Inside The Legal Engine Of The DSO Boom: Insights From Brian Colao

In this episode of Dental Wealth Multiplier, Jonathan Moffat is joined by Brian Colao, Director of Dykema’s DSO Industry Group, for a behind-the-scenes look at the legal infrastructure driving the DSO boom. With 30 years in dental law, Brian shares insights on building the right legal structure, avoiding costly mistakes, choosing the right partner, and why legal strategy is one of the most overlooked drivers of long-term enterprise value.

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Inside The Legal Engine Of The DSO Boom: Insights From Brian Colao

This is Jonathan Moffat, and I have with me a special guest, Mr. Brian Colao. Brian, thank you so much for joining us on the show.

Thanks, Jonathan. I’m happy to be here, and thank you for having me.

I’m going to make a big assumption, which is that you’re one of the biggest names in the DSO space, so I believe almost everyone should know or does know who you are. You and I were first introduced in 2016 when my partner and I engaged Dykema to do our DSO documents for our group out of Southern California, and we have enjoyed attending your great Dykema DSO event. We’ll talk about that a little bit later as well, and certainly look to you as one of our industry’s leading experts. I appreciate you being on here.

Thank you very much again, Jonathan. For those who don’t know, this is my 30th year doing this. I’m starting to feel old and get depressed.

Well-seasoned, well-experienced. I know a lot of our clients who we’ve referred to your firm and use your firm certainly get that experience from you, your team, and that expertise. There’s something to be said about having a team. We talk to clients all the time when I’m speaking. If you’re going to go into this space, you have to have a team that knows what they’re doing. They’re experienced. They’ve seen the good, the bad, the ugly. You’ve been doing this for many years. When you say this, you mean practicing law or specifically in the dental space?

Both, actually, because I was at the firm two weeks when my first dental client showed up. I’m 30 years for both, I was doing dental stuff before there were even DSOs, and then at the inception of the very first DSOs, all the way to where we are now.

Where do you spend most of your time these days, or in your team? Do you spend a lot of your time on the beginning phases where you’re getting DSOs set up, or do you spend more of your time on helping groups exit? Where is Dykema? Where is your team specifically spending a lot of that time and energy?

On everything. Jonathan, you were there at the beginning when we started our industry-leading DSO group. I’ve been doing this for years. We’ve had our Dykema DSO Industry Group for about fifteen years, and it’s meant to be all things dental. We have 72 professionals I’m responsible for. I love it when you use the term director, more like ring master of the circus is what it feels like a lot of the time, but my official title is Director of the Group, I suppose. We’ll do startup DSOs, doctors on DSOs, folks that want to, maybe they’re starting with one or two offices, and yes, you can have a one-office DSO. It happens all the time when you start that way and then grow into something else. We’ll do some of the largest DSOs in America that have thousands of offices.

We represent them and everything in between. We average several hundred DSO dental transactions a year, and any manner of regulatory issue, any manner of litigation, credit facilities, OSHA, HIPAA, tax issues, any possible thing that can come up, my group does. Myself now as director, I now focus on some of the more complicated things and some of the really difficult problems, and in the challenging economic conditions we’ve had. Over the last few years, we’ve had some real challenging things come up, and I spend a lot of my time doing that and a lot of my time advising companies on the business of dentistry. That’s me personally, but our team answers your question, does absolutely all things dental, anything small or big that affects a DSO or group practice.

Importance Of Understanding The Business of Dentistry

Let’s progress through here as we go and start at the beginning. If there’s a doctor or dentist tuning in to this, and they’re like, “I want to start a single-location DSO or a multi-location DSO,” what would be one or two things that you would advise them? If you’re going to start down this path, you must do this and this.

This may sound obvious, but I’m dead serious when I say this. I’m not being silly at all. You have to understand the business of dentistry before you do this. I’ve been teaching at dental schools for the last couple of years on the business of dentistry and putting on courses. I’m headed to Cleveland and Denver to do some of that. Your first question in dental school, that’s why I’m not being obvious here, I say to the students, “How many classes have you taken on how to negotiate with your landlord?” It’s zero.

“How many classes have you taken on how to negotiate with the Henry Schein, Patterson, the big distributors on your supplies and equipment?” Zero. “How many courses have you taken on human resources, how to hire, fire, review employees, and follow the labor regulations?” Zero. You go down the list, “How many courses have you taken on site selection and landlord?” It’s always zero.

