Selling your practice to a corporate network could be your ticket to financial freedom, but there are some important things you need to understand to ensure you don’t get in over your head. Shane Conroy reports
It’s good times for the Australian dental industry. According to IBIS research, the dental market is worth a staggering $10 billion with revenues growing at three per cent per annum. Those numbers have caught the attention of the business world in recent years, and we’ve seen the rise of corporate dentistry models. These companies offer independent dentists the opportunity to join their large corporate networks, and attract dentists with a range of head-office support services and the promise of greater financial stability and a better work-life balance.
But selling your practice to a corporate network is a big decision. There’s the promise of short-term cash, and back-office support services are an attractive proposition. However, the ADA advises caution when it comes to dentists getting involved with a corporate network.
“There are some examples of dentists getting stuck in lock-in contracts, some complain of losing their decision-making freedom, and facing the threat of financial penalties should they not meet performance targets,” warns Dr Hugo Sachs, ADA president. “These are complex business arrangements, and should not be entered into lightly.”
Something to smile about
Mike Timoney, CEO of Smiles Inclusive (trading as Totally Smiles), is tackling those criticisms head-on with a new model of corporate ownership more favourable to practising dentists.
Timoney has a strong track record in disruptive business models, and has achieved incredible success both within the dental industry and outside of it. After stints as a surveyor and then stockbroker during the 1980s, he spent three years in South Africa piloting helicopter safari tours. However, with a young family to take care of, the burgeoning entrepreneur returned to the UK and purchased the international rights of the Australia-based Bartercard business. He brought the innovative business model to the UK in 1996, and built it into a $150 million company before selling it back to the Australian parent company in 2003.
During this period, Timoney had spent time visiting the Australian head office of Bartercard on the Gold Coast, and fell in love with the area. He moved there in 2004, and set up a dental practice in Southport in 2005 with his dentist wife. Three years later, the pair were sitting on a $3.5 million business and Timoney knew they were onto something special.
“We wanted to sell the practice but no dentist was going to write a cheque for $3.5 million. That gave me the idea to set up Dental Partners (now Maven Dental) in 2007. I bet the farm on it. I had two boys at private school and a mortgage bigger than Ghana’s Third World debt, so having an empty dental chair wasn’t an option.”
That gave me the idea to set up Dental Partners (now Maven Dental) in 2007. I bet the farm on it. I had two boys at private school and a mortgage bigger than Ghana’s Third World debt, so having an empty dental chair wasn’t an option.”—Mike Timoney, CEO, Smiles Inclusive
This was essentially the birth of corporate dentistry in Australia, and Timoney put all his sales and marketing skills to work to build the business. “The business world was changing, and I decided to get off my bum and do more to attract patients. So I invested heavily in advertising, and even had pop-up stands at shopping centres. Suddenly I had built the business from nine practices to 65.”
The next step
Timoney sold his stake in the business in 2012 and left the business completely in 2013. A four-year non-compete clause in his contract forced him into a sabbatical, during which he pondered his next step. “Dentists have so much on their plate now,” he says. “You have got to be a social media expert. You’ve also got your marketing and HR, and then there’s IT security to think about.”
Timoney knew there was a clear demand among dentists for a corporate network to come in and look after the business side of their practices, but he is also quick to admit that there were issues with the corporate dentistry models that were dominating the market at the time.
“A dentist would sell their business but lock themselves into continuing to run the practice for five years, and not get all their money until they had hit their financial targets during those five years.”
With Smiles Inclusive, Timoney is taking a different approach. Dentists sell 100 per cent of their practice and then are invited to purchase the rights to a 40 per cent flow of the Earnings Before Interest (EBIT) and exposure to 40 per cent of the capital value of the practice. So if the practice triples over five to 15 years, the 40 per cent becomes 120 per cent of the original value so the dentist can sell it a second or third time. A dentist can choose to sell all or part of their 40 per cent stake at any time to another dentist or staff member, or remain with the practice for as long as they choose to.
“You’re not just an employee of your own practice working to hit head-office targets. There are no lock-in contracts and no targets to hit, because we are partners,” says Timoney. “Because you own 40 per cent of your practice, you will want to naturally improve your business.”
The benefits for dentists, says Timoney, is the back-office support and it provides for a monthly brand management fee equal to three per cent of revenue. Partner dentists also receive access to new technology that is updated every three to five years, and the opportunity to purchase consumables on consignment.
“I went to all the big equipment manufacturers and I said I just want to rent the equipment. I don’t want to maintain it, I don’t want to own it and I want to change it every three to five years. And it worked. Most dentists can’t afford to buy the latest $100,000 X-ray machine, but on my model it’s $9 per day.”
An attractive exit strategy
Timoney is not the only industry figure working to evolve the corporate dentistry model. Andy Tapper, CEO of Maven Dental Group, is equally transparent about his business model.
“Dentists have so much on their plate now. You have got to be a social media expert. You’ve also got your marketing and HR, and then there’s IT security to think about.”—Mike Timoney, CEO, Smiles Inclusive
“Our model is growth through acquisition,” he says. “We acquire the practice and then the dentist works for us as a contractor. As those dentists move on or retire at the end of their contract, we bring new dentists into our network.”
Maven has more than 100 practices throughout Australia and is part of a Trans-Tasman network of more than 225 practices. It is owned by New Zealand-listed company Abano Healthcare, which has been operating dental practices since 2002 and originally partnered with Timoney to enter the Australian market.
Maven’s model is different to Smiles Inclusive, as they wholly own the practice, with dentists’ remuneration based on a percentage of what they bill.
“We take 60 per cent of the billing for providing the facilities and the support services for the dentist, and the dentist keeps 40 per cent of what they bill,” says Tapper. “So the dentist is selling their practice to us, and then receiving 40 per cent commission on their revenue.
“In the majority of cases, dentists sell their practice to us as part of their exit strategy. They are not wanting to retire right now and want to continue to practise for a minimum of four to five years, but are free to step away at the end of their contract. It’s a great way to get your equity out of your practice early but control the timing of your retirement.”
Tapper says there are constraints that preclude dentists from opening a new clinic for a period of time after the end of their contract with Maven Dental. On the plus side, dentists retain approval rights over new hires, and no longer have to take on responsibility for capital expenditures.
“Replacing a chair can be expensive, but if a piece of equipment breaks down, that’s Maven’s responsibility,” he says. “However, we rely on local leadership within that practice. If a dentist has run and owned their own practice for 30 years, we find they still like to have a high degree of control over that practising environment. We provide support services but by and large they still want to feel they have control of the practice.”
When it comes to selling your practice to a corporate network, the advice from the ADA is simple: “Make sure you get professional legal assistance,” says Dr Sachs. “Before you sign any contract, it’s vital that you fully understand all its terms so you don’t find yourself in a situation you’re not happy with.”