desk, we made sure they were compensated, but all our doctors work without production, so that saves a lot. So, we are really grateful and very glad to have this opportunity with NYU. So, back to you, Perrin. You wanted to add something along those lines about mistakes and pitfalls, right? And what are some of those things that one should look out for or do right away if they want to expand from 1 to 2 locations?

Perrin DesPortes:
Yeah, I think, obviously, when you're building a growing business, you can make 101 different mistakes, and they all kind of vary according to size and magnitude or jeopardy. Maybe not all those mistakes are going to sink the boat, but there are a couple of things that we have seen through the last decade of working with so many emerging group practices that get people into trouble all but immediately, and it's tough to dig your way out of. So one of the first things I would say is most people who take on the risk to build a group practice are acquiring practices. Occasionally we work with clients that are a de novo model. But I don't know, Adin, probably like 95% of them are acquiring practices as their primary growth strategy, right? And so the first things first, they look at buying a practice. They feel some pressure from it because they feel like if they don't buy this practice, I'll never find another one to buy, right? Which we all know. It's like buying a home. You just need to be patient. But there's not just one home for everybody. There are plenty of practices out there, and there will be plenty to acquire. So when they look at buying a practice, they tend to focus on the top line sale price, the valuation number, it's too high. I can't pay that much for it, or this is a screaming deal, or whatever it is. In a solo practice acquisition, it's really less about what you pay for the practice versus what you intend to do with it. And I'm always alarmed that, you know, when people buy a practice, and I say, okay, you bought it for $1 million, you bought it for $500,000. Whatever it is. What did you expect the revenue line to be a year down the road? What did you expect the revenue line to be a year down the road? Meaning, did you investigate how many new patients they're getting each month? Did you investigate how much they're spending in terms of marketing and advertising? Did you intend to drop another associate in there and expand days, hours, or even the clinical procedures? They're sending out all of the implants to the local periodontist, and you have the ability to recapture that, but you never buy a business to maintain it. You always buy a business to improve it. So the first thing we think is, okay, you're going to buy it today. The revenue is whatever the revenue is; what are you going to do to it to increase the revenue by whatever percent 12 months from now? What is it, quantifiably? And along the same lines, you had a good look at the expense structure of the business during due diligence. What are 2 or 3 areas of the expense structure that you think you can take a point or two out of the expense structure along the way? Is it lab and supplies? Is it professional services? Do they have too many people on the payroll? God forbid. But like they're bound to be ways to improve the cost structure of a business. There should be a lot of ways to improve the revenue trajectory of the business, but that has to happen based on your insistence. And you have to have insight into it and you have to hold yourself accountable. 12 months down the road to say we either did it or we didn't. And if we didn't, what did we get wrong? So the first thing is, how are we going to improve the business? Quantifiably the second thing is when we buy the business and we are going to pay whatever it is, is the selling price. Again, all of our clients are using bank funds to grow. So you look at the revenue line of the business we're buying, you look at the marginal profitability and we think that's it. Well, that's never it because now we got to pay the bank back some amount of money every year. And after we create operational cash flow and then we pay the bank what it costs us to finance the acquisition, what's left for us? Is it free cash flow positive? If it's an owner-driven business that you're buying and the owner's exiting, and you're not going to work in it for free, you're going to pay an associate to work in it for free. Did you even normalize the clinical compensation at the point of acquisition? And if the answer to that is no, I can all but guarantee you this thing's going to be in the red. So now, our great practice that we started with, that we built from the ground up, is now funding directly the underperforming practice that we just bought because we didn't accurately assess free cash flow and debt service, and we've gotten no improvement in the business whatsoever. The third thing that gets everybody into trouble, that makes all of this so much worse, is that most of the people who buy practices are working basically full time in their core business, their first practice full time, usually being four days a week clinically, right?

Dr. Noel Liu:
Well.

Adin Bradley:
Right.