The first thing I would say, whether you’re a dentist or a non-dentist, if you’re going to do this, you have to understand the business of dentistry. The dental schools right now, some of them are asking me to come in and give some teaching on the business of dentistry, but mostly, the dental schools do a good job of teaching dentists how to be world-class clinicians, but almost nothing in terms of how to operate the business of dentistry. For that reason, if you are going to open up a single practice, a group practice, or a small organization, you have to understand the business of dentistry, or I feel like you’re going to struggle.

For a time, things were going so well in the market that even if you were a below-average business person and opened up a dental office, you would do terrific. In this marketplace with interest rates being at an all-time 30-year high, inflation being at a 30-year high, the cost of labor being at a 30-year high, and the shortage of both clinical and non-clinical staff, if you don’t fundamentally understand the business of dentistry, you’re going to struggle. Whether you’re a dentist or a non-dentist, you have to fundamentally understand the business of dentistry if you’re going to set out to open up, whether it’s one practice, multi-site, or whatever you’re going to do.

I saw that the rapper Rick Ross opened up a dental practice in Miami.

I’m not super up to speed on all his music, but let me say this. It doesn’t seem like he’s a dentist or that his background is in the dental field. I would say I hope he’s got the right folks on his team because otherwise, he’s going to have some problems.

Critical Need For Proper Legal Structure & Compliance in DSOs

Understanding the business, one. What would you say is another thing you’ve got to make sure you do?

If you’re doing a DSO, you’ve got to make sure you’re properly structured from a legal standpoint, from a structural and that your agreements are regulatory compliant. If you’re doing a dental practice, I feel like you’ve got to understand the fundamental business of dentistry, and you’ve got to pick the right partners and have the right culture. You’ve got to, right from the start, figure out what your culture is going to be and make sure everybody follows that culture.

If you’re a DSO, you’ve got to do all these things. Plus, you’ve got to make sure that your legal structure is correct because probably the biggest mistake I see in DSOs is people set it up and they’re moving a million miles a minute. They’re moving fast. They don’t necessarily have time to say, “Let’s get the right lawyer.” Maybe they get a lawyer like, “This lawyer’s at my country club, and he helped me years ago with a landlord dispute or something. Let’s let this guy do this,” or “This was the guy that helped me buy a piece of property. Let’s have this person do it.”

They can stumble through it and maybe get it done, but they don’t know what they don’t know. Years later, issues come up, and you find out you’re not structured the right way or your agreements are not regulatory compliant. Whatever it would have cost on the front end to fix this, multiply that by 10 or 15. That’s what you’ll pay after you’ve got 10 offices or 8 offices. Suddenly, a regulator’s there, the dental board’s coming after you, or an associate dentist is suing you, and it wasn’t documented correctly. You will pay 10 or 15 times whatever you would have paid to get it right in the first instance.

If you take nothing away from this conversation, it is that you have to work with a team of experts who have been doing this, who have seen it, they’ve been there, they’ve helped. I can’t imagine there’s a scenario that you or your team hasn’t advised a doctor through. The other thing is that old adage, you get what you pay for. They’re trying to save money up front by hiring an inexpensive attorney, your brother-in-law’s an attorney, or whatever, that can do the documents. To your point, that’s great until the crap hits the fan. You’re going to be wishing you had paid someone to do it right.

Same with what you do, Jonathan. You’ve operated a DSO in your past, and whether you knew it, I never quizzed you way back in those days, but whether you understood the business of dentistry way back at the beginning, I promise you by the time you were through, you thoroughly understood every aspect of it. Somebody wants to get Jonathan on their team. That’s what you need. Somebody that sat in the shoes understands the business of dentistry.

There are a lot of folks doing what you do, Jonathan, who have never operated in dentistry. They’re sending out emails. Anybody interested in this one? They don’t understand what their clients are going through. I think that’s the point you’re making with me. I’ve seen every scenario in the last 30 years. Every now and then, a new one comes up, but I’ve seen about everything that could possibly come up.

When it happens, I can rely on that experience and say, “I’ve seen that dozens of times. Here’s what we’re going to do. Here’s what doesn’t work. Here’s what works. Here’s what’s maybe in the middle. We can make informed decisions as to how to proceed.” If you’re using the attorney from your country club who’s never done a dental deal, you don’t know what they don’t know. They’re not even asking the right questions.

When you do need them because something went wrong, good luck finding them.

