ROSS BRANNON

You started out as an accountant, realized you wanted to go to dental school, and now you’re in 34 practices. How did that happen?

DR. KYLE ROTH

I was a hockey player, so I've been in and out of dental offices my whole life. I watched one of my dentists, and I said, “I wish I had done something like this.”

He told me it would take six more years of school, but if there’s something you really want to do, you should do it. So, I went back to school, and then when I graduated as one of the oldest students in my class, I realized I wouldn’t have as many years in my career as everybody else, so I needed to hit it hard. I opened a practice, which slowly got busier, and I also moonlighted in a different office where they worked with Medicaid. I said, “Hmm, maybe I'll introduce some Medicaid to my office,” thinking I would do that until my practice got busy enough to be a full fee-for-service practice. I did that, and we got a lot of traction.

Eventually, I built a second practice, and moved all of the Medicaid to that one, so now I had a beautiful fee-for-service practice and a beautiful Medicaid practice, and my supply guys and equipment guys said, “Wow, you should do that in another location.” Of course, they wanted to sell me more stuff, but I tried it one more location. Everybody freaked out because very few people had multiple offices back then.” But it was a smashing success too, and I added a couple more. Then when I had five practices, a big corporation came to me and said, “We want to buy everything you have.” At that point I had been out of school for four years. I said, “Well, I have to consider it because I'm making good money, but I don't have anything in the bank,” and I sold everything. I moved to the rural areas because I had non-compete clauses close to the offices I sold, was there for about five years, then came back to the metropolitan areas and just continued doing what I had been doing. We’ve had a little bit of everything: Medicaid offices, high-end fee-for-service practices, even a mobile unit.

ROSS BRANNON

Then you transitioned into dental brokering. Talk about how your own experience with a broker made you realize you could do a better job.

DR. KYLE ROTH

The very first transaction we went through was painful. The broker was a nice guy, but old school. All they did was advertise. They put it on their website, and they put it in North Carolina Dental Society. They put a few listings out there, and that was it. There was no working the account, and I didn't even have any representation at closing. I had an eight-hour closing on my first five practices, and I got beaten to death by the buyer. I had no support- nobody holding my hand through the whole process. My attorney did the best he could and came up with a contract, but it was not very dental specific. I said, “There has to be something better than this. I have eight years of accounting and finance, I have dentistry behind me, and I have a passion for this.” I think I can put this together and help people.

ROSS BRANNON

So now you’re still building practices and you’re brokering them on the side. What made you realize you could take it to the next level?

DR. KYLE ROTH

I had a couple young friends who had a lot of energy, and knew a lot about social media and email blasts, and they told me they could “do some good stuff” with what I was doing. We built social media to 40,000 followers. Now, we’re in contact with 110,000 dentists across the country. We have 23 speaking gigs lined up this year at dental schools across America. We're in front of everybody all the time. We also now have an Eastern European headquarters in Tirana, Albania, and I have an entire marketing team over there working on everything.

ROSS BRANNON

You’ve become one of the biggest and fastest-growing brokers in the country. As a broker, what do you make of the rise to prominence of DSOs?

DR. KYLE ROTH

When I first moved to North Carolina, there were private pharmacies everywhere. The pharmacists had a good thing going. They sold the drugs, but they also sold greeting cards and magazines and even fountain drinks. In the Carolinas, people would come for fresh squeezed lemonade.

Now they're almost completely extinct, and I saw it happen in a matter of 10 years. The same with general physicians- how many family physicians do you see anymore? They’re owned by hospitals and universities. Right now, DSOs are buying the most profitable offices out there, the million-dollar practices, but I believe at some point they’re going to get the rest of them.

ROSS BRANNON

How long do you think that will take?

DR. KYLE ROTH

I think it's going to be absolutely amazing what they're going to accomplish in the next 10 years. Because there are not just a few big DSOs anymore. Now there are hundreds of them. They're everywhere.

ROSS BRANNON

From your broker’s perspective, what are DSOs looking for when buying practices?

