Aesthetic Practice Consolidation
& What Buyers Are Looking For

Max Baybak

Hello, hello out there. Max here, co-founder and Chief Growth Officer at Influx Marketing, and today we're at the Aesthetic Society meeting here at the Miami Beach Convention Center. This is the annual meeting of the American Society for Aesthetic Plastic Surgery. Every year I walk the aisles and I end up spending most of my time chatting with industry peers and marketing-minded physicians, and I always walk away really feeling like I have my finger on the pulse of what's happening in our space.

So this year I thought it'd be fun to take it a step further and have those same discussions that I always find myself having, but do it in a podcast format so that I can bring them to you at home. So if you're like me and you want to be dialed in on what's happening within the world of patient acquisition and digital marketing for aesthetic practices, follow along, and I hope to bring you some valuable insights through these conversations that you can use to take your practice to the next level. Can't take myself seriously. All right, let's roll with it.

All right, we're back, and I'm joined now by James Turcott, who is a partner at Skytale Group, based in Dallas, Texas. James, thanks so much for joining us.

James Turcott

Thanks for having me, I appreciate it. Um, yeah, you know, a little bit about Skytale — so for us, we do two things: management consulting and we do M&A advisory. So what that means is our goal as an organization is to grow and scale our clients from a financial perspective and ultimately get them full value for what they've built along the way, meaning sell them to a private equity group or an MSO backed by a private equity group. And so, you know, we kind of say grow, scale, sell, and that's kind of where Skytale was kind of born from, was, you know, we saw an opportunity within this space of these, you know, med spa or plastic surgeon groups that kind of grow, but then not understanding that they could exit. And so we present that opportunity to them and, again, get them kind of full value for what they built, and that's what Skytale's kind of been built on.

Max Baybak

It's an awesome service, and obviously one that's probably in high demand right now with all the consolidation that's happening within the world of aesthetics. And I appreciate that introduction, and I want to unpack that a little bit more there, because I understand, I think, most of what you said — I even have some questions. But I know our clients often ask us, hey, I'm considering, or I've heard about this colleague of mine, you know, exited, and what do you think, and who — and do you know who I should talk to, or I am talking to this person. And we end up sort of sitting in between — it's not our role, strictly speaking, but we end up sitting in between a lot of these things and being consultants, so to speak, or sort of advising lightly.

We do also — I have a lot of friends and colleagues also on the buy side who are looking for practices, and they ask us if we know of anything. And we have not really played the role of brokering or connecting, but we are looking to advise, we're looking to disturb clients in the right direction — it's not what we do, so we just want to make sure they're talking to the right people. And so I hope in this episode to kind of pick your brain and bring our clients and our audience a little bit more insight into this whole process of all this consolidation — what it looks like, how it unfolds, and really what you're looking for, so they can determine whether that might be a path for them and what they need to do to be ready for that.

James Turcott

Yeah, um, there's a lot to unpack there, right. So, um, you know, for us, our first question is: what do you want your life to be post-close? Meaning, um, a lot of the times, if not every time, the buyer is going to ask our client to stay on at least four to five years post-close, right. So you're going to continue to do what you're doing for probably four to five years — there are some circumstances where maybe a little bit less — but ideally, if you're a provider within your practice, they're gonna want you to stay on. And so understanding your timeline is the first thing, right. So when someone comes off and says, should I exit, it's, okay, we'll work backwards. So start five years out and say, okay, can I work for another five years? And if the answer is yes, then okay, you can maybe keep going. If the answer is, like, I want to be done in five years, well, might be a good time to start considering that.

Um, you know, from the space perspective and the buyers and the activity in the space, it's been a very active space. So, um, we get calls all the time that our clients were approached by a private equity group that, you know, wants to put an offer in. Um, our conversation ends up being: there are several buyers out there that are looking for a business like theirs. And so our goal is to get them full value for what they built at the end of the day. And so how do you do that? Our goal is to create, through our, you know, investment banking process and taking them fully to market, to create almost like this bidding war at the end of the day. Uh, because you want, you know, them to kind of understand that the value is what they built. They worked really hard for that — I mean, a lot of them are what, 20-plus years in, in kind of their role. And so why should they say yes to someone off the street that said, hey, I'm going to give you an offer, and okay, let's keep going — versus doing your due diligence, understanding who you're partnering with post-close, understand what your life's gonna be like, understand how you can kind of, um, continue to do what you're doing but take some of that administrative, uh, headache off of you. And so all these different aspects are questions that you should be asking to the buyer, and questions that we ask on your behalf to the buyer, to help our clients kind of understand: what am I getting into, and is this the right time or situation for me at the end of the day?