Even if you do, what are they going to do? They never understood it to begin with. I’m sure they’ll take your call, but you’re going to tell them what happened, and they’re going to be like, “I don’t know about that.”

The Value & Risk Of Partnerships

In your response, you mentioned the P word, partnership. This is something that I think comes up a lot. Partnerships can be tricky. I was having a conversation with someone earlier about this. They’re looking up with a client, looking at a partnership. I’m like, “Better have a good attorney that’s got a good partnership agreement.” We tell clients all the time when they’re going through, it’s like, “You have these buy, sell, all these agreements. In my opinion, the most important agreement is the operating agreement or partnership agreement that says this is how the partnership’s going to operate.”

We can talk about the legal stuff. Yes, you’re right, Jonathan. You’ve got to have the right terms in there, and you need to have somebody who knows what they’re doing to make sure you’re not just protected, but that things are properly documented, so there’s no misunderstanding later. All of that is critical, but more critical than that is that you pick the right partner. No legal documents can protect you, even if they’re the greatest documents on earth, from all the heartache and headache of if you pick the wrong business partner. You may say, “This contract protects me, and I’m going to win.” If the person is absolute hell on earth, even if you win in court, or whatever you end up doing on your documents, it’s going to be a miserable experience.

What I tell people in the first instance is to pick the right human being, the right partner to go into the business with. You need to document everything appropriately and get the right team to help you. There’s only so much somebody like you or me can do if you pick the worst partner on earth. I’ll get you out of it eventually, but I can’t save you from all the misery you’re probably going to have to go through as if you picked a high-quality human being or somebody trustworthy. That’s the first thing I would say. The first one’s not legal advice. It’s human advice, but take the time to make sure you’ve got the right partner. The second part is legal advice. Make sure it’s properly documented and you’re protected.

The biggest piece of feedback I give when I’m approached with the partnership is to take your time. There’s no reason to rush into a partnership. If you’re married, more than likely, you didn’t rush into a marriage. It’s a similar thing. Make sure you see this doctor, whether it’s an associate or a junior partner. See them and don’t rush into it. See how they react in different scenarios.

I’ve had associates tell clients before, when we asked, “What are you looking forward to being a partner, being an owner? They’re like, “Everyone will treat me like the boss, and I can fire people.” It’s a red flag. Maybe this isn’t the right person, but you don’t see how they are in that scenario if you are going to rush into it. A lot of times, as entrepreneurs, visionaries, quick starters, whatever you want to call them, a lot of times we tend to fit in the same kind of box, we tend to rush into stuff quickly.

“This is so exciting. This is going to be a great opportunity.” Boom, now you’re in a partnership with legal documents that, with the person to your point, maybe isn’t the right person. I love what you said, pick the right person. As you said, take time, don’t rush into it. Once you have decided, work with a team that’s been around the block and can advise you through that. I love that.

These are business marriages, and believe me, business divorces are as bad as any regular marital divorce you’ll ever see. The worst-case scenario is that you pick the wrong partner, and you get the wrong documents. God help you if you’re in that situation. The next scenario is that you pick the wrong partner, but you have the right documents. You’ll get out of it, but there’s going to be a lot of heartache that can’t be avoided. The best scenario and the one you want to be in is that you pick the right partner and you have the right documents. It should be mostly a smooth experience for you.

Growth & EBITDA Focus

We’ll move to that middle phase. You’ve got your DSO, it’s established, you’ve got all the documents in place, and you want to grow. What are you seeing right now in our industry for growth? What are some opportunities that you’re seeing? What’s a challenge that you’re seeing when it comes to growing your group or your DSO?

When we say growth, it means increasing your EBITDA. That’s what it means. It doesn’t necessarily mean tacking on offices. If you tack on offices and you’re reducing your EBITDA or they’re losing money, sometimes the best thing to do is to close the office down. I want to make sure that when I say growth, everybody understands what I mean. I mean, grow your EBITDA. The principal way to grow your EBITDA, at least in this industry, has been through M&A activity, buying things or opening up.

De novo, unfortunately, since about the second quarter of 2022, with the interest rates going up to the highest they’ve been in inflation, the cost of money going up, the cost of goods, labor shortages, and the cost of labor being high, it’s been very challenging to do M&A activity. I’m not saying I know your clients. They’re still doing sales deals, but it’s not nearly at the explosive volume it was in 2017, 2018, 2019, or the end of 2020 after COVID. All of 2021 was explosive.

