June 2, 2025 • 34 mins
Why have dozens of DSOs collapsed? What’s the impact on the dental industry? And how can you protect yourself, even if you never plan to sell? Tune in to learn what’s really happening in the DSO market, and what YOU should look for if you're considering a DSO!
Topics discussed in this episode:
- Why so many DSOs are failing
- What investors look for in DSOs today
- 3 characteristics of an ideal partner
- Risks of the DSO business model
- Benefits of partnering with a DSO
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Paul Etchison (00:02):
You might not be thinking about selling your
dental practice.
In fact, you might be totallyagainst the idea.
But here's the thing.
What's happening in the DSOspace right now is reshaping the
entire future of dentistry.
Practices are being bought,flipped over, leveraged and even
, in some cases, abandoned.
In this episode, I sit downwith Jake Berry, the chief
(00:24):
development officer of MB2, oneof the few DSOs that's not just
surviving but thriving in thisenvironment, and we're pulling
back the curtain on what'sreally happening behind the
scenes in the industry.
Why have dozens of DSOs gonebelly up and what are investors
looking for right now, and howdoes this affect every practice
owner, whether you're a sologroup or just starting to think
about your long game?
(00:44):
If you want to understand wheredentistry is headed and how to
protect your future, even if younever sell, this is an episode
you don't want to miss.
You are listening to DentalPractice Heroes, where we help
you to create a team andsystem-driven dental practice,
one that allows you to practiceless and make more money.
I'm Dr Paul Etcheson, a dentalcoach, author of two books on
(01:05):
dental practice management andthe owner of a five-doctor
practice in the south suburbs ofChicago.
I want to show you how beingintentional about ownership can
create a practice that supportsyour life instead of consuming
it.
So if you're ready to create atrue business that runs without
you, you're in the right place.
Let's get started.
Hi there, welcome to the DentalPractice Heroes podcast.
(01:28):
I'm your host, dr Paul Etcheson, and going a little special
direction here today.
We're often talking aboutpractice ownership or talking
about associate-driven practicesand you hear me talk about MB2.
Often is the partnership that aDSO that I partnership with.
But I've got somebody on herethat I very much respect and has
helped me over the years tounderstand more about the DSO
(01:49):
environment and market andlandscape, and dude's just a
wealth of knowledge.
We were talking the other dayand I said, dude, I got to get
you to come on.
So we've got the chiefdevelopment officer at MB2, jake
Berry.
What's happening, jake?
Welcome to the podcast.
Jake Berry (02:03):
Hey, dr Etchison, good to see you.
Thank you for having me on.
Paul Etchison (02:06):
Dude, love having you on.
I mean I'm surprised we haven'tdone this before, because you
know, every time there's beentimes I may have been on other
people's podcasts as like somesort of expert in the DSO
landscape and I may have reachedout to Jake before I was
interviewed on that podcast.
It may have happened I'm notgoing to admit to it, but it
just may.
But yeah, man, we've heard somuch has happened in the past
(02:27):
five years with the DSOlandscape and there's a lot of
misconceptions in it.
There's a lot of anger I mean,there's a lot of anger about
this happening to dentistry andI think it's just all helped by
information.
But what I want to talk aboutfirst is that maybe five, 10
years ago it seemed like if youbunched up practices you were
(02:50):
able to sell them for a lot moremoney.
All you had to do is just putthem together on paper and I
think what we've seen in thepast two years has really shown
that that's not true.
Talk about what was happening afew years ago and what it kind
of looks like now, how thatcontrasts.
Jake Berry (03:06):
Yeah, it's a good observation and a good call out
on the space.
Really, there was a big surgeof DSOs that were created in
2019, 2020, maybe 2018.
A lot of capital, institutionalcapital that put a lot of big
dollars behind startup platforms, and their investment thesis
(03:29):
was we will go acquire 40, 80,120 dental practices and then
we're going to turn around andsell them to the next investor
and collect on the spread.
It was just a very simple thefinance term is actually called
arbitrage and the concept wasthe DSO buys dental practices at
(03:50):
six or seven times EBITDA whichis a fancy accounting term for
earnings and turn around andsell them for 12 or 13 times
earnings and capitalize on thedifference.
It was a very, very I don'twant to say amateurish, but just
a very basic way to try tocreate value for shareholders,
(04:11):
and that strategy works in a lowinterest rate environment.
It works in a low interest rateenvironment.
It works well when privateequity is able to raise a lot of
dollars through theirfundraising, when the risk
environment is low and whenthere's ready and willing
participants on both sides of atransaction.
Well, covid really exacerbated alot of transaction activity
(04:33):
between doctors and DSOs, for acouple of reasons, I think.
First, dentists realized howhard operating and owning a
dental practice is, especiallyin an environment like that, and
secondly, they realized thevaluations from these DSOs were
(04:54):
a lot higher than the 70 to 80percent of collections formula
that's been around forever, andso a lot of activity drove
valuations to a very attractiveplace for dentists and a lot of
these DSOs.
I would say they acquired toomany practices, really weren't
able to integrate them oroperate them and they overpaid
for those practices.
And what's happened reallystarting end of 2022, going into
(05:15):
2023, is the private creditmarkets seized up, the debt that
was available to fund thesetypes of acquisition strategies
dried up.
It was available to fund thesetypes of acquisition strategies
dried up.
Interest rates went way up,then you had inflationary
pressures on labor and it justled to a very bad situation now
in which what was thought of asa very attractive and easy
(05:37):
strategy has now turned into avery difficult landscape, with
now over 150 capital-backed DSOsout there.
For your average listener,who's maybe trying to understand
what's been going on, it's asimple market dynamic of doctors
realizing they can sell theirpractices to a private
equity-backed DSO for a muchhigher valuation than they
(05:59):
originally thought the problemis on the back end.
These DSOs that have deployedand invested that capital to do
that are now kind of stuck withtheir investments.
Paul Etchison (06:08):
And I think what's worth pointing out is
that a lot of these transactionswould be some cash up front but
then maybe some stock optionsin the company which work when
these companies go to market andget a new private equity backer
.
That's going to then do withthat arbitrage thing.
And you know, I see what's onFacebook.
(06:29):
I see people there's a lot oflike, hate to the DSOs.
Oh, they're just all makingstuff up.
They're telling, they'retelling you lies.
And I used to jump on there andsay hey, hey back, hold on a
second, Hold on a second.
I'm really happy withpartnering with MB2.
But talk about how many company, how many DSOs went completely
(06:54):
belly up where they go and theysay, hey, we want to sell and
get a new person, come in newinvestors, we have this great
investment, come buy into it.
And everyone's like no, don'tlike that investment, pass no
good.
Jake Berry (07:03):
No, don't like that.
Investment Pass, no good.
Yeah, you know, I was at HenrySchein's Thrive Live conference
last week and there was anindustry expert on a panel
talking about the transactionactivity that's taken place in
the DSO space over the lastreally since mid to late 2022.
And the statistic that he threwout and I think he's probably
(07:25):
right it kind of matches withwhat we track is that four dozen
DSOs so almost 50 DSOs havegone to market to find that
outcome you just talked about,and no investor was willing to
step up and buy the company orinvest in the company or
recapitalize the company.