Max Baybak

Made sense. Again, lots to unpack, and I think some people probably have a good feel for this if they've done any M&A in other industries. And, um, I actually worked in investor relations —

James Turcott

Oh, cool.

Max Baybak

I was in the family business — it was actually in the natural resource space in Vancouver, Toronto, and there's a lot of M&A, um, the Toronto Venture Exchange, small public entities, and I got some experience with M&A and finance and stuff. But that's not to say I don't have lots to learn, and it's really still new here in this space, and there's different ways that happens in every industry. But actually, if you don't mind, I want to kind of even slow it down and break it down and back it up a little, to make sure people understand the basic structure of how these deals work — the buy side, the sell side, who represents who.

And if we can even go just a little bit back further — I didn't get a chance really in the beginning to ask you just to give us a little bit of your background. And then I'm gonna — and I'm sorry — I'm gonna ask you to kind of, like, take it real slow, for just an audience here that is just dipping their toe for the first time even in this concept of exiting a practice. Yeah, so first tell us a little about yourself.

James Turcott

Yeah, so originally from New York. Uh, graduated college at a small state school up in New York, uh, right on the border of Canada — it's called Potsdam. Um, I moved down here in 2016 to Dallas, uh, and I've been here ever since. Uh, started my career in the FP&A department at PrimeLending, a mortgage lending firm. Uh, from there got my toes wet in a financial analyst, uh, role with them, and from there I made the jump to Skytale. Uh, I ended up being Skytale's first hire back in 2018. Um, been with them ever since, helping grow the firm. Uh, Ben is the founding partner, and him and I kind of, you know, continued on this path of medical aesthetics, plastic surgery — we're also in dental as well — but we were a solely healthcare-focused firm at the end of the day.

And so, you know, my role is really around financial analysis, a lot of data-driven analysis, meaning grabbing that data from their EMR system or PMS system, whatever it is, and developing, you know, opportunities within their business, and analyzing those opportunities to say, hey, if you did this, then this will happen. And my job is a lot of if-thens, and so providing clients that opportunity to understand their business at a much more financial-heavy level. Right, they're doctors at the end of the day — they didn't go to MBA school. So our role is to simplify a lot of what we do so that they can understand what's within their business and what opportunities there may be. And that's a lot of what I do at Skytale.

Max Baybak

Okay, awesome. Yeah, and you touched on something I was going to ask you, sort of which sectors you guys focus on — it's solely medical. At what point did you enter into aesthetics?

James Turcott

So we started — Skytale was in aesthetics when we started, so it was dental and aesthetics. We found that there was a need for these practices that were growing and scaling but didn't really understand what they had at the end of the day. I mean, we've had clients literally tell us that, hey, I have four locations, I've got EBITDA of two million dollars, but I don't think I'm worth anything. And to us that was shocking, because that's worth a lot right now, what, on the market. So educating people in the space I think is why we started in this space, and we've been in it ever since. And I have seen it grow significantly year over year over the past five years.

Um, I mean, we go to these conferences, and it seems like the conversation is just getting more and more sophisticated each time we go, uh, to these conferences — not only, uh, with our clients, but you have now private equity groups now here at these conferences, uh, trying to understand the space. And so, um, over the last five years it's just grown tremendously, uh, both on the sell side and, to your point, on the buy side, and what people are looking for within the space.

Max Baybak

Yeah, okay. So then, thank you for that. So then, just so we make it clear for the audience — who do you represent in these transactions?