It’s not occurring at that same rate and won’t until the interest rates go down. What people are doing now is they’re doing the same growth. They’re focusing on how to lower their expenses and how to increase their production at their existing locations. There are all kinds of innovative technologies that will help you do that. Artificial intelligence, the single biggest innovation in the history of the dental industry, allows you to ethically do more cases. You don’t want to do them unethically, but it allows you to ethically do more cases because AI diagnoses more things than human beings could ever before.

A lot of membership plans, discount plans, patient finance plans, a lot of innovative products out there, some that will let you almost regenerate enamel on watch spots. There are things that will help you. You can integrate a specialty into your office. Many things you can do to increase production, increase revenue, thereby increasing the EBITDA, thereby increasing the enterprise value of your organization, without having to spend capital on M&A.

Joint Venture Models

If you are going to go acquire or expand through acquisition, is there a model that you are seeing out there that you like more than others, meaning like the model on how to structure that compensation, the deal, or the purchase? Is there a model that you like right now?

I like joint venture models. We did joint ventures 15 or 20 years ago, but there are a lot of people, as you know, Jonathan, who are just entering our industry. It’s funny how they’re all experts. They showed up, and now they’re experts. I know you’ve seen this. I always laugh. They’re like, “We’ve got these new innovative joint ventures. That’s what we’re doing.” No, we’ve had joint ventures since 2015. Twenty years ago, when the market was booming, people didn’t need to do joint ventures.

They wanted to make purchases for the entire organization. Now, joint ventures are coming back. The advantages of joint ventures are that you don’t have to deploy all your capital because you’re going into partnership with somebody else. The other advantage is that your partner has skin in the game. They’re invested in what you’re doing. They’re probably going to behave themselves and work with you because they’ve got skin in the game. I like that model. I’m seeing it make a big comeback to do these joint ventures. For a while, we were doing lots of them. We weren’t doing hardly any of them. Now, we’re doing lots of them again.

Part of it is probably, “You get in, you try it. This isn’t working.” I remember having a conversation with the CEO of a mid-sized DSO, and they were doing 100% buyouts. He’s like, “These doctors have this equity, even though we bought 100%. They have equity in the deal.” It’s not real to them. It’s not tangible versus your point, which I agree with. What we’re seeing work well, too, are these joint ventures. They still own a percentage of the practice in their name. It feels more like they have ownership as opposed to before. It was like, “I sold 100% of my practice. It doesn’t feel like I have any ownership. Even though I have this equity, these shares that are allotted to me, it’s not a tangible feel for some reason.”

It happens in real time with the joint venture. With the rollover, it doesn’t happen in real time. There’s some mythical second equity event that’s going to happen.

It may or may not happen.

That was always the deal. There’s no 100% guarantee, but for a while, it was happening like clockwork. There’s no way this can’t happen. Nobody loses. Everybody gets a prize at the carnival. That was the heyday of this thing from 2016, 2017, 2018, 2019, the last quarter of 2020, and 2021. Everything was turning, and it’s a cycle. It’s a boom and bust cycle. The economy has been doing this for hundreds of years, or a couple of hundred years since we’ve been America here. Now, we’re in a bust cycle because of inflation, interest rates, cost of labor and goods, and everything else.

The equity events are not occurring with the same frequency or as quickly as they occurred before. There are a lot of dentists who are frustrated out there. If they’re reading, look, your deal is going to happen. I talk to people all day long. It’s going to happen. Your partner, maybe you’re frustrated with your private equity sponsor or your investor, but they’re aligned with you. They only get paid when you get paid. Have a little more patience, but getting back to our point, you don’t have to worry about that in a joint venture because usually, cash is being distributed in real time, quarterly, or yearly.

In real time, the partners are seeing it happen. If good things are happening, they’re getting paid in real time. If maybe they had a down month, they’re noticing that, but they have an incentive, and they know if they jump in there and work hard and the revenue goes up, they’re going to be rewarded in the next quarter. It’s not like they’re going to have to wait years down the line. The joint ventures are here to stay at least for the foreseeable future, given these economic conditions.

I think you’re right. As you said, the pendulum seems to be swinging back that way.

I like everybody to have skin in the game. I don’t like a situation where somebody gets paid 100%, they’re asked to stay on, and now they’re golfing half the time. They never went golfing on Wednesdays and Thursdays, and now they’re on Fridays. Friday at 3:00, they left. Now, they’re doing it on Wednesday, Thursday, and Friday. That doesn’t work. Maybe it’s not ideal either if they’re going to be asked to wait years and years and hope for something good to happen. Something that’s a nice mix that I’m seeing is an opportunity to participate in real time.