That's a really tough spot tobe in to recapitalize the
(07:46):
company.
That's a really tough spot tobe in.
The flip side of that coin isthat seven groups have gone to
market and received some sort ofsuccessful outcome.
So you know that data isprobably pretty close to being
accurate.
A lot of this stuff doesn't getsplashed up on the front page
of the Wall Street Journal, soit's closely guarded information
.
But that's not a good statistic.
When 60 groups go to market andonly seven of them get a good
(08:10):
outcome, that's really not agood look for the space.
And then you asked about evenworse situations where companies
have had to you know, basicallyturn the equity over to the
lender.
I've heard varying statisticson this.
I think probably one of themore reliable stats I've heard
is there are now upwards of 30different DSOs in receivership,
(08:31):
meaning the lender has takenover ownership of the company.
That's kind of like foreveryone who's bought a house.
That's like your home mortgagelender foreclosing on the house.
Not a good outcome.
But listen, all the headwindsthat many of your listeners face
in running their own practicesprivately.
Dsos face those same headwindsthe rising cost of labor, the
(08:53):
inflation of the various inputsinto doing dentistry, real
estate costs and rent going uppressures on the fee schedules,
patient volumes Whether you're aDSO or a private practitioner,
all these operational challengesare very real.
And I'll go back to my originalpoint.
If a DSO was not constructed toactually own and operate and
(09:17):
add value to their practicesover the long term, if it was
just intended to be a quick flip, they're not really in a good
spot to add value and operateefficiently, in a good spot to
add value and operateefficiently in a tough market,
and that's what's led to some ofthose really bad outcomes.
Paul Etchison (09:30):
What I hear you saying is that running a DSO is
much like running a businessthere's profits and there's, you
know, there's expenses, andjust because you acquire a bunch
of practices doesn't mean it'sprofitable.
That's right.
What would you say for thesegroups that went to market and
all the investors said nope, notinterested, and essentially all
these people, these doctorsthat have stock in this company?
(09:51):
They were promised a lot ofthings they're not getting.
Like what do they want to seeout of a DSO?
Jake Berry (09:57):
Yeah, I think, fundamentally, the first thing
they want to see is a reallystrong alignment model with the
doctors.
So you know, we were in marketfor a lot of 2024, as you know,
and we were meeting with reallysome of the largest private
equity funds in the world andone of the heads of North
American healthcare for one ofthe largest investment groups in
(10:19):
the world, and you would thinkhe would want to focus on the
numbers and growth rates andthings like that.
You know what his question was.
You know what he went to.
He said how do you make thelives of your doctors better?
Tell me that.
Tell me how MB2 makes the livesof their doctors better.
So I know that this is along-term sustainable
(10:40):
partnership model, and we heardthat for the first time and
thought, okay, that's a reallygood, insightful question, and
we answered it.
But you know what it came upwith the next investor and the
next investor and the next oneafter that.
And so I think what investorswant to know is that any DSO is
not just made up of a bunch ofdoctors who wanted to sell into
(11:01):
this dream and make a bunch ofmoney on stock and then exit.
They want to know if they put alot of money behind the
business, that they're going tobe aligned with those doctors
long-term.
So alignment model, first andforemost, is really what they're
looking for.
And then they get into thefundamentals of the business.
They want to know that a DSOcan grow organically, not just
(11:21):
inorganically.
And what I mean by that is mostDSOs have been very, very
focused on acquiring as manydental practices as they could.
That is one way to grow, but Iwill tell you that investors
place a premium on businessesthat can grow without having to
do that.
And so, just as you've had tofocus on growing your practice
through trying to cut costs orimprove fee schedules or offer
(11:44):
more services, add more value totheir patients, we've had to
think of the same thing.
And so if a DSO can't reallydemonstrate that they can do
that consistently and that theirsole means of growth is to go
out and acquire more dentalpractices, that's a really tough
position to be in withinvestors.
And then I think, lastly, whatthey're really looking at is any
(12:07):
investor wants to know that theleadership team is committed to
the long-term success of thebusiness, that they also have
financially aligned incentives.
They're not going anywhere.
I always like to say MB2'sleadership team is pretty
battle-tested.
We've all been together formany years.
I mean, you've met Dr V.
This started, you know, reallyout of his sole private practice
(12:29):
back in 2007.
So I think any DSO that met acold reception in market really
has to think of the commitmentof their leadership team, how
they're going to driveconsistent growth outside of
just acquisitions, and do theyhave the right alignment model
with their doctors?
Paul Etchison (12:46):
One thing I think that's worth pointing out is
that MB2, we just had thisrecapped event that happened.
It was a January, February.
Jake Berry (12:54):
Technically close to November.
Yeah, it's been a minute.
Right, it's November.
Wait, okay, it was.
Paul Etchison (12:58):
November.
Yeah, like it's been a littlebit, but we had this.
I remember like you guys werekeeping us practice owners in
the loop.
And one thing I rememberedJustin Puckett I believe he is
the president.
Yeah, justin Puckett, one thingthat they said is that you were
getting further in talks with acertain group, but you guys
(13:20):
weren't necessarily sure if theywere the right alignment model
for MB2.
Because not only is it aboutdollars, it's about control, and
I know that MB2 is very big onautonomy of their owner doctors.
Could you speak to that, asthat is not only just you
selling yourself to investors,but you finding the correct
(13:41):
investor for the group to goingforward?
Jake Berry (13:44):
Yeah, it's really a two-way decision.
The question for us always waswhere are we most aligned to
find a set of investors thatunderstands the values that Dr V
has laid out for MB2 and thevalues that all of our doctor
partners hold near and dear?
And, as you know, the thingwe've really put on a pedestal
(14:04):
is the autonomy of our doctors.
We don't want to tell ourdoctors how to run their
practice.
We want to offer up a lot ofadvice and operational support
to make them a better version ofthemselves, but certainly not
tell them how to do things, andso we wanted to make sure that
any investor we picked was goingto be aligned with that first
and foremost.
I think too many investors, toomany DSOs, have a very
(14:33):
short-term vision, and I thinkyou've been with the group for a
while.
A lot of our partners have beenwith the group for 10, 12, 15
years.
No one's looking to get to areally flashy outcome.
And then the end.
So we had to think of the setof deal terms that we accepted
in this particular deal.
We wanted it to set us up forsuccess for the next three years
(14:56):
and then the next six years,and so oftentimes, if you get
too greedy on what you're goingafter, it's just really going to
limit your optionality andfuture financial success.
And I think what Dr V's alwayswanted to stay committed to, and
what our leadership team haswanted to stay committed to, is
that this is going to be a goodoutcome for our partners today.
But you know what?
We're going to have anothergood outcome in three or four
(15:18):
years and then we'll try to getto another good outcome three or
four years after that.
So this doesn't become kind ofa one and done machine.
Paul Etchison (15:26):
I think this is one of the things that makes
them be too great.
I mean the autonomy and thereis alignment with doctors, but
talk about your selectivity thatyou guys use when evaluating
practices to join the group,because it's not just anybody.
