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In this throwback episode of the Group Function Podcast, Alan Mead sits down with two titans of dental podcasting: Dr. Mark Costes and Dr. Paul Etchison! Together they decode the rapidly evolving world of Dental Service Organizations (DSOs). They break down complex industry jargon like EBITDA, recapitalization, and same-store growth, making it easily digestible for independent practice owners. The trio explores the transition from the initial wave of practice consolidation to the modern, highly discerning private equity landscape. Between dropping heavy business knowledge, they also take a nostalgic detour to reminisce about feral 1970s and 80s childhoods, riding bikes until sundown, and the ultimate debate: Star Wars versus He-Man.
Mark and Paul use quite a few terms that you might not be 100% familiar with. I had heard them kicked around, but before the conversation starts, I list a couple definitions that you might find helpful:
- DSO: Simply put, DSO stands for Dental Service Organization. A DSO is a company that helps administer the business aspects (management, marketing and business administration) of the dental practice.
- EBITA: EBITA stands for "Earnings Before Interest, Taxes and Amoritization." It is a measure of profitability that a potential investor can use to evaluate a potential company or practice. It's used help make "apples to apples" comparisons between potential investments. EBITA is calculated from financial data reported by a company. Many DSOs valuate dental practices as a multiple of their EBITA.
- same store growth (or same store sales): a measure of growth used by a DSO to know how well an individual practice within the DSO is doing. A DSO will want to know how well the individual practice is doing vs. the entire DSOs growth. The idea is to invest in a practice that has potential to grow in it's own location separate from its relationship to the whole DSO.
- Private equity (or PE): a type of investment where investors buy shares of privately-held businesses. Private equity is the money supply that has driven the DSO revolution in dentistry (and many other industries). Private equity money expects a return on their investment much like any investor would.
- Recapitalization (aka: recapitalization event): "the second bite at the apple" according to Mark and Paul. Recapitalization is the restructuring of a company's debt and equity mixture, and/or financing. This is usually done to stabilize a company's capital structure. In the context of a DSO, recapitalization might be the sale of a smaller DSO/group to a larger one and/or the buying out of dental owners.
Some links from the show:
- Dental Success Network (Mark's stuff)
- Dental Practice Heroes (Paul's stuff)
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