When you don’t have to worry about making payroll on Monday, you can go golfing on Friday, right?

Some people learn that lesson the hard way in our industry. Warren Buffett has been saying for years that people have to have skin in the game. If you don’t give people skin in the game, you’re not going to get optimum performance. Warren Buffett said it way before any of this stuff came up. Some folks, during the biggest boom cycle, I would say, 2019, end of 2021, and our industry went in. They did some deals where they wanted to add the EBITDA, they wanted to buy the offices, and they were willing even to buy people out virtually at 100% with no rollover, no skin in the game. I think some people learn the hard way. What they got was reduced performance because the incentives, in large part, went away with some sellers.

Picking The Right Partner

What would you advise someone who’s looking at or considering in the next 6 to 12 months, partnering with either a DSO or private equity with their group?

You know what I’m going to say because I said it, and I’ll say it again. Pick the right partner. That’s number one of all of this. Again, not legal advice per se, but if you want to talk to somebody who’s been here for 30 years in this industry and has seen thousands of deals, pick the right partner. I’ll tell you what that means. I know it’s easy for me to say, “Pick the right partner.” Any PE fund is going to require accountability. If you used to take that private jet to Vegas once a month and it cost $30,000 round trip, but it was a fun thing that everybody did and you liked it, that probably is not going to fly when you have a partner.

If you have your own group and you’re the sole owner, or you have a partner and the two of you agree on everything, you want to go to Vegas, take money from the dental practice, and put it on black and stick it in slot machines, as long as you and your partners agree, that’s perfectly fine. When you get a partner, you have to understand that things are going to change. If your view is, even though I’ve sold this office to my partner, I’m going to go, take money, go to Vegas, and do these things, you’re asking for conflict.

The first thing you have to understand, no matter who you partner with, is that there’s going to be accountability, and people are going to watch the numbers. It’s not going to be whatever you think and your sole judgment, whatever you feel is best. It’s not going to be that way anymore. That’s the first thing.

The second thing is that some people like micromanagement. Some people don’t want any management. Some people say, “If I’m hitting my numbers, I don’t even want to know you’re alive.” Other people say, “Even if I’m hitting my numbers, the reason I brought you in is to provide advice and guidance. I don’t want you to sit there and be quiet. I want you to add value. I don’t mean the value you added is that you paid me money. I mean, add business value, like you’re going to sit here, look at the business, give me advice, and talk to me about things.” You’ve got to figure out who you are as a person. People ask me sometimes that question, “Who should I partner with?” I say, “That’s like you asked me who you should marry.”

I guess if I’ve known you for ten years, I might have an opinion on this, but if you walked up to me at a dental conference and said, “Who should I partner with?” I would say, “That’s like asking me who you’re going to marry.” I guess I need to know, do you like micromanagement? Do you not want micromanagement? What style of management is going to work for you? How often do you want to be on the phone with people? How often do you want to be accountable for things? Different partners will do it differently.

As I said, if you’re miserably missing your numbers, you’re going to have to answer to everybody. Some people are willing to be hands-off if numbers are hit. Some people are going to be hands-on no matter what happens. What is the track record of that particular buyer in the dental industry? What’s their general track record? If their general track record is horrible, maybe that ought to tell you something. Sometimes, I’ve seen it where the general track record is great, but they’ve never done a dental investment before. I’ve seen people on their very first dental investment hit a home run.

You’ve got to do your diligence, and you’ve got to investigate. You’ve got to look into that situation. You also want to say, “What is their time horizon?” A family fund that buys you might hold you for ten years or more. Some people say, “I like that because we’re building a business together. They’re going to hang out for ten years with me, and we’re going to grow this.” Other funds might say, “Look, 3 to 5 years, and we have to leave. No offense. That’s what our mandate is to our investors. We have to exit this in 3 to 5 years. The decisions we make are going to have a 3 to 5-year time horizon. If you ask us to invest in something that might be a good deal ten years from now, we probably can’t do it because that’s beyond our horizon. What does the rollover look like for you? Do you want 20%, 30%, or 40% rollover?”