Jake Berry (15:38):
Yeah, yeah, that's right we talk to in any given
year.
We talk to somewhere between2,200 and 2,500 dentists a year.
That's a lot of doctors we talkto.
Some of those conversationsdon't move past the first
conversation.
Some go all the way through toclose.
We make about 400 proposals ayear and we close on about 100
(16:03):
every year.
So from first conversation towhat we actually acquire,
there's a lot of selection anddiscernment that goes into that
from our side and the doctor'sside as well.
And I always try to draw threecircles.
The first is the business hasto be a quality business.
It has to be a practice thatkind of fits.
(16:25):
What we're looking for hasstrong metrics and we're
confident that that will be along-term good investment.
The second circle we draw isthere has to be a good fit with
the doctor, a good partnershipfit.
We see a lot of doctors who arereally, really good, successful
practice owners but candidly,it's not a personality that we
want to work with long-term.
And then the third circle iscan we make the deal terms work
(16:47):
for us and for the doctor?
And where those three circlesintersect, that's where you have
a deal.
And so what we have tried to bevery, very selective on is let's
make sure we invest in reallygood practices and let's try to
bring on the best partners, whowe know are going to be a good
cultural fit, who are going tobe easy to work with, who we can
collaborate with.
I think, as you know, this islike a marriage you can put
(17:09):
whatever you want in a contract,but contracts only go so far in
the day-to-day of governing apartnership, and so we want to
make sure that we really have ashared alignment of vision in
how to grow our partnerpractices and we want them to
feel aligned with the rest ofour partners and the growth of
MB2.
So historically, it's been abouta 3% selection rate.
(17:32):
I think there's been a lot ofhubbub about the DSOs are taking
over and the dental space isbeing overrun with DSOs.
I will grant that there is alot of DSO activity, a lot more
than there has been, but thedata we pulled there are 136,000
dental practices in the US.
There are 136,000 dentalpractices in the US.
(17:54):
If you take the 150 DSOs,150-ish DSOs that are backed by
capital, I mean like startingfrom Heartland at the top all
the way down to your 20, 30location DSOs, that's only about
16,000 practice locations, sothere is a lot of private
practice ownership that stillexists.
Sure, there are some reasonsthat the DSO penetration is
(18:18):
increasing, but by and large,dso market share is still very
small.
Paul Etchison (18:23):
Yeah, and you know, I think it's interesting
to hear you say that, because Iknow somebody personally and I
don't know him very well, but hesaid he was talking with MB2
and he said, dude, like, he'slike I got a great practice and
I didn't realize I was alsobeing interviewed and I said
what do you mean?
He's like they just didn't wantto do it anymore and I think
(18:44):
you guys had told them that.
You know it's just not right inalignment, but it's interesting
that you would like a lot ofpeople get the impression that
it's all about dollars and centsand you're just buying any
EBITDA you can and just puttingit all together.
And I think that's probablywhat screwed over so many
different groups in the pastdecade.
Is that that's what they weregoing with, that kind of model.
(19:04):
What do you think is one of theharshest realities of the DSO
space that nobody knows about?
This is going to be a littlebit of a technical answer space
that nobody knows about.
Jake Berry (19:11):
This is going to be a little bit of a technical
answer, but I think it's animportant one.
Dsos, like any privateequity-backed business, are
highly levered businesses,meaning they operate with a lot
of debt on their balance sheet.
That's just the strategy.
That's why it's called aleveraged buyout.
The risk tolerance for DSOs isjust razor thin.
(19:32):
They do not have a big marginfor error, and what I mean by
that is a declining business.
Even if it's 1% or 2% puts aDSO in a really tough position,
because when that starts tohappen, the smart money that
backs these companies sees thatand then they get alligator arms
(19:52):
on how much more capital theywant to put into the business.
You know, I'm sure a ton of yourlisteners.
They've had up years, they'vehad down years and you know what
, when you own your own business, that's fine.
You may be up 20% one year,down 5% the next.
You know, in the year afterthat you're back up 10% again,
and the only thing that itimpacts is your take-home income
as a private practice owner.
(20:13):
Again, and the only thing thatit impacts is your take-home
income as a private practiceowner.
Well, as a DSO with a highlylevered balance sheet.
If your earnings drop two or 3%, that can really be
catastrophic and put you intodefault.
They do not have the luxury ofjust kind of having a down year
and oh well, we'll get it on,we'll do better next year.
There's just a lot of pressureto continue to operate a
business in a very sustainableway.
Paul Etchison (20:35):
Yeah, it almost makes me think of real estate.
There's something called a DSCRand I don't know if this is
something that comes up in theDSO space, but it's debt service
coverage ratio and that'sessentially saying, for an
apartment building, how much ofthe income is coming in relative
to what the principal andinterest is on the loan.
Is it also the same in the DSOspace?
Jake Berry (20:55):
It's exactly the same, it's a similar ratio.
It's called the leverage ratioand that's simply a ratio of
total debt over total EBITDA,which is the earnings of the
business.
It is that early warningindicator that something is
going wrong in the business ifthat leverage ratio is
increasing.
And I think the uncomfortabletruth in the DSO space over the
(21:20):
last five or six years is manyDSOs they bought good practices.
They really did.
There's nothing wrong with thepractice good doctors, good
fundamentals on the business butwhen you overpay for those
practices and then you're facedwith a higher interest rate
environment, that can really puta lot of pressure on your
ability to service your debt andon your balance sheet.
(21:41):
So the practices continue to befine, but it doesn't mean that
the parent company's balancesheet is in a good spot.
Paul Etchison (21:49):
Yeah, it's definitely a much more
complicated space than it seemed, especially even like when I
got into it.
You know these.
I've learned so much about itmy past five years in
partnership.
It's just, it's anotherbusiness and for the arbitrage
we talked about, a new investorhas to come in, see potential
value increase and want to paymoney for it.
(22:11):
Talk about MB2 and the samestore growth and how that plays
into the investor returns, whichmakes it something investors
want to be part of.
Jake Berry (22:20):
Yeah, so we've pretty consistently been able to
demonstrate 5% same storerevenue growth and, you know,
three and a half to 4% samestore earnings growth across all
of our vintages.
So you know we've beenaggressively acquiring dental
practices really since 2017.
And what a lot of DSOs like toadvertise is that they have
(22:43):
really high same-store growth.
But that number is a little bitmisleading because so much of
their growth has just recentlyoccurred.
They're kind of riding thatyear one improvement that they
get on the practices that theyjust acquired.
The real test, the real proof onif you can grow sustainably and
show consistent same-storegrowth is can you do it with the
(23:05):
practice you bought six monthsago?
Can you do it with the practiceyou bought two years ago?
Can you do it with the practicethat you opened eight years ago
?
And so one of the things that Ithink helped us in our
marketing process and investorsunderstood was that same store
growth was consistent across our2017 vintage, 2018 vintage,
2019 vintage and so on and soforth, and so we gave investors
(23:28):
some comfort.
That are the operationalresources we have and the
ability to leverage our scale toimprove you know whether it's
pricing power or, you know,leverage procurement to help our
partners has an impact.