DR. KYLE ROTH

DSOs typically are looking for six operatories or more, and a million dollars’ worth of collections, and that's just their starting point. EBITDA is a big thing they're looking at. They want the thing to be earning, not just collecting, and expenses going down to zero. They need a doctor who’s going to stay minimally two years, or as many as five years. They’re looking in metropolitan areas that are hot right now. They don't want to be in a dying city.

Then there’s the specific location. They want the ability to expand if there's a space next door they can bump into. They love being able to make it bigger. They don't want to be hidden in an old office park. Older dentists’ offices are invisible, you have to know where to find them. Now, it's cool to be in a shopping center next to Starbucks, with a lot of roadside traffic, lots of visibility. All those things come into play, and lead to lots and lots of new patients.

ROSS BRANNON

How realistic are dentists on the valuation of their practice?

DR. KYLE ROTH

Older dentists keep telling me it's the average of their last three years of collections, but that can't be further from the truth anymore. Now, the banks want to know, “What have you done for me lately? What have you done in the last 12 months?” Let’s say you were killing it two years ago. But then you decided to take Fridays off, then Thursdays, and now you’re working a half day on Wednesdays. The numbers have dropped dramatically. It looks like a dying practice. The banks are going to have a really difficult time discerning the difference between the doctor taking time off, and the practice dying all together.

ROSS BRANNON

Is there a typical multiple of EBITDA that they want?

DR. KYLE ROTH

I'm seeing anywhere from three to 10 times EBITDA. That depends on what the EBITDA is, how many locations, the number of patients, and how badly they want that market. I’m currently working on one in Tennessee where I'm going for 10 times. These people have not been out of school that long. They have a couple practices that are doing really well. They're going to be set for life. To me, when the market is as hot as it is right now, if you can make $30 million when you haven't even been out of school 10 years, why not? It doesn't mean you have to stop working. For one thing, you have to earn some of that purchase price. You’re going to have to spend a few years there. But when you walk away, you can decide what you want to do. You may decide you don’t want to do dentistry anymore.

I'm happy doing what I'm doing now, and I really like the fact that I can do it from anywhere. I can sit on a beautiful balcony overlooking the water in Colombia, South America, or anywhere I want to be, as long as I have Wi-Fi. I’m still using all the knowledge I got from all of years of taking continuing education courses, working with my staff, working with other doctors. We still get to use all that info. It's not the end of the road if you don't want it to be.

ROSS BRANNON

How much of this is interest-rate-driven by private equity?

DR. KYLE ROTH

It depends how much it goes up. I imagine it will slow a little bit, because the numbers are almost silly right now, what people are paying, even what individuals are paying in hot markets. It is the highest I've ever seen in 18 years of doing this.

ROSS BRANNON

I work with dentists all day, every day, and I see two extremes. I see the dentist who makes $250,000 to $350,000, and owns a job. It's a good job, but it's a job. At the opposite end, you have a business owner who happens to be a dentist, making up to $3 million in income. Obviously, the business owner who happens to be a dentist is going to sell for more to a DSO. Is that the DSO’s ideal candidate?

DR. KYLE ROTH

The business owner who is a dental practice owner typically does a better job of controlling expenses, keeping the books clean, not mixing household expenses in with the books of the company, not mixing multiple companies together, not making horrible big purchase decisions. A lot of dentists come home with a $50,000 or $100,000 gadget every time they go to a continuing education show. When I visit their offices, that gadget is sitting in a corner because they tried it once or twice and it didn’t work out. The dentists who think like business owners do seem to set themselves up better when it comes time to sell to a DSO.

ROSS BRANNON

What about the dentist who works the job rather than owns the business? Are they candidates to sell to a DSO or are they more likely to sell to aspiring dentists who want to own their own practice?

DR. KYLE ROTH

Some doctors say, “I will never sell the practice I've built. My father and I built it together. We know all these families, and I'm not going to turn it over to a big DSO, which is just going to run a bunch of people through here, and not keep the standards of care that we had all these years.” There are a lot of doctors who won’t sell to a DSO no matter how much they might get.

ROSS BRANNON

How long does it take to retire from being a practice-owning dentist, and if a dentist is thinking of retiring, should they get a valuation?