Most deals in this particular economy are going to require a rollover. No one right now, given the challenging conditions that I know of too much is going to give you 100% and let you leave with no strings attached. You can negotiate the strength. Is it 20%, 30%, or 40% rollover? How long do you have to work? If you’re young, and when I say young, 20, 30, 40, 50-plus years old, you’re going to sign a five-year employment contract. If you’re 70, maybe they’ll give you a one or two-year employment contract. These are all things that you have to work out when you’re picking your partner. By the way, it’s hard.

I know you would say this, Jonathan, if I asked you, it’s got to be hard. If somebody reported to you, “Nope, I picked my partner in five minutes. Drop the papers. Let’s go.” You’re going to look at him like, “Hold up here. We’ve got to talk about this.” As you said earlier, I suppose there are those people in Vegas who get married in 24 hours, and they run down there. If you and I looked at the statistics of how many of those marriages work out, it’s not super high.

The people who get to know their partner, take the time, and have the hard discussions. How many kids do you want to have? Are you willing to stay at home, or are you going to insist on having a career and working? Both partners go through all that analysis. It might be difficult. They might get into some arguments even before they’re married, along the way, figuring out if this is going to fit. Those who go through that, ask the hard questions, come through that, and say, “Yes, after all of this, I want to be with this partner,” those are the ones that most likely have the highest chance of working out.

It’s the same thing here if you get an unsolicited LOI and you sign the first thing somebody puts in front of you, or you meet the first thing. In business, this is what happens a lot. They like the money. They don’t know anything about the partner, but the money is higher than the others. They take that. What I say sometimes is there’s a reason. There’s a reason that offer is higher than the other offers. This should be hard. When you’re selling, it should be hard. You should be saying, “This is hard. I’m taking these meetings. I’m asking these questions. Some of it’s difficult. I got to ask Jonathan some questions. I’m processing this. I need an advisor to help me, or I’ve got to bounce this off a friend. This is difficult for me.”

It should be because you’re going to be stuck with that partner for years to come. This isn’t like selling a McDonald’s franchise, where you sell it maybe for a month, you help out, you’re gone, and then they’re on their own. All of the buyers in the marketplace are going to ask you to stay 3, 4, or 5 years, unless you’re 70. Maybe you’re going to get less money, but they’ll work out something for you if you’re 70 years old. If you’re 20, 30, 40, 50, even 60, you’re going to have to stay 3 to 5 years, and you’re going to be stuck with this partner.

I’ve seen in some people that there’s nothing more miserable than bringing on a partner who’s completely the wrong partner for you. Unfortunately, I see that a few times a year in your workplace, your practice that you built from the ground up, which used to be a source of joy and pride for you, now becomes a place you don’t even want to get up and go to work in the morning. I don’t ever want to see somebody in that situation. That’s why you have to pick the right partner.

I love what you said about this should be hard. I love how you said that. It’s so true. It’s so easy to get distracted by, like you said, the big dollars, the big numbers. You said something that I see all the time, which is, if they’re offering you more money or higher than what maybe other groups are, there’s probably a reason for that. Go back to what we said at the beginning. This is why you work with a team of experienced people.

Setting Realistic Expectations In Business Transactions

You ripped off 30 years’ worth of experience. Working with an attorney who can negotiate on your behalf, tell you, and set realistic expectations. That is another big thing. We were talking to a group the other day. The owners didn’t have realistic expectations. Part of having a good advisor, someone like you, Brian, and your team, is to set those realistic expectations. I want to sell for a 10x multiple, but I also want to work back for a year, you, and everyone else. Having someone set those expectations and be honest, real, and transparent with you is also important to have, which I know you guys bring a lot of that to your clients.

It’s critical. Jonathan, I don’t know if you’re a hockey fan at all, you follow hockey, or anybody tuning in to this knows anything about hockey, but they have something called a line change in hockey. You’ve got to get three more people on there. Sometimes, there’s a term I got caught in a line change. They scored a goal because we were changing lines, and we weren’t organized. They snuck down there and scored a goal. This industry a little bit got caught in a line change.

Almost every other time, in the last 50 or 60 years, when there’s been inflation and things, it ticked up slowly. People saw it coming, and people said, “January is not so good.” They check in June. “It’s trending up. It’s not the end of the world,” and then the end of the year, they’re like, “This has become a little bit of a thing here.” It ends up being two years before you’re in a really bad predicament. You’ve watched it tick up, and people have tried to put countermeasures in place and do things. The Ukraine War happened, and then a lot of the money flooded the marketplace in the wake of COVID, which was unnecessary. It all hit at the same time. Next thing they knew, within three months, we were at a 30-year high inflation and a 30-year high interest rate.