James Turcott

Yeah, so we're on the sell side. Um, so our clients are looking to find a partner or a buyer or an investor, however you want to phrase it, um, to really help them grow and achieve their goals, um, meaning — or, let me take it back — or take some of the administrative headache off of them, right, at the end of the day. So they've spent their entire life building this practice, but they're probably helping with the financials, helping with HR, helping with all those administrative aspects of business. Well, now, partnering with someone that takes that off your, you know, off your plate allows you to just be the provider at the end of the day. And so that's a lot of what we represent. But yes, we are on the sell side. We represent sellers that are looking for a partner, whether it's private equity, whether it's a, you know, a family office, or what we call a strategic partner, meaning a platform that's already created that has a management company that can take those administrative pieces off of the business and really partner with someone who's been there, done that.

Max Baybak

Okay, and when you said at the beginning there's kind of two parts — you said management consulting and sell-side M&A —

James Turcott

Yeah, sell side, or just an acquisition.

Max Baybak

So the management consulting, though — is that — correct me if I'm wrong, but is that not largely in preparation for selling?

James Turcott

That's the goal, right. I mean, uh, our ideal client is someone who has maybe one or two locations and wants to scale or wants to grow, whether that's within their own locations, whether it's an expansion within their one location. Uh, ultimately they want to grow, add providers, uh, add services, really grow top-line revenue and their EBITDA. Uh, if they want to become multi-site, we help them kind of build out that second, third, fourth. And what I mean by build out is create financial pro formas, help get bank debt funding — so a lot of the financial aspects of scaling. That's where we sit, so we're almost like that fractional CFO seat at the end of the day, and kind of help them scale responsibly.

Right, scaling's fun — scaling is a ton of fun for them. Um, but we want to make sure — we do have a responsibility, we want to keep them accountable to what they say they're going to do, because I think you find a lot of providers like shiny objects. And so keeping them on this path of focus — because if they're scaling, they're probably really good at what they do — so how do you keep them on that one-lane road versus eight lanes? And that's a lot of our management consulting services: you told us we were going to do this, well, let's go down this path and let's continue forward, and how do we get from A to B to C, to where ultimately — not everyone has a number in mind, but people have an idea of, at some point I'm going to sell this, whether or not they know the value of what they're going to sell it for. I think, you know, 50/50 for our clients, but there is that mindset of them growing for a purpose of selling it at some point.

Max Baybak

Okay, now, if someone — you mentioned you can sort of be their partner, help them scale, even look at, uh, debt financing. If someone wants to scale and they're not looking to partner or sell — and I want to get into that with you a little bit, the, you know, the terminology we use around partner versus selling and how they're the same and how they're different — um, but if they're not looking to partner and they want to scale, can they work with you and access financing and/or debt financing and go that route?

James Turcott

Absolutely.

Max Baybak

Okay.

James Turcott

Yeah, so, you know, when we have a client come on, we do, you know, an all-day deep-dive meeting with them. And so understanding what their goals are, understanding where they've been — so how have they gotten to this point today — so really dissecting business, and then, you know, whiteboarding out, hey, this is step one, two, three, four, and we're gonna need debt here. I mean, we may run into a wall here — so that's the other thing, you know, if they scale too quickly, well, then you can't go and get that, because your banking ratios — and without getting into the weeds — get out of, you know, get out of norm, uh, and so that prevents you from scaling. So really mapping out that growth is key to understanding where our clients are going.

But from a bank debt — yes, you know, we help put together those bank packages. There's a thousand files that get transferred back and forth, and so we help, uh, you know, uh, help on that front, and, you know, have connections within the space, uh, of banks that like the medical aesthetic, plastic surgeon, kind of, uh, healthcare space, that, you know, want to fund some of these people that are looking to find that.

Max Baybak

You said "kind of healthcare" — is the common denominator that it's elective healthcare, that it's fee-for-service, cash pay?

James Turcott

Yeah, I mean, the fee-for-service is huge. Um, I mean, from a banking perspective, from a private equity perspective, just how people view the space — not having that insurance component goes a long, long way for a lot of discussions. Um, it's a high-margin business as well, with that piece. So, you know, we see — uh, when I say margin, profitability — um, you know, we see margins somewhere in the 20 to 25 percent range for an aesthetic practice, which is, uh, within healthcare, one of the highest that we see across the board. So when banks or private equity or whoever look at it, there's less risk with some of these businesses, because they are such a high-profit-margin business.