But, most importantly, thealignment model with our doctors
makes them every bit asincentivized to continue to grow
(23:50):
their business, just like yourown listeners do in private
practice.
Like our partners don't thinkany differently than a private
practitioner.
It's not like their mindsetchanges once they partner with
MB2.
They still want to take care oftheir patients, they still want
to grow their business, theystill need to take care of their
teams, and so the alignmentmodel and having them keep
equity in their practice helpspreserve the ability to grow on
(24:12):
an organic basis, year over yearover year.
Paul Etchison (24:14):
You know you mentioned the year one
improvements, just so, likelisteners might understand, like
what that?
Why is that different from ayear two improvement?
What can somebody joining a DSOtypically expect to see in year
one?
Where do those improvementscome from?
Jake Berry (24:29):
Yeah, I mean so I'll speak from our side.
I certainly can't speak forevery DSO, but generally
speaking, we're saving ourdoctors a lot of money on
supplies.
There's a big cost savingsthere and that's because we have
formularies with the samecompanies they're buying
supplies from.
We're just leveraging thatpurchasing power across 800
locations.
We're able to save them moneyon labs.
(24:55):
We get better cost savings onmerchant services.
We're able to reduce technologycosts.
In one of our newer capabilitieswe have a payer strategy team
that is very, very focused onhelping drive higher fee
schedules with the insurancecompanies.
So whether it's the ability torecruit more doctors in faster
and create more providercapacity, whether it's the
ability to increase feeschedules or just cut costs, all
(25:18):
of those things ultimately leadto more profitability.
The issue is you see that bigpop in year one when you kind of
bring all that value to thetable, but then it gets harder
and harder, as that practice hasbeen with the DSO for a longer
period of time because then weare forced to continue to have
to create value year after yearand go back and get new cost
savings or renegotiateadditional cost savings or find
(25:42):
new ways to help our partnersgrow their revenue.
Paul Etchison (25:45):
Yeah, so it speaks to the fundamentals of
the group as a whole.
Can they continue to grow?
And that's something that MB2has demonstrated, where a lot of
the shorter term DSOs might nothave the track record.
Why has the MB2 model worked sowell?
What makes it special versusother people in the space?
Jake Berry (26:03):
I think there's three components to this people
in the space.
I think there's threecomponents to this.
The first is the actualalignment model itself, in that
our doctors maintain practicelevel equity.
I mean they are highlyincentivized, just like I
mentioned earlier, to ensurethat their practices continue to
be successful, that thatmindset doesn't just leave.
The second they become an MB2partner.
(26:24):
They want their patients takencare of, they want to see an MB2
partner, they want theirpatients taken care of, they
want to see their business dowell, they want to see their
teams treated right.
And we've always told ourdoctors don't ever expect to
sell 100% of your practice levelequity.
I think that expectationmanagement on the front end has
been very important toattracting the right doctors,
(26:44):
the doctors who understand thatthey're always going to be an
owner.
Point number two is partnerselection, and because there are
other DSOs out there that havemodels similar to ours and, as
we talked about a little earlier, we are very, very focused on
trying to pick the rightpartners, because we do give our
partners autonomy, bothclinically and operationally,
(27:06):
but that doesn't mean we wantpeople who are going to be hands
off the wheel.
So we have to pick doctors whoreally want to make their
practices better and want toembrace us as a partner in the
business to achieve that.
If someone's going to give usthe Heisman and tell us to stay
out of their practice, that'snot a great partnership fit.
And then the third I think thismay sound a little silly but it
(27:27):
is so true is just the way thatwe find ways to engage with our
doctors personally on a regularbasis.
As you know, we do owner's tripseach year.
As we've gotten bigger, we dodinners in different cities to
try to bring our partners incertain cities together.
I mean Dr V will fly out andpersonally do those.
(27:47):
The rest of our executive teamwill fly out and do those.
We'll just send random gifts.
We send out Yeti coolers andswag to our partners just to
thank them.
This is a people business andthe closer relationships we can
maintain with our doctors, thebetter we are, because it cuts
off so many problems.
If we're engaged with ourdoctors, the better we are
because it cuts off so manyproblems.
If we're engaged with ourdoctors, they're not going to
(28:10):
let problems bubble under thesurface and then resentment
builds and then they're justunhappy and disgruntled.
We want to be engaged with themso they'll pick up the phone
and tell us that they're unhappyabout something.
Just like any good,partnerships should work, and
the happier the doctors are, asyou know, the better they're
going to be, the happier andmore engaged they're going to be
in running their business,taking care of their patients
(28:31):
and ensuring the best businessoutcomes.
Paul Etchison (28:34):
And I can say from my personal experience I
have spoken to so many people inthe C-suite that I mean via
cell phone.
You know it wasn't like I hadto go through to get to them,
it's just accessible and that'ssomething I've always
appreciated.
And everybody I communicatedwith you guys out in Texas, it
was just like talking to friends, it was like talking to normal
people and I've heard that saidwith a number of people that I
(28:56):
know that have also partnered upin the past few years.
So you know, if you're alistener and you're saying like,
hey, this doesn't sound so badlike what everybody's saying on
the Facebook forums, Maybe thisis something I should look into
more.
If you're interested in gettingin touch with Jake, you can go
ahead and text MB2 to the number312-910-2603.
(29:17):
That will be in the show notes.
I'll also have a link somewherewhere you can put your
information in and you can getsome more information.
Someone will reach out to youand just take a look at your
practice, just give youevaluation, give you an idea of
where you're at.
Maybe you're not ready for MB2,but maybe you want to find out
what you need to do to get ready, if it's something you think
you're going to do in yourfuture?
I found a question here, jake.
(29:38):
If there's one thing you wish,just the general dental
population of owners knew aboutMB2 dental, what would that be?
Jake Berry (29:47):
I think they just need to understand that this is
not that different than apartnership with another doctor.
So if you're a practice ownerand you've ever contemplated a
partnership with another doctorand all that goes into that,
it's the same.
It's just MB2 is not bringing aclinical skill set to the
partnership or the practice.
We're bringing some businessacumen, but we are bringing an
(30:10):
alignment of interest and adesire to make that business
grow.
And I think if people thinkwe're kind of just like any
other DSO or we're, you know, abig boogeyman, I think nothing
could be further from the truth.
Dr Villanueva is the founder andCEO.
He's a general dentist.
He's not going anywhere.
He's like 45 years old.
I mean, he's not going to go bethe CEO somewhere else and the
(30:32):
leadership team has been inplace for 10 years.
We have very closerelationships with all of our
doctors and we're not goinganywhere.
And so I think to your point,it's at least worth the
conversation and gaining someperspective on what a
partnership could look like.
But what doctors shouldunderstand about MB2 is we are
definitely a people-drivenorganization and we fully
(30:52):
understand and hold dear thatthe doctor partners are really
the keys to success within ourbusiness.
Paul Etchison (30:58):
Yeah, I couldn't agree with you more, man, and
from my experience that istotally true.
He's not just saying that.
So, hey, jake, thanks so muchfor coming on.
I'd love to have you on, likemaybe a year from now we could
talk about the DSO industryagain and see what's changing,
because you and I both knowthings are changing.