The Impact Of Market Changes & The Need For Truthful Advice

A little bit, the industry got caught in a line change. What I mean by that is you were saying ten multiples, it wouldn’t have been out of line in January 2022 or February 2022 to say a ten multiple. You’d be like, “You might get that.” By May or June, it was a laughing thing. It was like nothing whatever happened. I don’t fault some people for initially having those opinions because everybody got surprised. It is critical right now in this marketplace that you get the right advisor who’s going to tell you the truth.

What that means is you come in, you demand, and they’re going to say, “I understand that’s how you feel, but if you really feel like ten, then you shouldn’t sell right now because you’re not going to get it in this marketplace. You’re going to get 6 or 7,” or whatever the case may be, based on that individual organization. People need to tell the truth in this particular marketplace because there are a lot of misconceptions out there with sellers. I don’t blame them because what they’re thinking was the case for a long time. It’s not like they’re crazy. That was the way it was, but it changed very quickly. That’s not where we are right now.

Brian, we’ve covered a lot of topics here. I know I have a ton more questions, but let’s go to your upcoming Dykema DSO conference because I know that’s going to be a place where, if you’re tuning in to this, the conference is from August 6th through the 8th, at the Gaylord Hotel in Denver, Colorado. Having it there again, right? That’s what I think.

We have a five-year contract with them. Now, we’ve got four years left, so yes, absolutely.

It’s a great venue. I’ve been there many times. I was telling you, I think I’ve been there almost every year. It’s only been 1 or 2 years I’ve missed. It’s a great conference. If you want to come learn from some of the industry’s leading experts on all of these topics, plus, where are we headed? What’s the future look like? I’m stuck in this. I sold my practice to a DSO, and I’m waiting for them to recap. I know Brian said to be patient, but how much longer do I need to be patient? All these questions that people are going to have. Your conference is, in my opinion, and I know a lot of others, has taken the place as the leading conference in our industry to be at. Tell us a little bit about what someone could expect if they sign up, come, and walk away with.

Our number one event wasn’t the best, but we’re in our twelve year of doing it. It’s the largest event in the history of the DSO industry. We keep breaking our own record. We set the record for the largest event in 2021, broke it in 2022, broke it in 2023, and broke it in 2024. At least based on what it looks like, more people are signed up now than have ever been at this juncture before. It looks like we’re going to break it again. The principles we go by are best content, best networking, and most fun. That’s what we’re going to do here.

We’re going to get almost 2,100 people there, anybody from all across the industry you want to talk to. You want to talk to brokers and people who can help you sell your office. You want to talk to consultants who can help you analyze where your practice is, help improve your practice, look at key performance indicators, and things like that. They’re going to be there. Just about every buyer in the industry is going to be there. Other people in your situation. Let’s say you’re in California, where Jonathan is, and you have 7 or 8 offices, and you’re struggling with some things. You’re like, “I know I can hire a consultant, but I wish I could talk to another owner who has 8 offices and is going through what I’m doing.”

You might come, and you’ll see several dozen people who have 8 offices. If you have 15 offices, you’ll see several dozen people who have 15 offices. Sometimes people report to me that it’s the most valuable thing. I met Jonathan over there, and like me, he’s got 10 offices. His are in Florida, mine are in California, but he’s going through the same trouble I am, and everything I said. He’s solved some of the problems that I have. He told me practically how to do it, or he gave me the people that he’s used to help him with some things. I get feedback like that.

The Value Of Networking & Learning At The Dykema DSO Conference

You’ll see peers, whatever you are. Whether you’re 1, 3, 10, 15, or 100 offices, you’ll find peers there that you can sit down with and talk to. Sometimes, people say, “The vendor, no.” We bring the best vendors in the industry, the ones that are increasing same-store growth, that can add value. Not every vendor is going to work for everybody. You may have some that you’re not interested in, but the ones we bring are the most innovative in the industry.

There’ll be like 112 of them. People do enjoy walking down the main promenade, learning about some of the new innovative technologies, and seeing if there are some solutions in there that can help them increase their same-store growth. Just about anything that’s going on in DSO or the dental industry is going to be represented there. As we said, lenders, accountants, everybody needs a credit facility. You want to do a check on your current credit facility and see if you can improve it, or if you’re in good shape where you are, you can do that.