Max Baybak

The same commonality for us in our clientele at Influx, where we primarily serve a set of practices that's plastic surgeons and med spas. We have, uh, some clients in other medical verticals, and they really tend to be those at the top of their game that have broken free of the insurance game and looking to have a fee-for-service business, and that's the common thread. Yeah, and otherwise it's aesthetic. So I think there's a lot of similarity in the clients you serve, where maybe it's someone outside of aesthetics now and then, but that's going to be the consistent, uh, common denominator.

James Turcott

A hundred percent.

Max Baybak

Okay, yeah. So one route could potentially be doing debt financing, working with you as a partner, scaling. Uh, what's the difference between when you have, uh, PE or family office versus a platform coming to work with you? And do you think it's better when someone partners with a platform, versus PE that maybe doesn't have the support system? Because obviously they might have the capital, but are they then just off trying to find the next deal and don't really have time to support?

James Turcott

Yeah, great question. Uh, so, you know, when we talk about a platform, um, I'll say there's a requirement to become a platform, meaning private equity — if you're going to become their platform — probably is looking for about three, four, maybe even five million dollars in EBITDA at the end of the day. And so if you fall below that threshold, it's very hard —

Max Baybak

The platform — sorry, I want to make sure — the platforms are looking for that, you said?

James Turcott

They are, and they're looking for north of probably three million in EBITDA — three to five would be a good mark, uh, for them. Some we've seen come down, uh, to just get going and start their platform, um, but that's usually the general range of, um, almost free cash flow that's available to the business, uh, to where they feel comfortable starting that platform at that level of EBITDA. Um, the reason being is they are going to have to invest — when they bring on that partner as a platform, they're gonna probably have to hire a support staff along the way for that management company, and so they need that significant level of EBITDA to reinvest within the business. So that's why, you know, a platform is kind of looking for that.

Strategics are a little bit different, because they already have that CEO, that CFO, they already have their regional teams, however you want to kind of phrase it, to where they can now almost plug into your practice. And when you sell to a strategic buyer, um, they're able to say, hey, this is our process, this is our system, these are the things we do, and at the end of the day, if you feel they're the right partner, it should be fairly easy to kind of plug into them from a partnership perspective or, you know, a strategic perspective.

Max Baybak

Okay, that makes perfect sense to me. So — I want to make sure I'm understanding — the strategic aspect makes sense, and I would love if you would give us an example, but will you also kind of walk us through — when you talk about a platform versus strategic, how do you define those as different?

James Turcott

So platform, uh, is a private equity group that doesn't currently have any practices within the space. Um, so they're looking to get into the space, and so their platform, uh, is really the first investment they're making into the space.

Max Baybak

And so that will become the hub — that first one will become the foundation.

James Turcott

Correct.

Max Baybak

And so they need — okay, so they need to draw off some of that cash flow to begin to build what will then become an MSO —

James Turcott

Correct.

Max Baybak

— that can then strategically partner with future —

James Turcott

Correct. So you're just talking about whether or not you're the first sort of investment within their fund at the end of the day. Um, and so they leverage debt, uh, and equity, um, as they continue to grow. But yes, you are that first investment for it.

Max Baybak

And then they're also — okay — then they're also probably looking back at that first acquisition to help them build those services out.

James Turcott

So — and that's why that three to five million dollars in EBITDA is kind of the range, because if a business is doing that sort of EBITDA levels, they most likely have some sort of management team already built out within their organization that that private equity group can leverage and really start with and grow with. And so, to your point, yeah — a building block.

Max Baybak

A hundred percent. Yeah, we've worked with, uh, practices on both sides. We've had a practice that was the first acquisition, and then we've become a big part of the marketing engine of that. We've had practices where they've already got a marketing engine, and they're like — because they're coming in as a strategic — and then they want them to plug into that. You know, it is whatever it is, in each direction, but obviously, uh, that makes a lot of sense — they're either looking to build it, or they've got it, and if they've already got it, then they're looking to bring efficiency to your practice by leveraging all those.

James Turcott

Absolutely. I mean, we've seen it a lot in dental — I used to do actually more work in dental.

Max Baybak

Yeah, I know what the DSO model is — and it's identical?