You know and got to adapt, justlike any other business.
(31:18):
But, man, I think you dropped alot of good information today
and I hope some doctors willreach out to you and find out
more.
Thanks so much for taking timeout of your day to be with the
listeners.
You might not be thinking about selling your
dental practice.
In fact, you might be totallyagainst the idea.
But here's the thing.
What's happening in the DSOspace right now is reshaping the
entire future of dentistry.
Practices are being bought,flipped over, leveraged and even
, in some cases, abandoned.
In this episode, I sit downwith Jake Berry, the chief
(00:24):
development officer of MB2, oneof the few DSOs that's not just
surviving but thriving in thisenvironment, and we're pulling
back the curtain on what'sreally happening behind the
scenes in the industry.
Why have dozens of DSOs gonebelly up and what are investors
looking for right now, and howdoes this affect every practice
owner, whether you're a sologroup or just starting to think
about your long game?
(00:44):
If you want to understand wheredentistry is headed and how to
protect your future, even if younever sell, this is an episode
you don't want to miss.
You are listening to DentalPractice Heroes, where we help
you to create a team andsystem-driven dental practice,
one that allows you to practiceless and make more money.
I'm Dr Paul Etcheson, a dentalcoach, author of two books on
(01:05):
dental practice management andthe owner of a five-doctor
practice in the south suburbs ofChicago.
I want to show you how beingintentional about ownership can
create a practice that supportsyour life instead of consuming
it.
So if you're ready to create atrue business that runs without
you, you're in the right place.
Let's get started.
Hi there, welcome to the DentalPractice Heroes podcast.
(01:28):
I'm your host, dr Paul Etcheson, and going a little special
direction here today.
We're often talking aboutpractice ownership or talking
about associate-driven practicesand you hear me talk about MB2.
Often is the partnership that aDSO that I partnership with.
But I've got somebody on herethat I very much respect and has
helped me over the years tounderstand more about the DSO
(01:49):
environment and market andlandscape, and dude's just a
wealth of knowledge.
We were talking the other dayand I said, dude, I got to get
you to come on.
So we've got the chiefdevelopment officer at MB2, jake
Berry.
What's happening, jake?
Welcome to the podcast.
Jake Berry (02:03):
Hey, dr Etchison, good to see you.
Thank you for having me on.
Paul Etchison (02:06):
Dude, love having you on.
I mean I'm surprised we haven'tdone this before, because you
know, every time there's beentimes I may have been on other
people's podcasts as like somesort of expert in the DSO
landscape and I may have reachedout to Jake before I was
interviewed on that podcast.
It may have happened I'm notgoing to admit to it, but it
just may.
But yeah, man, we've heard somuch has happened in the past
(02:27):
five years with the DSOlandscape and there's a lot of
misconceptions in it.
There's a lot of anger I mean,there's a lot of anger about
this happening to dentistry andI think it's just all helped by
information.
But what I want to talk aboutfirst is that maybe five, 10
years ago it seemed like if youbunched up practices you were
(02:50):
able to sell them for a lot moremoney.
All you had to do is just putthem together on paper and I
think what we've seen in thepast two years has really shown
that that's not true.
Talk about what was happening afew years ago and what it kind
of looks like now, how thatcontrasts.
Jake Berry (03:06):
Yeah, it's a good observation and a good call out
on the space.
Really, there was a big surgeof DSOs that were created in
2019, 2020, maybe 2018.
A lot of capital, institutionalcapital that put a lot of big
dollars behind startup platforms, and their investment thesis
(03:29):
was we will go acquire 40, 80,120 dental practices and then
we're going to turn around andsell them to the next investor
and collect on the spread.
It was just a very simple thefinance term is actually called
arbitrage and the concept wasthe DSO buys dental practices at
(03:50):
six or seven times EBITDA whichis a fancy accounting term for
earnings and turn around andsell them for 12 or 13 times
earnings and capitalize on thedifference.
It was a very, very I don'twant to say amateurish, but just
a very basic way to try tocreate value for shareholders,
(04:11):
and that strategy works in a lowinterest rate environment.
It works in a low interest rateenvironment.
It works well when privateequity is able to raise a lot of
dollars through theirfundraising, when the risk
environment is low and whenthere's ready and willing
participants on both sides of atransaction.
Well, covid really exacerbated alot of transaction activity
(04:33):
between doctors and DSOs, for acouple of reasons, I think.
First, dentists realized howhard operating and owning a
dental practice is, especiallyin an environment like that, and
secondly, they realized thevaluations from these DSOs were
(04:54):
a lot higher than the 70 to 80percent of collections formula
that's been around forever, andso a lot of activity drove
valuations to a very attractiveplace for dentists and a lot of
these DSOs.
I would say they acquired toomany practices, really weren't
able to integrate them oroperate them and they overpaid
for those practices.
And what's happened reallystarting end of 2022, going into
(05:15):
2023, is the private creditmarkets seized up, the debt that
was available to fund thesetypes of acquisition strategies
dried up.
It was available to fund thesetypes of acquisition strategies
dried up.
Interest rates went way up,then you had inflationary
pressures on labor and it justled to a very bad situation now
in which what was thought of asa very attractive and easy
(05:37):
strategy has now turned into avery difficult landscape, with
now over 150 capital-backed DSOsout there.
For your average listener,who's maybe trying to understand
what's been going on, it's asimple market dynamic of doctors
realizing they can sell theirpractices to a private
equity-backed DSO for a muchhigher valuation than they
(05:59):
originally thought the problemis on the back end.
These DSOs that have deployedand invested that capital to do
that are now kind of stuck withtheir investments.
Paul Etchison (06:08):
And I think what's worth pointing out is
that a lot of these transactionswould be some cash up front but
then maybe some stock optionsin the company which work when
these companies go to market andget a new private equity backer
.
That's going to then do withthat arbitrage thing.
And you know, I see what's onFacebook.
(06:29):
I see people there's a lot oflike, hate to the DSOs.
Oh, they're just all makingstuff up.
They're telling, they'retelling you lies.
And I used to jump on there andsay hey, hey back, hold on a
second, Hold on a second.
I'm really happy withpartnering with MB2.
But talk about how many company, how many DSOs went completely
(06:54):
belly up where they go and theysay, hey, we want to sell and
get a new person, come in newinvestors, we have this great
investment, come buy into it.
And everyone's like no, don'tlike that investment, pass no
good.
Jake Berry (07:03):
No, don't like that.
Investment Pass, no good.
Yeah, you know, I was at HenrySchein's Thrive Live conference
last week and there was anindustry expert on a panel
talking about the transactionactivity that's taken place in
the DSO space over the lastreally since mid to late 2022.
And the statistic that he threwout and I think he's probably
(07:25):
right it kind of matches withwhat we track is that four dozen
DSOs so almost 50 DSOs havegone to market to find that
outcome you just talked about,and no investor was willing to
step up and buy the company orinvest in the company or
recapitalize the company.
That's a really tough spot tobe in to recapitalize the
(07:46):
company.
That's a really tough spot tobe in.
The flip side of that coin isthat seven groups have gone to
market and received some sort ofsuccessful outcome.