Perrin DesPortes:
One of the things they want to do is start dropping clinical days of responsibility in their core business so that they can focus on finding other practices to buy. We call this business development. Well, when you do that, the clinical needs don't go away from the patient base. You have to pay an associate to do the work that you're no longer doing. Well, where does that come from? It comes out of the owner's back pocket, right? So now we're making less income out of our core practice while we have a nice lifestyle on the home front. And when we have less income, we all of a sudden find ourselves in conflict with our family. And we have an underperforming practice that we just bought this sucking the cash flow out of our core business. How does this all sound to you, Noel? You know, I mean, it sounds like a great project, right? I mean, everybody would want to do that. Well, of course, nobody would want to do that, but everybody does because they don't quantify how any of these changes are going to impact them from a cash flow standpoint. We probably do this example that I just kind of walked and talked through. We probably do this with more than 80% of our consulting clients. Through some of the financial modeling that Adin referenced, for the very reason that I alluded to, when somebody comes to us and says, I think I need to work with you guys because somebody's got to tell me how it is that I'm making less money today when I own four practices versus what I made when I only owned one. How is that possible? And I can do it on a whiteboard in about 30 seconds, but it looks a lot better if we use Excel and do all the modeling and make it look like it was really hard to come to the conclusion, but it's not. It's really straightforward, and it's usually exactly what I just said.

Dr. Noel Liu:
You know, and that's spot on, man. I mean, that is one of those reasons how we got in trouble in the first place. It's like we are always trying to grow and thinking the cash flow is going to increase, the valuation is going to increase. But little do we understand, like how the whole business would work as a whole versus 1 or 2 locations. And I feel like, you know, we are probably hitting another breakpoint in our own businesses. It's like, where are we comfortable with our ten locations? Now, if you go to the next level, which is 15 to 20, that's a different animal altogether again, right? It's like the same cycle would repeat again and again. So I'm seeing two folds here, right? So, if owner is going to acquire a practice, there are two things that I'm seeing here, from what I heard from you and Adin. The selling doctor needs to understand that there is some meat left in the bone. They're leaving some meat left on the bone before they sell. And the buying doctor needs to realize that potential that there is still meat left on the bone. So what I'm thinking is the first selling doctor is a super GP doing everything and firing on all cylinders and making $2.5, $3 million a year, and they sell it at a valuation of two and a half, or maybe $2.1 million or whatever, right? The selling doctor, if they are not as good as a super GP, you know, it's like two opposite ends of the spectrum. Now, they're just going to buy their practice, and they're not going to be making it. So I can see like what you're seeing is like, it's got to have the balance and almost to a point where the selling doctor needs to be underperforming, that the guy overtaking the practice, right?

Perrin DesPortes:
In an ideal world, sure. Yeah, I completely agree with that.

Dr. Noel Liu:
And that's a great, great point right there, Perrin.

Adin Bradley:
Yeah, I was going to say that's sort of the secret sauce there. And what we talk about is being really disciplined with what we call a target acquisition profile, which really it really keeps you disciplined in exactly what you're looking for. And from a high level, the geographic location, so you're close enough to your practices without cannibalizing them. You know, is there quote unquote meat on the bone Perrin mentioned about, you know, your new patient flow, is there enough patients? What you don't want to do is buy a practice from a doctor that may be ready to sunset it, and the patients are actually aging out with them, right? So, at some point now, you're without patients. You know, a minimum of, you know, what we would like to think is a minimum of six operators because, you know, your fixed cost expense is so high, your overhead just to turn the lights on it. The only way to kind of build some profitability in there is to have the ability for more production. And then, you know, lastly, one of the things that I find often is owners think that more practices equal more money just because we're generating a lot of dollars. And Perrin was referencing this. And what I find is we can tell right away. And here's an easy whiteboard litmus test, if you will, like if you've bought more practice practices and you're either less or just the same profit-wise and dollars, you have not scaled, you're not a group practice. You are a common owned five-practice outfit. Every practice is running differently from each other. They're not scaled. You don't have any centralized services. Your processes are probably all over the place, meaning, you know, in particular a call center, revenue cycle, areas of efficiency that you would get as you scale any kind of practice. And if you're buying that practice too, is in the beginning, is our associates going to stay with you through the transaction? Do you have a team that is, you know, sort of a fast team? It was an acronym where they can integrate that practice into your group immediately, meaning, you know, setting the stage for what the culture is like, the benefits, the payer mix, getting on your reimbursement fee schedule. How does this look? Like Perrin said, 12 months out, it is more predictable than one might imagine when you stay committed to looking at the levers that you have to look at. And, you know, we said, you may look at 30 or 40 practices and whittle it down to just 2 or 3 and really be disciplined to just walk away from those that don't check all or nearly all of the checkboxes that you are going into. And at what point does it make sense to start centralizing services, not just to reduce overhead, but really to have continuity of care and continuity of operational expertise as it comes to marketing revenue cycle, risk, and compliance, HR? Where, when they're handled from one particular department, you, not only do you have redundancy there, but you have subject matter expertise that is being spread around the entire operation instead of 1 or 2 really good practices dragging along three underperforming practices, and we see that a lot. So, you know, in our modeling, we look at a consolidated basis. We take all the practices together. And we we have an adjusted EBITDA number. But where the real dissection comes from is looking at each individual practice. And, you know, just for kind of a layman's example, you might say, well, I'm doing a million and a half worth of EBITDA. I'm growing. You have a 1.25 of that comes from one practice. You know, 250 comes from another, and the others are kind of at equal or best. And it's almost at the point you'd be more profitable if you literally just cut off three practices from your group. You'd be further ahead in a far less stressed. We're not advocating that for those types of groups. That's where we come in and help and say, let's get those profitable. Let's find out why those are dragging the group down and why they're not as optimized. What are you doing so well in practice, one that you're not doing in three, four, and five? Once you learn to master that and really understand all the levers that need to be pulled. Now, as you talk being ten practices, I am fully confident that you could buy a practice equally as big as Secure. Envelop them into your own, and I don't think you'd miss a beat. I think your team internally; I've got some tribal knowledge of your team and how you and Dr. Jafri work. I have no doubt that you would be able to do that, I think. And Perrin maybe can attest, I would say, probably less than 5% or 10% of owners in that number might even be generous. Could literally take on a group the size that they are now and actually scale them to be even better. I think most would crumble under the pressure of all of those.