James Turcott

I mean, I'll say it's very, very close. DSO, MSO — the same strategy, and the same thesis kind of goes. You know, you have insurance now, though, versus fee-for-service, right — dental versus aesthetic space.

Max Baybak

Yeah, yeah. And dental — insurance-based practices — are really still —

James Turcott

Yep, pretty similar in many ways, they are. Yeah.

Max Baybak

Um, when you talk about a family office, that's essentially the same thing as PE, in this case looking to build a platform?

James Turcott

It is.

Max Baybak

Uh, any real difference if you're getting acquired by a family office?

James Turcott

Not necessarily. Um, really where the money comes from at the end of the day is really the biggest deal. Um, I'll say family offices, we do see, can maybe move a little bit quicker, because they don't have that huge investment committee that they need to kind of go through. But there's no real major differences when you think about a platform — and if you did a platform with a family office versus a platform with private equity, they're kind of the same concept.

Max Baybak

Okay, that makes a lot of sense. Now, how many of these practices do you come across that have no idea what their EBITDA is?

James Turcott

A lot. Uh, I mean, we had an example at one point — you know, we had a client that said, hey, you know, I've had — I think it was three or four locations, you know, maybe two million dollars in EBITDA — and I don't think I'm worth anything.

Max Baybak

Yeah, you mentioned it.

James Turcott

And we took a, you know, step back, and we're like, whoa — like, you have something of significant size here. And so to us, that was a reminder that the space is very young in just, yeah, understanding — whether it's private equity, whether they can sell. Like, we had clients that didn't even know they could sell their business. And so the education factor for us became a really huge focal point of getting out there. Um, we do an all-day M&A workshop, um, and have clients kind of come in, and, uh, you know, source kind of other, uh, contacts, and so, um, have people come in, have them just understand that process, understand what's out there. And yeah, we've seen the space be very, very young in that mindset and the sophistication of knowing what my practice is worth.

And so the moment that I think people understand that, and businesses understand that — well, now you have businesses that say, hey, I know if I grow to 2 million EBITDA, I can sell for X value, and I know that that's out there. Now you've kind of created this, um, track, sort of saying, hey, when I set out and I start to build my med spa or plastic surgery practice, these are the steps that I'm going to take, whether that's multi-site, whether that's one site — but I know that if I'm going to achieve a certain level of value, I need to get to this level of EBITDA. And that's kind of the education within the space that we're working through right now, and having people understand that that is a possibility.

Max Baybak

You have them set those goals.

James Turcott

A hundred percent.

Max Baybak

And when you said you're doing a lot of analyst work, that's kind of what you're doing, right — you're dissecting what's going on in the practice, where — when you said earlier there are opportunities — I mean, here we have an opportunity to close this gap to make you that much more valuable.

James Turcott

Absolutely, yeah. I mean, we try and close the — if someone says, hey, I want, you know, uh, 10 million dollars at close, um, and we say, okay, well, you're at seven right now — how do we get to ten? And then, yeah, to your point, we dissect that business and we say, okay, where can we, you know, marginally improve, um, over time. And maybe they need 6 or 12 more months, but at least it gives them a roadmap of: you're not quite there, this is what you need to get there, continue working, and we'll get you there, you know, over time. And once they get there, then they kind of know, and they have that mindset that, okay, I can achieve that goal.

Max Baybak

Okay, and then you'll help them get their finances in order and figure out what their EBITDA is, if they aren't figuring that out?

James Turcott

We do, yeah. So we do kind of the evaluation piece, yep.

Max Baybak

Will you define EBITDA for those who don't know?

James Turcott

Sure, absolutely. It's earnings before interest, taxes, depreciation, and amortization. Um, so what that ultimately means is the free cash flow of the business. Um, it's a very rough way to get to that piece. And the reason that buyers look at EBITDA, uh, is really that is the cash left over at the end of the day that they can reinvest into the business and really utilize to continue to grow, and so that's why it's a huge focal point. I know, you know, in dental, there was — 80 percent of collections used to be, like, back in the day, the doctor-to-doctor sale valuation, and that took none of the expenses into play. And that's why, you know, you're gonna hear EBITDA a thousand times as you kind of go through exploring kind of the M&A market.