So you know that data isprobably pretty close to being
accurate.
A lot of this stuff doesn't getsplashed up on the front page
of the Wall Street Journal, soit's closely guarded information
.
But that's not a good statistic.
When 60 groups go to market andonly seven of them get a good
(08:10):
outcome, that's really not agood look for the space.
And then you asked about evenworse situations where companies
have had to you know, basicallyturn the equity over to the
lender.
I've heard varying statisticson this.
I think probably one of themore reliable stats I've heard
is there are now upwards of 30different DSOs in receivership,
(08:31):
meaning the lender has takenover ownership of the company.
That's kind of like foreveryone who's bought a house.
That's like your home mortgagelender foreclosing on the house.
Not a good outcome.
But listen, all the headwindsthat many of your listeners face
in running their own practicesprivately.
Dsos face those same headwindsthe rising cost of labor, the
(08:53):
inflation of the various inputsinto doing dentistry, real
estate costs and rent going uppressures on the fee schedules,
patient volumes Whether you're aDSO or a private practitioner,
all these operational challengesare very real.
And I'll go back to my originalpoint.
If a DSO was not constructed toactually own and operate and
(09:17):
add value to their practicesover the long term, if it was
just intended to be a quick flip, they're not really in a good
spot to add value and operateefficiently, in a good spot to
add value and operateefficiently in a tough market,
and that's what's led to some ofthose really bad outcomes.
Paul Etchison (09:30):
What I hear you saying is that running a DSO is
much like running a businessthere's profits and there's, you
know, there's expenses, andjust because you acquire a bunch
of practices doesn't mean it'sprofitable.
That's right.
What would you say for thesegroups that went to market and
all the investors said nope, notinterested, and essentially all
these people, these doctorsthat have stock in this company?
(09:51):
They were promised a lot ofthings they're not getting.
Like what do they want to seeout of a DSO?
Jake Berry (09:57):
Yeah, I think, fundamentally, the first thing
they want to see is a reallystrong alignment model with the
doctors.
So you know, we were in marketfor a lot of 2024, as you know,
and we were meeting with reallysome of the largest private
equity funds in the world andone of the heads of North
American healthcare for one ofthe largest investment groups in
(10:19):
the world, and you would thinkhe would want to focus on the
numbers and growth rates andthings like that.
You know what his question was.
You know what he went to.
He said how do you make thelives of your doctors better?
Tell me that.
Tell me how MB2 makes the livesof their doctors better.
So I know that this is along-term sustainable
(10:40):
partnership model, and we heardthat for the first time and
thought, okay, that's a reallygood, insightful question, and
we answered it.
But you know what it came upwith the next investor and the
next investor and the next oneafter that.
And so I think what investorswant to know is that any DSO is
not just made up of a bunch ofdoctors who wanted to sell into
(11:01):
this dream and make a bunch ofmoney on stock and then exit.
They want to know if they put alot of money behind the
business, that they're going tobe aligned with those doctors
long-term.
So alignment model, first andforemost, is really what they're
looking for.
And then they get into thefundamentals of the business.
They want to know that a DSOcan grow organically, not just
(11:21):
inorganically.
And what I mean by that is mostDSOs have been very, very
focused on acquiring as manydental practices as they could.
That is one way to grow, but Iwill tell you that investors
place a premium on businessesthat can grow without having to
do that.
And so, just as you've had tofocus on growing your practice
through trying to cut costs orimprove fee schedules or offer
(11:44):
more services, add more value totheir patients, we've had to
think of the same thing.
And so if a DSO can't reallydemonstrate that they can do
that consistently and that theirsole means of growth is to go
out and acquire more dentalpractices, that's a really tough
position to be in withinvestors.
And then I think, lastly, whatthey're really looking at is any
(12:07):
investor wants to know that theleadership team is committed to
the long-term success of thebusiness, that they also have
financially aligned incentives.
They're not going anywhere.
I always like to say MB2'sleadership team is pretty
battle-tested.
We've all been together formany years.
I mean, you've met Dr V.
This started, you know, reallyout of his sole private practice
(12:29):
back in 2007.
So I think any DSO that met acold reception in market really
has to think of the commitmentof their leadership team, how
they're going to driveconsistent growth outside of
just acquisitions, and do theyhave the right alignment model
with their doctors?
Paul Etchison (12:46):
One thing I think that's worth pointing out is
that MB2, we just had thisrecapped event that happened.
It was a January, February.
Jake Berry (12:54):
Technically close to November.
Yeah, it's been a minute.
Right, it's November.
Wait, okay, it was.
Paul Etchison (12:58):
November.
Yeah, like it's been a littlebit, but we had this.
I remember like you guys werekeeping us practice owners in
the loop.
And one thing I rememberedJustin Puckett I believe he is
the president.
Yeah, justin Puckett, one thingthat they said is that you were
getting further in talks with acertain group, but you guys
(13:20):
weren't necessarily sure if theywere the right alignment model
for MB2.
Because not only is it aboutdollars, it's about control, and
I know that MB2 is very big onautonomy of their owner doctors.
Could you speak to that, asthat is not only just you
selling yourself to investors,but you finding the correct
(13:41):
investor for the group to goingforward?
Jake Berry (13:44):
Yeah, it's really a two-way decision.
The question for us always waswhere are we most aligned to
find a set of investors thatunderstands the values that Dr V
has laid out for MB2 and thevalues that all of our doctor
partners hold near and dear?
And, as you know, the thingwe've really put on a pedestal
(14:04):
is the autonomy of our doctors.
We don't want to tell ourdoctors how to run their
practice.
We want to offer up a lot ofadvice and operational support
to make them a better version ofthemselves, but certainly not
tell them how to do things, andso we wanted to make sure that
any investor we picked was goingto be aligned with that first
and foremost.
I think too many investors, toomany DSOs, have a very
(14:33):
short-term vision, and I thinkyou've been with the group for a
while.
A lot of our partners have beenwith the group for 10, 12, 15
years.
No one's looking to get to areally flashy outcome.
And then the end.
So we had to think of the setof deal terms that we accepted
in this particular deal.
We wanted it to set us up forsuccess for the next three years
(14:56):
and then the next six years,and so oftentimes, if you get
too greedy on what you're goingafter, it's just really going to
limit your optionality andfuture financial success.
And I think what Dr V's alwayswanted to stay committed to, and
what our leadership team haswanted to stay committed to, is
that this is going to be a goodoutcome for our partners today.
But you know what?
We're going to have anothergood outcome in three or four
(15:18):
years and then we'll try to getto another good outcome three or
four years after that.
So this doesn't become kind ofa one and done machine.
Paul Etchison (15:26):
I think this is one of the things that makes
them be too great.
I mean the autonomy and thereis alignment with doctors, but
talk about your selectivity thatyou guys use when evaluating
practices to join the group,because it's not just anybody.
Jake Berry (15:38):
Yeah, yeah, that's right we talk to in any given
year.
We talk to somewhere between2,200 and 2,500 dentists a year.
That's a lot of doctors we talkto.
Some of those conversationsdon't move past the first
conversation.
