Bob Spiel: Honestly, the EBITDA number is just meant to create a hook so a doctor will look at that number and then believe, “Man, I just hit the lottery. I have generational wealth now. I can’t believe somebody is going to pay this much for my practice.” EBITDA is, frankly, just smoke and mirrors. They can make the number whatever they want to make.
The big question is: What are they paying in cash? And what am I giving up in cash for the five-year workback requirement that I have to be able to keep this deal together? And then what sort of requirements are they placing on me for days to work, hours to work, as well as growth requirements?
To use a very simple analogy, the EBITDA and valuation number are designed to be like being at a party. Let’s say you’re a married man or a married woman, but the prettiest girl or most handsome man you’ve ever seen in your life shows up and starts to pay attention to you. You can’t believe this is happening. Your mind starts to go fuzzy, and you can’t really pay attention to anything else besides this conversation you’re having. That’s what the EBITDA does. That’s what the valuation does. They want you to think, “Game over. This is it. I don’t care what anybody else says—I’m gonna do this, ’cause dang it, I need generational wealth. I know how hard I’ve worked, and it’s time for me to get mine.”
What Nate has found, though, as he’s stripped these deals apart, is that there are so many underlying requirements and assumptions—of doubling and tripling growth, of how much you’re actually giving back, what they’re going to pay you as a percentage compared to what you were paying yourself. If you look at the cash side of this—and forget that the equity is actually even going to happen, because rarely, if ever, does it—it’s just meant to create this cloudy mind that thinks, “Okay, I’m in.”
If you look at the cash side of it today, the worst deal we’ve seen: a doctor was being offered $36 million for a practice. But once we stripped it all apart, Eric, he was actually going to pay the DSO $2.5 million to buy his own practice. So don’t take the hook. Don’t take the number. Don’t believe this is true—because it’s not. And that’s why we say, “Just say no to the DSO.”
Dr. Eric Block: Now, is it pretty typical for there to be a five-year workback?
Bob Spiel: Very typical.
Dr. Eric Block: Are you seeing some less—
Bob Spiel: To be? No, that’s typical. And to answer your question—what else is surprising—many of the DSOs are not interested in the older generational doctor who’s 60, 61, has five years left to go. They’re now looking for doctors that are more in their 40s and 50s, who they know are going to stay and who can stay longer than five years to begin with.
Because in addition, they’ve got non-competes, and non-solicit, non-disparagement agreements, etc. So if they can get you hooked, they want to keep you longer than five years. And if they can successfully do that, then in essence, they’ve bought your practice for nothing—or you’ve paid them to buy your practice.
Dr. Eric Block: So essentially, if you just kept that practice for those five years and kept being the owner, you would make more money than this payback or workback period with the DSO?
Bob Spiel: Yes. Yes. You would—under normal growth assumptions, yes, absolutely.
Dr. Eric Block: Now, can you explain also about the—I know dentists are under, you know, tremendous amount of stress with the staff and—
Bob Spiel: Issues. Mm-hmm. Yeah, they are.
Dr. Eric Block: —going on. Doesn’t seem to be, you know, the issue doesn’t seem to be getting any better. And it’s not just dentists—it’s many industries, but—
Bob Spiel: Yeah, great point.
Dr. Eric Block: I know I’ve heard dentists say they’re just going to sell to the DSO because they don’t want to deal with the management portion or the business side of the practice. They just want to practice dentistry. And if they have a DSO help them with the management side of things, then a lot of their stress will go away.