Max Baybak

Okay, so in other words — there's a lot more to it, but you could look at it as the profit.

James Turcott

A hundred percent, right.

Max Baybak

You could say this is what you're spinning off as actual profit that's not having to go back into paying your costs.

James Turcott

Exactly.

Max Baybak

Um, how do you — and there may probably be a number of ways to go about this — but how do you factor in what the doctor is paying themselves into that?

James Turcott

Yeah, great question. Um, so probably our first or second question when we start working with someone is: how do you pay yourself? Um, whether that's taking distributions and you don't pay yourself a salary, or whether or not you're bonusing yourself a million dollars at the end of the year — whatever that may be, that's our first question. The reason being is, when you sell, a buyer is going to normalize you to what they're going to pay market rate for as an associate, right, or, you know, a provider that isn't an owner. And so typically on the plastic surgery side, we see about 40 percent is what they kind of normalize that, uh, comp to.

And so what we do is we adjust. We say, okay — you know, academic example — if you pay yourself a million dollars on the profit and loss statement, but your, you know, production is three million dollars, and you take forty percent of that — and I'm not the greatest math person, at the top of my head, about 600 grand — uh, you know, and so you take 40 percent of that, um, you know, they're going to then adjust out and adjust your comp on your P&L to say, okay, actually, you know, if you were under our practice, we would pay you X dollars. And whether that's a positive or negative adjustment —

Max Baybak

Okay, it doesn't matter. It could even be positive?

James Turcott

It could be positive, right. You could be overpaying yourself on the P&L from a tax perspective to flow money out of the business. Um, but when we go to market, we're gonna say, hey, that doesn't matter now — um, your comp is actually less, and therefore your EBITDA goes up, and therefore your value changes in a positive way.

Max Baybak

A positive to the EBITDA.

James Turcott

Yeah, yeah.

Max Baybak

So that's probably more granular than we need to get here, and that's why you put these workshops on — and we'll give a chance, I'll ask at the end where to go to learn more about that. The point is, there's ways to factor it in. And you'll get normalized — if, you know, presumably the way the deal would work is you'll be normalized to what the market would typically bear for a provider of your credentials —

James Turcott

A hundred percent.

Max Baybak

— and your production levels, let's say. And then they're looking at the rest as — so any remainder that you would have been overpaying yourself would be profit, right?

James Turcott

That was profit, which actually helps your valuation.

Max Baybak

So it's positive in that.

James Turcott

A hundred percent, right, yeah. And I think, real quick on, you know, on that piece, um — I think providers need to understand that what you're doing today, or at close, is going to be exactly what you're going to do the day after close. Meaning, we've had clients that say, hey, I want to stop injecting, or I want to stop seeing patients — but they're working five days a week and they account for 80 percent of the practice's production. There's no way that a buyer would say, oh yeah, okay, just stop doing that and you could be CEO, right?

Like — so understand what your end goal is, and plan out that piece, and say, okay, if I want to stop injecting, or I want to stop seeing patients, whatever that may be, we'll work towards reducing that now, to where when you get to close, you now have proven concept that this can run without me and I don't need to be here. And that's where I think — the education piece of, you know, allowing our clients to understand, like, your life at the day of close is gonna be exactly the same the day after close.

Max Baybak

It sounds like, if anything was to kind of fall away from your sort of list of duties, it might be on the administrative side, if you're joining a strategic.

James Turcott

Yeah, absolutely.

Max Baybak

And I think not on the clinical side — they're partnering with you for your clinical production, right?

James Turcott

Exactly, and your patients — and that's why your practice is valuable, right. Like, they're buying something of value. So, um — to build off of that — we get the question of, are they gonna fire everybody? And our response to that is: they're buying you because you're valuable, and you've built a really beautiful business. Why would they come in and change everything about the business? They just spent millions of dollars on this business. So, do things change over time? Sure — there's processes, there's efficiencies, there's understanding synergies. Maybe they found something that worked really well in another practice that they want to apply. Yes, things will change. But you're going to see the same patients, you're gonna show up in the same chair every day, you're gonna, you know, talk the same way, you're gonna market the same way — you know, all those things aren't really necessarily going to change. And so I think that's the notion that our clients usually — you know, that's the education, again, education factor — of, they're not going to fire everyone. You built something really beautiful, and they want to pay you for that beautiful business.