Dr. Noel Liu:
It all comes down to people and culture. That's where it lies with acquisitions. So yeah, I mean, it's a challenge, and it's always going to be a challenge regardless of what we do or how we do it. So that was one of my biggest challenges when we were growing to it's like we wanted to acquire more practices, but not knowing the after effect what it would do to us. So the big question then becomes is, with you guys dealing with so many different providers, the question is why? Why would you want to scale and grow? Why would you want to take all that headache and take that risk?

Perrin DesPortes:
Yeah. I mean, I'll take the first stab at that. And I think it's a good question, and it's one that the answers changed as we head into 2025 versus what it was, you know, pre-pandemic. And I feel like, historically, if we go back pre-pandemic, the people building group practices were innovators and early adopters and marketing parlance, right? They were the tip of the bell curve. And they they had a vision, they saw something and were aggressive in pursuing it. Most of them had an exit strategy. They were building a business to sell. And then, we started transitioning into the early mainstream of the bell curve. Pandemic hits, you know, and there was an acceleration of global M&A coming out of the pandemic like the world's never seen before. And there were a lot of enterprise level groups that bought practices or small groups for a heightened valuation because the cost of funds to borrow was negligible at best. And then, all of a sudden, we had this run-up in lending rates. That created a problem at the top end of the market as it relates to M&A, created cash flow problems, and a lot of those businesses and a lot of them were not able to recap. So, they were not able to fulfill the promise that they put forth to their practices, the practice owners that they had acquired. And now you have this segment of the marketplace that is seeing that from afar. And they're saying, wow, you know, I had a bunch of friends that transacted their businesses, and maybe it didn't work out that well. You know, maybe it was unfulfilled promises and a lot of frustrations. This wasn't the road to easy money the way we were all guaranteed that it would be. And so I think the why question for many people who are building businesses is much more front and center around what somebody's motivations are. And I'm not going to get on a soapbox here, but I actually think this is the best thing for the profession that it has been in the better part of the decade that I've been working in it. And I think there are a lot of people that are maybe in the first half of their career that are simply building a small, manageable, methodical group practice because they see the profession of dentistry as being very physically demanding. You know, from a musculoskeletal standpoint, from a vision standpoint, I mean, dentistry is a very physical healthcare profession, and I don't think people really give it its due unless you are a clinical dentist and you've walked that path or you've seen it kind of like Adin and I have. But now there are people that are saying, hey, I don't know if I'm going to be able to physically last 40 years of doing this, and if I have a really good practice, that cash flows wonderfully. What if something happens to me? You know what happens to my family at that point? So maybe I'm going to add another location every couple of years. I'm going to bring a few of the associates into the ownership ranks at a minority partner level. I'm going to grow methodically. I'm going to pay down debt service along the way. So I'm not, like, hitched to the bank forever. And you know what? Maybe I don't want to sell it. So maybe my why is now more of a cash flow-driven business than it is a wealth-driven equation around a transaction. If I decide to sell it way down the road, maybe it's an internal sale to my associates who are minority partners, or maybe it's an enterprise buyer. I'll figure that out in 20 years, but in the short run, next decade or so, maybe I just want to build a multi-location group whose success is not dependent upon my clinical skills. And I think that kind of a why is really, really great because it's an independent ownership, it's a doctor-driven mindset, and you can make a really healthy case that it's also with the best interest of the patients as it relates to clinical care, too. So I think that the why question I've seen from my vantage point, if you will shift. I don't want to say 180 degrees, but there's been a lot of changes in it over the last handful of years coming out of the pandemic.