You want to ask some questions about your accounting. Maybe you’re trying to move from cash to accrual, or maybe you’re wondering if your accountant knows how to calculate your EBITDA. Maybe you don’t even know what EBITDA is, Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s the gold standard for valuing organizations, but maybe I’m saying this, and you’re like, “I got no clue what that is.” Come there and you can learn about that.

We’ll teach you everything you need to know to maximize the value of your organization. We’ll give you the best information available on how to pick the right partners. We’ll expose you to everything that’s out there. You don’t have to talk about certain things if you don’t want to, but everything that’s out there will be there. What I always say on the networking thing, we can make more introductions. You’ve seen this yourself because you’ve been in the room at one of our receptions or one of our events at Dykema. If I tried to introduce you to all those people regularly, it might take six months to do it. In that room, I could walk you around in fifteen minutes, and you could meet almost everybody.

It’s the number one event we recommend our clients go to. Certainly, they are in the space to learn more and network. If someone wants to find out, where can they go to register and maybe see more information about that event?

DykemaDSO.com is where you go. You can register on that website. I think, Jonathan, you’re going to have a discount code here, too, to help people. If you don’t, we’re going to give you one because I want to make sure you have one. I think what we’ll do is make sure any of your clients, audience, or people who want to go have a discount code. I love first-time attendees. I really do. I can’t encourage people enough to give it a shot. Once people go the first time, they’re there almost year after year. If you’re on the fence or you never heard of it, you’re sitting there, and you’re like, “I didn’t know about this,” come and give us a shot one time. I’m pretty sure you’ll come back.

Go for the drone show, if nothing else.

We have a $100,000 drone show. John McEnroe is going to be our keynote speaker.

I go to a lot of conferences a lot, and I’m sure you and Dykema are always on that can’t miss list. Thanks for giving the link. We’ll have the link in the description to register for that event. I can’t encourage you guys enough. If you’re tuning in to this, if anything Brian’s talked about is like, “That’s interesting,” or you have more questions, which I know you do, please go. You will not be sorry if you go to that event. It is packed with value. Great people, great speakers. Lastly, Brian, if someone wants to get a hold of you or your firm, because they’re like, “I’m tuning in to this and now I’m thinking, do I even have the right legal documents?” or, “I don’t know that I have the right people on my team,” what’s the best way to get in touch with you?

Same place. I try to make it as easy as I can. If you go to DykemaDSO.com, you can register for the conference. We talked about that, but you can also look at me and our entire team, and all our contact information is there. You can send me an email, call me, whatever you want to do. It’s all there.

I can speak from personal experience because you and your firm put all our documents together, and we still use those documents literally to this day that you guys created. Thank you, Brian, so much for your time. I appreciate you coming on here. I know you’re extremely busy, but your advice is invaluable. It’s one of these where it’s reps, reps, reps. You see so many different situations, scenarios. The experience that you bring and that you and your team have is invaluable to someone and to organizations. I can’t thank you enough for coming on here and sharing your expertise and insight with me and the audience.

Thanks so much, Jonathan. It’s been a pleasure. I never get tired of talking about DSOs and this wonderful industry we’re in. Thank you for the opportunity to do so.

We are in a wonderful industry, so I appreciate that. Thanks, Brian. Thanks, everyone, for tuning in. All the show notes and links will be in the show description below. If you have any questions or anything we didn’t address, or you want us to address next time, let us know. Thanks so much. Bye.

Thank you.

Important Links

• Brian Colao on LinkedIn
• Dykema DSO
• Dykema DSO Conference: Use the code DENTALWEALTH25 for $250 off your registration
• Jonathan Moffat
• Jonathan Moffat on LinkedIn
• Aligned Advisors

About Brian Colao

Brian has practiced as an attorney for more than 25 years, focusing on a broad range of healthcare regulatory matters, healthcare M&A matters, and business and commercial litigation. However, it is Brian’s work with the dental industry where he has made the most significant impact. As the leader of Dykema’s DSO industry group, Brian and the team leads the industry in dental and medical transactions.

Brian became involved in the DSO industry over 20 years ago when he represented a group of 90 orthodontists in litigation with OrthAlliance, Inc. and Orthodontic Centers of America, handling cases of first impression which involved the corporate practice of dentistry and fee-splitting in 18 states.

This and other prominent outcomes resulted in legal opinions that defined and established law in this area, helped define the law on the legality of the DSO model, and has set the standard for compliance and DSO due diligence.