DR. KYLE ROTH

Five years is what I tell everybody. A lot of times, dentists think their practice is worth more than it really is. I suggest people get an express valuation. I can talk to them for 20 minutes, look at their office, look at some comps, and tell them what their office is approximately worth. If they say “Whoa, I thought it was worth a lot more than that,” then they have five years to make some corrections, and I have a lot of ideas for that, if they want to talk about what they can do to get their office ready so it can sell at top dollar.

ROSS BRANNON

What are those things?

DR. KYLE ROTH

First of all, to get your office ready, it has to have some technology. Believe it or not, there are still lots of doctors with darkrooms. They have paper charts, not digital. They have one computer at the front desk. They have no intraoral cameras, no digital sensors, nothing. Their waiting room looks like it hasn’t been touched since the 1980s. These are things they can fix. Buy the technology. Fix up the office with simple things like paint and flooring and LED lighting, and inexpensive decorations in the waiting room. If you don't get those things done, yours will be one of the practices I can't even give away. Because the typical buyer has never developed film in his life. He's never done a paper chart; in fact, he’s never seen one.

The other thing is you have to keep your foot to the floor. You cannot coast into retirement. If you start taking more days off, the bank will not understand. Keep your hygiene department busy. Bring in another hygienist if you need to. Marketing is super important. When they look at your office and they see empty schedules, it's not going to bode well for your sale. If you have a fee-for-service only office, and it's dying out, and your number of new patients is six a month, maybe you'll want to take on a few BPOs. I know that's a bad word, and some people would rather die than do something like that, but if you want to sell your practice and get a good number at the end, you might have to consider doing it.

DSOs and other buyers want to be able to visualize doing dentistry in your office the next day and not have to change a thing. Also, if you have specialties that you don’t like doing or don’t know how to do, like endo, or surgery, either learn to do some of those procedures, or bring in some specialists a few days to do that in your office, so the numbers stay in your office.

ROSS BRANNON

Do DSOs pay brokerage fees?

DR. KYLE ROTH

The DSO will, to a point, pay the brokerage fee. It depends on how badly they want the practice. I at least try to get a couple points. If I'm charging 5%, and I can get the DSO to pay 2% or 3%, that's amazing. If they want it, they'll pay. If they want it bad enough, especially if you have a lot of competing DSOs, I think they're going to pay the whole thing.

ROSS BRANNON

What is the standard brokerage fee?

DR. KYLE ROTH

Old school is 10%. For me, it’s anywhere from 5% to 10%, and it depends on a lot of things. Believe it or not, it’s easier for me to sell a $2 million practice than a $600,000 practice. A $600,000 practice is making almost nothing. The banks don't want to lend on that because it assumes that unless you grow the practice, the doctor working there won't make anything. A $2 million practice is typically making $600,000 per year. It's easier for me to sell that, and in hot markets, it makes it even easier. I can reduce my fees closer to 5% for the stuff that's going to go quickly. If it's a practice producing 300,000, and it's in a rural area, and they're only open two days a week, I'm going to have it listed for a long time, and it's going to be a 10 percenter.

ROSS BRANNON

Tell us a little bit about what differentiates Encompass from the typical broker.

DR. KYLE ROTH

Nobody can keep up with the amount of marketing we do. This Albanian marketing group is the best thing I've ever done. The average Albanian makes $8,000 a year after college. They speak three or four languages; their English is amazing. They actually want to work. I put out a few ads and I got dozens and dozens of really good applications. I developed a team, and they work the marketing more than anything I've ever seen before. We do whatever it takes to be seen.

I also think one of the biggest things is this whole company was designed around dentists helping dentists. Not an attorney, not an accountant. Not to say those guys can't come up with beautiful valuations and sell practices, but we are intimately involved with all the knowledge. I can walk into an office, and in five minutes, I know all the equipment. I've had it all before. I've had every dental chair, every piece of equipment out there. Some of my brokers are dentists who came on board after we sold their practice. They end up making the very best brokers, because they can say, “Encompass took good care of us. Now I'm here to do the same for you.”

ROSS BRANNON

You have a great business, and you do a lot of great things for dentists.