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JB thank you for your reply. I don’t think it’s as simple as...

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Nauv

386 Posts.

31

10/09/18

13:56

Post #: 35497505
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Originally posted by JonnyBoy ↑

Thanks for your post Dr. Nauv, I have a great deal of respect for you and what you have achieved. I feel I need to defend my post, and hope you accept I do so without any malice. It's far to easy to cause offence via the anonymity of the internet, and in reading ill will where none is intended.

Please re-read my post in the context that is a response to jezza43 questioning the potential motivation for practitioners to sell to SIL. I am not a dental practitioner, I'm not trying to qualify myself as an expert in the field. My involvement in the dental industry is irrelevant.

In no way did I seek to analyse the makeup of SIL's acquisitions. Instead I merely provided a potential motivation for selling a practice with turnover in excess of $1mil. These thoughts are an echo of those expressed by Simon Palmer at your Dental Practice Owners Conference.

I think in general SIL would be less appealing to retiring dentists due to the joint venture partnership agreements, as you said they want liquidity upon exiting and to actual exit. SIL sees practitioners staying on with the JVP with a vested interest in the business operations. I absolutely agree that older practitioners in general are against corporates, but I think it's clear it isn't just the older generation that dislikes corporates.

I'm sorry I can't see where I have assumed growth is inevitable in my post. I refer to potential for growth through good management, turnover of staff and increased marketing. Nothing about what I said assumed growth would occur. You may well be right in respect to practitioners having exhausted other options to increase revenue; however I don't see selling to SIL as being a way out. Rather I'd suggest it's could be an attempt at an alternative action to improve revenue with a JVP. But ultimately I can't presume what an individual's motivation was in selling to SIL.

I have looked at the financial report, I assume you see some issue here with direct costs and are suggesting that practitioners are being remunerated at ridiculously low commission? For others reading, the industry norm for commission is 40%, this may fluctuate based on experience and practitioner billings.

Most practitioners work as sub-contractors, the generally accepted practice is to have a Facilities and Services Agreement. The practitioner provides treatment to patients for the practice, the practice provides facilities, support staff and patients. The practitioner invoices the practice a percentage fee (of patient receipts) as a subcontractor. Direct costs for the month of June would be invoiced in July and would therefore not appear in these financials. Please let me know if you were highlighting something else that I haven't understood correctly.

I don't understand your concern about acquisition of low turnover practices, ultimately these practices were just acquired for a lower upfront fee given all valuations were based on 5 x EBITDA. As I said my preference is for these smaller practices where improved management can have a greater impact on relative revenue, my view only not suggesting this is SIL's view.

My understanding is KPMG audited the financials for acquisitions and oversaw the due diligence process. Certainly any information you could share that reflects poor DD by SIL would be appreciated.

I would have thought the SIL model would have been well suited to you, allowing for JVP across multiple practices without the future issues of disposal inherent with having partnered with associates. Certainly worth while having a chat to Mike.

Cheers,

JB

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JB thank you for your reply.

I don’t think it’s as simple as monthly receipts accounting for the difference. But the next Quarterly will reveal all. Their own projections as part of the prospective had similar percentages much lower than 40%.

Onto your point about the fact you aren’t concerned because they have paid 5 times ebit for smaller practices. How do you do that for a practice making no profit? Do you think they were given money to acquire these?

What about practices with marginal profit, e.g, $10,000? Do you think they paid $50k?

As I said, look at the total turnover of the group and you will see they must have bought many practices that weren’t profitable (billing under 500k).

Also, you know I can’t go into individual practices, but it’s telling that Smiles Inc hasn’t released turnover breakdown by practice.

Interesting times. I’ve been contacted directly or indirectly by a number of instos regarding this share and have expressed my concern to them. There is wide interest, that’s for sure.

SIL Price at posting: 98.0¢ Sentiment: Sell Disclosure: Not Held
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