Some go all the way through toclose.
We make about 400 proposals ayear and we close on about 100
(16:03):
every year.
So from first conversation towhat we actually acquire,
there's a lot of selection anddiscernment that goes into that
from our side and the doctor'sside as well.
And I always try to draw threecircles.
The first is the business hasto be a quality business.
It has to be a practice thatkind of fits.
(16:25):
What we're looking for hasstrong metrics and we're
confident that that will be along-term good investment.
The second circle we draw isthere has to be a good fit with
the doctor, a good partnershipfit.
We see a lot of doctors who arereally, really good, successful
practice owners but candidly,it's not a personality that we
want to work with long-term.
And then the third circle iscan we make the deal terms work
(16:47):
for us and for the doctor?
And where those three circlesintersect, that's where you have
a deal.
And so what we have tried to bevery, very selective on is let's
make sure we invest in reallygood practices and let's try to
bring on the best partners, whowe know are going to be a good
cultural fit, who are going tobe easy to work with, who we can
collaborate with.
I think, as you know, this islike a marriage you can put
(17:09):
whatever you want in a contract,but contracts only go so far in
the day-to-day of governing apartnership, and so we want to
make sure that we really have ashared alignment of vision in
how to grow our partnerpractices and we want them to
feel aligned with the rest ofour partners and the growth of
MB2.
So historically, it's been abouta 3% selection rate.
(17:32):
I think there's been a lot ofhubbub about the DSOs are taking
over and the dental space isbeing overrun with DSOs.
I will grant that there is alot of DSO activity, a lot more
than there has been, but thedata we pulled there are 136,000
dental practices in the US.
There are 136,000 dentalpractices in the US.
(17:54):
If you take the 150 DSOs,150-ish DSOs that are backed by
capital, I mean like startingfrom Heartland at the top all
the way down to your 20, 30location DSOs, that's only about
16,000 practice locations, sothere is a lot of private
practice ownership that stillexists.
Sure, there are some reasonsthat the DSO penetration is
(18:18):
increasing, but by and large,dso market share is still very
small.
Paul Etchison (18:23):
Yeah, and you know, I think it's interesting
to hear you say that, because Iknow somebody personally and I
don't know him very well, but hesaid he was talking with MB2
and he said, dude, like, he'slike I got a great practice and
I didn't realize I was alsobeing interviewed and I said
what do you mean?
He's like they just didn't wantto do it anymore and I think
(18:44):
you guys had told them that.
You know it's just not right inalignment, but it's interesting
that you would like a lot ofpeople get the impression that
it's all about dollars and centsand you're just buying any
EBITDA you can and just puttingit all together.
And I think that's probablywhat screwed over so many
different groups in the pastdecade.
Is that that's what they weregoing with, that kind of model.
(19:04):
What do you think is one of theharshest realities of the DSO
space that nobody knows about?
This is going to be a littlebit of a technical answer space
that nobody knows about.
Jake Berry (19:11):
This is going to be a little bit of a technical
answer, but I think it's animportant one.
Dsos, like any privateequity-backed business, are
highly levered businesses,meaning they operate with a lot
of debt on their balance sheet.
That's just the strategy.
That's why it's called aleveraged buyout.
The risk tolerance for DSOs isjust razor thin.
(19:32):
They do not have a big marginfor error, and what I mean by
that is a declining business.
Even if it's 1% or 2% puts aDSO in a really tough position,
because when that starts tohappen, the smart money that
backs these companies sees thatand then they get alligator arms
(19:52):
on how much more capital theywant to put into the business.
You know, I'm sure a ton of yourlisteners.
They've had up years, they'vehad down years and you know what
, when you own your own business, that's fine.
You may be up 20% one year,down 5% the next.
You know, in the year afterthat you're back up 10% again,
and the only thing that itimpacts is your take-home income
as a private practice owner.
(20:13):
Again, and the only thing thatit impacts is your take-home
income as a private practiceowner.
Well, as a DSO with a highlylevered balance sheet.
If your earnings drop two or 3%, that can really be
catastrophic and put you intodefault.
They do not have the luxury ofjust kind of having a down year
and oh well, we'll get it on,we'll do better next year.
There's just a lot of pressureto continue to operate a
business in a very sustainableway.
Paul Etchison (20:35):
Yeah, it almost makes me think of real estate.
There's something called a DSCRand I don't know if this is
something that comes up in theDSO space, but it's debt service
coverage ratio and that'sessentially saying, for an
apartment building, how much ofthe income is coming in relative
to what the principal andinterest is on the loan.
Is it also the same in the DSOspace?
Jake Berry (20:55):
It's exactly the same, it's a similar ratio.
It's called the leverage ratioand that's simply a ratio of
total debt over total EBITDA,which is the earnings of the
business.
It is that early warningindicator that something is
going wrong in the business ifthat leverage ratio is
increasing.
And I think the uncomfortabletruth in the DSO space over the
(21:20):
last five or six years is manyDSOs they bought good practices.
They really did.
There's nothing wrong with thepractice good doctors, good
fundamentals on the business butwhen you overpay for those
practices and then you're facedwith a higher interest rate
environment, that can really puta lot of pressure on your
ability to service your debt andon your balance sheet.
(21:41):
So the practices continue to befine, but it doesn't mean that
the parent company's balancesheet is in a good spot.
Paul Etchison (21:49):
Yeah, it's definitely a much more
complicated space than it seemed, especially even like when I
got into it.
You know these.
I've learned so much about itmy past five years in
partnership.
It's just, it's anotherbusiness and for the arbitrage
we talked about, a new investorhas to come in, see potential
value increase and want to paymoney for it.
(22:11):
Talk about MB2 and the samestore growth and how that plays
into the investor returns, whichmakes it something investors
want to be part of.
Jake Berry (22:20):
Yeah, so we've pretty consistently been able to
demonstrate 5% same storerevenue growth and, you know,
three and a half to 4% samestore earnings growth across all
of our vintages.
So you know we've beenaggressively acquiring dental
practices really since 2017.
And what a lot of DSOs like toadvertise is that they have
(22:43):
really high same-store growth.
But that number is a little bitmisleading because so much of
their growth has just recentlyoccurred.
They're kind of riding thatyear one improvement that they
get on the practices that theyjust acquired.
The real test, the real proof onif you can grow sustainably and
show consistent same-storegrowth is can you do it with the
(23:05):
practice you bought six monthsago?
Can you do it with the practiceyou bought two years ago?
Can you do it with the practicethat you opened eight years ago
?
And so one of the things that Ithink helped us in our
marketing process and investorsunderstood was that same store
growth was consistent across our2017 vintage, 2018 vintage,
2019 vintage and so on and soforth, and so we gave investors
(23:28):
some comfort.
That are the operationalresources we have and the
ability to leverage our scale toimprove you know whether it's
pricing power or, you know,leverage procurement to help our
partners has an impact.
But, most importantly, thealignment model with our doctors
makes them every bit asincentivized to continue to grow
(23:50):
their business, just like yourown listeners do in private
practice.
Like our partners don't thinkany differently than a private
practitioner.
It's not like their mindsetchanges once they partner with
MB2.