Max Baybak

Makes perfect sense. I spoke recently with a colleague — uh, two sisters, actually, sold their practice —

James Turcott

I think I know who you're talking about.

Max Baybak

They had big plans to be, you know, heavily active in this for the next 10 years, you know, and they were saying, we're not done with this — but actually, now's the time. And this may be a good segue into a conversation on what partnership means, and when we use that word in M&A, what we mean. Because they said, we wanted to partner with the right person to help us scale and grow. And if we decided to do that when we were kind of ready to get out, that's not the right time. We want to scale and grow this now, we want to partner with someone now, while we still have a lot of energy in us to do this. And I thought that was pretty wise. Um, so to your point about — this isn't a retirement strategy.

James Turcott

It could be, but it's a planned retirement strategy.

Max Baybak

Retiring immediately is not — it's not an exit in that path, yeah. So, uh, so I want to talk to you about that. But let me back up really fast, if you don't mind, just on the subject of EBITDA — what kind of multiples are you seeing today, and is it different than it was in 2022?

James Turcott

Um, yeah, so within the space, I'll say the short answer is we haven't seen a ton of pressure on multiples from '22 to '23. Um, the reason is, uh, private equity has a ton of what's called dry powder — capital that they need to deploy. Um, within medical aesthetics, uh, plastic surgery, um, we use the word recession-resistant, um, because we're still seeing repeat patients, we're still seeing, um, increase in patient flow, increased interest in the space from a consumer perspective — to where that profitability hasn't really dipped a whole lot. Is there inflation? Yes. But I think there isn't that pressure of profit, that now private equity is looking: where can I deploy these funds in a healthcare space that has continued to grow even through these, you know, economic uncertainty times? So that's why we haven't seen really a whole lot of dip from a valuation perspective, which is exciting for the space too.

But to your question of multiples — we usually see it in a range of EBITDA. So typically a buyer is going to look for about a million dollars in EBITDA as kind of a starting line, okay. Um, anything below that tends to be harder to grow immediately — like, they're buying cash flow, so they want a big chunk of cash flow at a time. So a million dollars in EBITDA, you know, we see multiples anywhere in the range, I would say, of five and a half to six and a half, maybe seven, depending on the practice. This is also contingent on, uh, kind of the service mix, how much risk is involved. And what I mean by that is, if you're a plastic surgery practice and you have one provider, and they're the only provider — well, that's a ton of risk that they're taking, so maybe the valuation isn't as great. Um, you know, we say the hit-by-a-bus model, right — like, if you go out and get hit by a bus, can the practice still keep going? And if it can, then sure, you know, that piece, uh, gets a little bit more valuable.

Um, you know, so going back to it — a million dollars in EBITDA, about five and a half, six and a half. Um, and then we start to kind of put in buckets. So a million and a half to maybe two million, um, here you're talking about six to maybe seven and a half-ish. Um, and then two and a half to three, um, about eight, eight to eight and a half, I would say, somewhere in that range. Um, and then when you get to three million is when the multiples almost start to flatten a little bit, um, to where 3 million and above ranges anywhere from, I'd say, nine to eleven or twelve. Um, it just depends on — one, we talked about, if they have a management company built, well, that's not as much investment that that private equity, you know, group has to invest now into that firm, so maybe it is a little bit more valuable. Um, but yeah, that's kind of where you see the flattening of kind of those multiples, to where you don't really bump up more than 11 at the end of the day. Um, obviously there's groups out there — I think, you know, there was a group that, uh, recapitalized and sold for a massive multiple — but for the most part, you know, 11 is usually where we see it cap out, I'd say.

Max Baybak

Interesting. When you say they recapitalized, what are you referring to there?

James Turcott

Yeah, so, uh, when our clients sell to a private equity group or strategic, uh, buyer, most likely they're backed by private equity. Um, private equity needs to return the funds that they've borrowed from their investors, and so their goal is: if you give me a dollar, I want to return three to you in about three to five years' time. So what we mean by recapitalization is, you join that group, uh, and they continue to grow and scale that platform, and maybe in three to five years they're now going to package up their group and they're going to sell it to a larger private equity fund — um, and that's what we call recapitalization. And so that private equity fund is going to do the exact same thing. They're gonna say, okay, I have this big group now, I want to scale it, I want to acquire some more — three-to-five-year timeline — and then I'm gonna sell it to the next. And so it kind of just moves up the chain.