Dr. Noel Liu:
Oh, excellent. Excellent answer. So, for people like with this kind of why would you argue that they should still have an exit in mind in order to be successful?

Perrin DesPortes:
Yes, but I don't think you should have any urgency in mind. So Adin and I talk with people all the time and say, hey, look, if you build a successful group practice, whether it's for locations or 14 or 40, whatever the number is, and it is, to use Adin's term, optimized, it's operating efficiently. It yields tremendous cash flows. Systems and processes are dialed in. You've arguably got a handful of minority partners in the ownership structure. So everybody has a little bit of a leadership hat on. You know we're all rowing in the same direction if that business is truly optimized. I got news for you. It's going to value really, really highly. And there's always going to be a buyer for it. But I think the difference is that maybe pre-pandemic or coming right out of the pandemic, people just felt like, hey, I got ten locations. It's going to value at ten times EBITDA. No problem, man. Well, that's not the world we live in anymore. If you build a ten-location group, that's a mess. There's not going to be a buyer for that. So whatever it is you want to build and however fast, just optimize it, yeah.

Dr. Noel Liu:
Optimize, yeah.

Adin Bradley:
But buyers, what we have found are becoming a lot more savvy in their own due diligence. They're looking for groups with continued same-store growth sales. They're looking deeper under the hood of all the practices within that group. And at Polaris, because we're advisors, we know what those groups are looking for, and we work towards that goal. The days of just aggregating EBITDA and buying all these practices and sweeping them up and selling, they're no longer there. I mean, the cost of capital is higher. The supply and demand has shifted a little bit more to a buyer's market. So if you have created a really good group practice, and I don't want to overuse the word, completely optimized it where, you know, a middle market or any other kind of private equity strategic partner can envelop them into their group. They're going to pay for your group at a square price, because you're bringing to them a level of predictability that they're willing to pay for. But if you're just buying up practices to say, I got more production, and I have a little bit more EBITDA, these groups are looking really deep under the hood. And what's going to happen is not only are you not going to get the multiple you thought you were, they know how to pull the levers to buy that practice and optimize it post-sale. So basically, they're going to take all the value that you left on the table, and they're going to achieve it themselves. So you know, we have done a couple consulting to sell-side engagements where we find those holes and fix them prior to sale so that the exiting owner or the owner that's going to partner with a strategic group is getting full value for their work, instead of leaving some on the table and then letting them add their secret sauce to it. So you're 100% right. I mean, those days are, if you're building a group right now to exit, that's your plan. You need to be extremely disciplined and ensure that your way of doing dentistry and operations is scalable across the entire platform. And you don't have many weak spots because they'll be found, and they're going to devalue a portion of your business.

Dr. Noel Liu:
And that's why they need guys like you.

Perrin DesPortes:
Thank you.

Dr. Noel Liu:
Right. Chicken or the egg question, people or processes?

Perrin DesPortes:
They're equally important.

Dr. Noel Liu:
If you were to pick one, Adin, which one would it come first?

Adin Bradley:
I'm going to say the people because you can teach them the process part, and they'll already have the cultural and empathetic standpoint that we need. We can teach them the systems. You can have the greatest systems in the world, but if you don't have the right complement of team members and the human capital that come with that, those processes are, they're never going to be achieved optimally. And you may be second-guessing whether or not the process works because of those trying to execute on it. So you weren't supposed to ask me that question, though, because I need a little time to think about it, but my gut reaction is I always go with people first. I think when you build an organization with your people at the forefront, it transcends into the work, the processes, the clinical care, into your patients. And I call it the, you know, really the concept of making money in spite of yourself. You've created something special with the right people, and your patients will feel and know that and come back.

Dr. Noel Liu:
You nailed it. And, you know, you just said that, I think. Yeah. We're done.

Adin Bradley:
All right.

Dr. Noel Liu:
No, I'm just kidding. One other question I get asked. A lot of times, it's people asking me, acquisition or de novo?

