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Dental Practice Sales: Wolves in Sheep's Clothing by Jay Geier

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Categories: Practice Transitions;
Dental Practice Sales: Wolves in Sheep's Clothing 

Don’t fall for these techniques commonly used by predatory buyers

Part 2 of a two-part series

by Jay Geier

Last month, I talked about the strategies used by predatory buyers like private-equity firms who “flip” dental practices—buying them from vulnerable independent practitioners at bargain-basement prices, then reselling them for a tidy profit. Those strategies included offering to pay for the appraisal of the selling dentist’s practice, as well as asking the seller to sign a noncompete or nondisclosure agreement. This month, I’ll discuss why it’s important to recognize other techniques these companies also commonly use to manipulate independent practice owners into selling their life’s work short. By guarding against these well-disguised tactics, you’ll be in a better position to defend yourself, your equity and your practice against any wolves in sheep’s clothing.

Instilling fear that this is your only chance to sell

Fear is the most commonly used tactic to manipulate the decisions and actions of others—instilling fear of what you’ll “lose” if you don’t do what someone else wants.

Predatory buyers would have sellers believe that if they don’t sell now, they won’t have the opportunity to do so later because there won’t be any buyers. That’s nonsense—in reality, it’s just the best time for those buyers to buy, which has nothing to do with when it’s best for a dentist to sell.

Low interest rates on borrowing money are behind today’s glut of private-equity funds and the push to buy independent practices. These buyers are under pressure to grow their companies by scooping up several dental practices, then cutting costs to the bone at each one, rather than investing to grow any of them. They’ll likely resell the entire company within five to seven years.

The buyers’ metrics revolve around how many deals they’ve closed each quarter and each year, so pressure for you to sell will get notably stronger toward the end of a quarter. Don’t let them pull you into their pressure cooker by falling for their scare tactics.

Also, don’t be flattered if someone calls and tells you how much they want to buy your practice. These are not the buyers themselves, but telemarketers from call centers who are paid based on leads generated (and may even get a percentage if you sign an agreement).

This won’t last forever; the economy always has gone in cycles, and always will. There will always be buyers for viable, profitable practices. Wait for the time and circumstances that are right for you, based on how long you need income, then make an educated, well-informed decision without succumbing to pressure tactics.

Enticing you with a big dollar figure

It’s human nature to get excited at the prospect of getting a check bigger than you’ve ever seen. Buyers know this and use it to pressure owners into moving too quickly, signing legal documents without the benefit of an attorney representing your side of the deal.

Few dentists are strong in the areas of finance and business strategy, which is why it’s important to have a lawyer represent you—someone who can decipher legalese and make sure you understand what you’re agreeing to in both the short and long term. It’s quite possible you won’t be getting that big check after all.

For example, you may find out that a “$3 million offer” is actually structured so you’d receive only half up front, plus some amount in stock, and another $1 million in five years. But by the time you realize that, the buyer knows they’ve got you hooked: You’ve already started spending that $3 million in your head, so you won’t walk away from the deal even though you’re unhappy about it. Plus, you would have had to sign a confidentiality agreement, which would preclude you from seeking another buyer at that point.

Even more shocking is that you may never see the final buyout payment, because you may have completely different partners by then! Private-equity investors expect a very high rate of return, typically in five to seven years. The entire DSO may be resold for a hefty profit—which you wouldn’t share in, because it’s no longer your business—and the new owners will have no legal obligation to fulfill the terms of prior agreements.

This doesn’t happen all the time, of course, but if you don’t have a lawyer advising you, you’ll never know about these hidden dangers.