They still want to take care oftheir patients, they still want
to grow their business, theystill need to take care of their
teams, and so the alignmentmodel and having them keep
equity in their practice helpspreserve the ability to grow on
(24:12):
an organic basis, year over yearover year.
Paul Etchison (24:14):
You know you mentioned the year one
improvements, just so, likelisteners might understand, like
what that?
Why is that different from ayear two improvement?
What can somebody joining a DSOtypically expect to see in year
one?
Where do those improvementscome from?
Jake Berry (24:29):
Yeah, I mean so I'll speak from our side.
I certainly can't speak forevery DSO, but generally
speaking, we're saving ourdoctors a lot of money on
supplies.
There's a big cost savingsthere and that's because we have
formularies with the samecompanies they're buying
supplies from.
We're just leveraging thatpurchasing power across 800
locations.
We're able to save them moneyon labs.
(24:55):
We get better cost savings onmerchant services.
We're able to reduce technologycosts.
In one of our newer capabilitieswe have a payer strategy team
that is very, very focused onhelping drive higher fee
schedules with the insurancecompanies.
So whether it's the ability torecruit more doctors in faster
and create more providercapacity, whether it's the
ability to increase feeschedules or just cut costs, all
(25:18):
of those things ultimately leadto more profitability.
The issue is you see that bigpop in year one when you kind of
bring all that value to thetable, but then it gets harder
and harder, as that practice hasbeen with the DSO for a longer
period of time because then weare forced to continue to have
to create value year after yearand go back and get new cost
savings or renegotiateadditional cost savings or find
(25:42):
new ways to help our partnersgrow their revenue.
Paul Etchison (25:45):
Yeah, so it speaks to the fundamentals of
the group as a whole.
Can they continue to grow?
And that's something that MB2has demonstrated, where a lot of
the shorter term DSOs might nothave the track record.
Why has the MB2 model worked sowell?
What makes it special versusother people in the space?
Jake Berry (26:03):
I think there's three components to this people
in the space.
I think there's threecomponents to this.
The first is the actualalignment model itself, in that
our doctors maintain practicelevel equity.
I mean they are highlyincentivized, just like I
mentioned earlier, to ensurethat their practices continue to
be successful, that thatmindset doesn't just leave.
The second they become an MB2partner.
(26:24):
They want their patients takencare of, they want to see an MB2
partner, they want theirpatients taken care of, they
want to see their business dowell, they want to see their
teams treated right.
And we've always told ourdoctors don't ever expect to
sell 100% of your practice levelequity.
I think that expectationmanagement on the front end has
been very important toattracting the right doctors,
(26:44):
the doctors who understand thatthey're always going to be an
owner.
Point number two is partnerselection, and because there are
other DSOs out there that havemodels similar to ours and, as
we talked about a little earlier, we are very, very focused on
trying to pick the rightpartners, because we do give our
partners autonomy, bothclinically and operationally,
(27:06):
but that doesn't mean we wantpeople who are going to be hands
off the wheel.
So we have to pick doctors whoreally want to make their
practices better and want toembrace us as a partner in the
business to achieve that.
If someone's going to give usthe Heisman and tell us to stay
out of their practice, that'snot a great partnership fit.
And then the third I think thismay sound a little silly but it
(27:27):
is so true is just the way thatwe find ways to engage with our
doctors personally on a regularbasis.
As you know, we do owner's tripseach year.
As we've gotten bigger, we dodinners in different cities to
try to bring our partners incertain cities together.
I mean Dr V will fly out andpersonally do those.
(27:47):
The rest of our executive teamwill fly out and do those.
We'll just send random gifts.
We send out Yeti coolers andswag to our partners just to
thank them.
This is a people business andthe closer relationships we can
maintain with our doctors, thebetter we are, because it cuts
off so many problems.
If we're engaged with ourdoctors, the better we are
because it cuts off so manyproblems.
If we're engaged with ourdoctors, they're not going to
(28:10):
let problems bubble under thesurface and then resentment
builds and then they're justunhappy and disgruntled.
We want to be engaged with themso they'll pick up the phone
and tell us that they're unhappyabout something.
Just like any good,partnerships should work, and
the happier the doctors are, asyou know, the better they're
going to be, the happier andmore engaged they're going to be
in running their business,taking care of their patients
(28:31):
and ensuring the best businessoutcomes.
Paul Etchison (28:34):
And I can say from my personal experience I
have spoken to so many people inthe C-suite that I mean via
cell phone.
You know it wasn't like I hadto go through to get to them,
it's just accessible and that'ssomething I've always
appreciated.
And everybody I communicatedwith you guys out in Texas, it
was just like talking to friends, it was like talking to normal
people and I've heard that saidwith a number of people that I
(28:56):
know that have also partnered upin the past few years.
So you know, if you're alistener and you're saying like,
hey, this doesn't sound so badlike what everybody's saying on
the Facebook forums, Maybe thisis something I should look into
more.
If you're interested in gettingin touch with Jake, you can go
ahead and text MB2 to the number312-910-2603.
(29:17):
That will be in the show notes.
I'll also have a link somewherewhere you can put your
information in and you can getsome more information.
Someone will reach out to youand just take a look at your
practice, just give youevaluation, give you an idea of
where you're at.
Maybe you're not ready for MB2,but maybe you want to find out
what you need to do to get ready, if it's something you think
you're going to do in yourfuture?
I found a question here, jake.
(29:38):
If there's one thing you wish,just the general dental
population of owners knew aboutMB2 dental, what would that be?
Jake Berry (29:47):
I think they just need to understand that this is
not that different than apartnership with another doctor.
So if you're a practice ownerand you've ever contemplated a
partnership with another doctorand all that goes into that,
it's the same.
It's just MB2 is not bringing aclinical skill set to the
partnership or the practice.
We're bringing some businessacumen, but we are bringing an
(30:10):
alignment of interest and adesire to make that business
grow.
And I think if people thinkwe're kind of just like any
other DSO or we're, you know, abig boogeyman, I think nothing
could be further from the truth.
Dr Villanueva is the founder andCEO.
He's a general dentist.
He's not going anywhere.
He's like 45 years old.
I mean, he's not going to go bethe CEO somewhere else and the
(30:32):
leadership team has been inplace for 10 years.
We have very closerelationships with all of our
doctors and we're not goinganywhere.
And so I think to your point,it's at least worth the
conversation and gaining someperspective on what a
partnership could look like.
But what doctors shouldunderstand about MB2 is we are
definitely a people-drivenorganization and we fully
(30:52):
understand and hold dear thatthe doctor partners are really
the keys to success within ourbusiness.
Paul Etchison (30:58):
Yeah, I couldn't agree with you more, man, and
from my experience that istotally true.
He's not just saying that.
So, hey, jake, thanks so muchfor coming on.
I'd love to have you on, likemaybe a year from now we could
talk about the DSO industryagain and see what's changing,
because you and I both knowthings are changing.
You know and got to adapt, justlike any other business.
(31:18):
But, man, I think you dropped alot of good information today
and I hope some doctors willreach out to you and find out
more.
Thanks so much for taking timeout of your day to be with the
listeners.
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