Perrin DesPortes:
I'll take a cut at that one really quick. So, as I've prefaced. What's that?

Dr. Noel Liu:
And why.

Perrin DesPortes:
Yeah. So I think everybody, most everybody, wants to acquire practices because they feel like there's an abundance of them. And they also feel like, well, what's the downside risk? It's an existing business. It has existing patients. It's got existing cash flows. Like how much can I really screw this thing up before it goes belly up, right? And I get the mindset. That being said, the margins are a lot thinner in dental practices after you normalize clinical compensation and after you start factoring in debt service, like we mentioned before. So we typically advocate that if somebody is going to buy a business, they do something called pressure testing it and pressure testing. It simply means how much of a revenue downturn would this practice have to have before it went cash flow negative. And what you'll find if you run that exercise is you've got a less a lot less margin for error than you think you do. So the other thing that people don't think about in an acquisition is that, Dr. Liu, we understand that you're the new owner of the business, but that's not the way he or she did it for the 40 years that I've worked in the business. People don't like change, long-tenured employees especially. And nothing erodes value faster than a culture mishmash born out of change management. When you really learn that lesson the hard way, a couple of times, you'll understand why we love the de novo model so much. Yeah, de novos are harder, they cost some amount of investment up front. It's scary to have to attract patient number one. But it's your systems, your processes, and if you understand the variables that you're solving for a revenue number at the end of the year, an EBITDA or a net income, or a free cash flow number at the end of the year, the average value of a first-year patient in your practice in the first year, your conversion rate and your cost to acquire a patient. If you can connect all five of those dots, a de novo becomes very formulaic, and a lot of it is driven by the marketing campaign to solve for the net result at the end of 12 months. We love de novos because it's your systems, your processes, usually, your people that are driving that business. It is altogether, for the most part, at least very formulaic, and you don't have any of the culture change management problems that you inherit with other businesses. My partner, Diwakar Sinha, I said was a PE of sales for East West Bank. Their largest client at the time was Pacific Dental Services. A pretty good business, I think we'll all agree. Historically they had been, up to that point a de novo type of a model, and he got to see this thing work out at scale. And how the people at Pacific built that from a de novo perspective and used bank funds to do it. So once you see something like that, it's a complete game changer, and we really love the de novo model for all of the right reasons, I'll say.

Dr. Noel Liu:
Love it, and that's my model, the way to go. And we've seen successes, so I completely concur with you. Well, with that being said, I mean, any last minute thoughts you would like to add before we land the plane?

Perrin DesPortes:
I'll take one last pass at it. And, you know, we're recording this a little bit before Thanksgiving. And, you know, as we look into 2025. I think we have some great years ahead of us in the world of healthcare services and dentistry specifically. I think that we're starting to enter reenter a new normalcy phase that looks a lot like pre-pandemic levels as it relates to lending rates, inflation rates, employment rates, you know, heck, you can even make a case that the guy in the White House is the same. But, you know, like there's a lot of things that look really similar. And political perspectives notwithstanding, I think that the coming years are going to be really, really good and really healthy for the profession. I think we'll be back to a normal level of M&A activity and valuations. I think that more things being kind of back to normal levels means we all know how the game's played, and when there's predictability, it's usually very good for business, 100%.

Dr. Noel Liu:
I mean, I think you're spot on. It's going to happen. I have a good feeling about it as well. Well, with that being said, thank you very, very much, gentlemen. It was a pleasure of, way too much. I think we need to have another episode. What do you guys think?

Perrin DesPortes:
Let's do it. You put out the call, Noel. We'll be on with you anytime you want. We've enjoyed it very much. Thank you.

Dr. Noel Liu:
Because I really want to touch a little bit based on a little bit about associate equity model and kind of like, how do you guys get that arranged. So I'm definitely going to keep an eye out for some dates, and we'll try to shoot this again.

Perrin DesPortes:
Looking forward to it. Thanks for having us.

Adin Bradley:
Thanks for having us.

Perrin DesPortes:
Happy Thanksgiving to you and your team.

Adin Bradley:
Happy Thanksgiving.

Dr. Noel Liu:
Take care. Thank you very much.

Dr. Noel Liu:
Thanks for tuning in to the Secure Dental Podcast. We hope you found today's podcast inspiring and useful to your practice and financial growth. For show notes, resources, and ways to stay engaged with us, visit us at NoelLiuDDS.com. That's N O E L L I U D D S.com.

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