Appealing to your pain points

Like bait thrown to an unsuspecting fish, private-equity buyers will entice you in ways they know will appeal to you by addressing your pain points. Baits of choice include:

  • Statements such as, “How would you like to just concentrate on being a doctor and doing what you love, without ever having the stress of handling any administration?” That’s music to the ears of some practice owners.
  • Implying they can run a practice better than you ever could.
  • Suggesting that you’re getting “too old” to be working so hard—no matter if you’re 60, 50 or even 40!—and you should be preparing for retirement.
None of those things is true. Today’s buyers know you’re tired, if not utterly exhausted coming out of COVID-19. They prey on the most vulnerable: doctors who are burned out and desperately need a break. They encourage sellers to make a rash decision in a moment of weakness. But don’t succumb to pressure disguised as genuine concern for your best interest!

And don’t believe for a minute that they can—or want to—run your practice better than you can learn to do yourself. Plenty of independent practices are thriving because the owners, regardless of age, are being trained and coached to run their practices more efficiently—investing in themselves, their people and the business to generate growth, and building long-term equity—all by working smarter, not harder. That includes engineering time off to rejuvenate so they don’t burn out and generating long-term income for when they truly are “old.”

So give yourself a break by giving yourself some credit that you can learn to do this, instead of giving your practice away in a moment of vulnerability. Many of our clients have made the decision to be full-time CEOs and let the clinical work be done by others. Aside from the emotional and identity shift, this has proven to be an extremely smart move.

Of course, money is also effective bait, appealing to an owner’s pain point of constantly worrying about cash flow and earnings. We coach our clients to cut the bait by saying, “I don’t need your money. Why would this deal be better for me, my team and my patients?”

You can always circle back to the money conversation but first, scrutinize what they bring to the table. You’ll find it’s not much. With good coaching and guidance, you can learn all you need to know to improve your own cash flow and revenue, and grow a practice that’s highly profitable and doesn’t require you to be there every moment of every day.

Exaggerating claims

Private-equity buyers are great at marketing and spending big bucks aimed at independent practice owners. But there’s marketing, and then there’s propaganda. Their brochures are more than tempting. They claim to expertly handle all the administrative functions—billing, marketing, recruiting, hiring, team-building—so you don’t have to. But you can’t believe everything you read in a brochure; they’re telling you what you want to hear and they’re confident you won’t verify it. Meanwhile, they lock you into a contract with a front-row seat to watch the demise of the culture and practice you worked so hard to create.

We coach our clients to be seen as a patient in one or more of the offices your buyer represents. Talk to the doctors and staff to get an idea of the culture and attitudes. Does everyone appear to be working as a cohesive team? Does the look and feel suit you? A DSO with hundreds of units uses a cookie-cutter approach to minimize costs, so don’t expect to see any personalization, team-building or “family culture.” You need to decide if that’s really what you want for your patients and your people, especially if the office will continue to have your name on the door.

Knowledge is power

I’m not against private practice owners selling their practices! What I am against is them being robbed of the practice’s true value through misleading and manipulative tactics—whether by a private-equity firm, a DSO or another private practice owner who doesn’t believe in making win-win deals. The time will come when selling your business is the right thing to do. Do it in the right way by:

  • Learning how to make the practice as valuable and profitable as it can possibly be.
  • Understanding the value of what you have before you sell it.
  • Being knowledgeable about the buyout process with the benefit of expert legal advice.
  • Knowing whom you’re selling to and the long-term effects of that.
  • Understanding if what you ultimately want can be found in your practice if you change your role within the practice.


Did You Miss Part 1?

In Part 1 of this series, Jay Geier shared advice that will position you for maximum profitability and minimal problems when selling your practice. Click here to read Part 1 in the July issue of Dentaltown.


Author Bio
Author Jay Geier is an advocate for independent dentists and a world authority on growing independent practices. His mission after 25+ years of coaching doctors is to help them preserve and protect their legacy and their financial future. Geier is committed to helping doctors become financially free so that they can live the lives they dream of and help people in more ways than they originally planned. Educating dentists on how to stay independent and grow a successful practice while creating work-life balance is the topic of the two-day events he is hosting this year. Go to schedulinginstitute.com/townie to see dates and availability of upcoming events. He also advises on this topic often on his Private Practice Playbook podcast— subscribe at podcastfordoctors.com/townie.
 

 

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