Max Baybak

It's a second bite at the apple.

James Turcott

Second bite of the apple. Um, you know, we talk about consolidation, um, and within medical aesthetics, plastic surgery, um, consolidation hasn't really happened yet. Um, versus dental, you know, is north of 30 percent. So you now have these large dental groups that have sold to, like, Blackstone and these large funds — that's really what you call consolidation.

Max Baybak

You know, I'm referring to all of this kind of first-round M&A as consolidation, but really consolidation is the consolidation of the consolidators.

James Turcott

Yeah.

Max Baybak

I mean, and so that's where we'll end up with just five or so, right, groups really doing this — at the Aspen Dental level.

James Turcott

A hundred percent, right. And so now — but right now you have all of these providers that, you know, built their med spas, but private equity now is just getting in. So that runway — and people ask us, like, how long do I have? — and we don't see really an end to this runway right now. I mean, there's a ton, a ton of runway for people to continue to grow and, uh, and kind of keep going.

Max Baybak

Okay, so that gets us into this question about partnerships — the perfect segue. Although I do just want to comment quickly — I hear people kind of just loosely always using this 10 multiple on EBITDA. It's about 10, it's about 10, it's about 10 — in almost every industry, I feel like, too. Um, so it's really helpful to have that tiered kind of ranges that you gave, and I understand it's a framework.

James Turcott

Yeah.

Max Baybak

For anyone who's not clear on what we're discussing — that EBITDA, that roughly we're talking profit — I would say EBIT-duh, uh, you say EBIT-dah, I noticed.

James Turcott

Yeah, I blame it on Ben.

Max Baybak

I know a few others who say it that way, and I'm like, am I saying it wrong? Whatever. Your profit — a multiple of that profit is what you would be purchased for. So at the one-million-dollar EBITDA level, you'd be looking at five to seven million dollars is what the sale would be. And as you have higher EBITDA, that's in higher demand, and you can get a better multiple — maybe as much as 11 or maybe 12.

James Turcott

Yeah. And I think — people ask us, um, should I open seven locations? And our question is, what's your EBITDA gonna be versus your one location? Because it's gonna be lower for the first few years — it could be, right, there could be pressure on it. And the value then is, okay, would I rather have seven locations spitting off a million dollars, uh, in revenue and maybe — I don't know — 200,000 in profit, so a 1.4-million-dollar EBITDA business? Versus, can I just build one massive practice and get six million dollars in revenue and spit off that same level, even double? Now I don't have the headache of seven locations and all these people and all these leases and all this paperwork — I just built this massive practice, and I'm still getting that same value, because it's the same EBITDA at the end.

Max Baybak

That's the kind of equalizer, yes — like, what's the, you know, one location, ten locations.

James Turcott

Well, I would just say — yeah, and I think the question from that piece is, well, then why scale? Like, why go get multi-site type of businesses? And to us, when you scale to your second, third, fourth, fifth location, we call it proof of concept. So you've taken what you've built in the first location, and you've now been able to replicate it over and over and over — and private equity loves proof of concept.

Max Baybak

Okay, loves a playbook. Oh, you see — I was just gonna say — so the reverse end: what do your buyers want? These, you know, multi-site groups, or would they prefer one? But I guess if it's proven out, then they like that.

James Turcott

Correct. Versus, I open seven locations just because I wanted to say I had seven locations, and I don't have those same systems, I don't have processes in place, it's all over the place. Versus, I have seven locations and they're all very profitable, and this is the playbook of how we went from one to two to three to four — we open with this piece of equipment, we open with these providers — and there's that playbook. And now that private equity group can say, okay, we now have a playbook.

Max Baybak

And that might be particularly attractive to someone looking for a platform.

James Turcott

Absolutely.

Max Baybak

I have two people I know — one, a good friend of mine, who had been approached by a lot of strategics. He had three locations, but he was looking to be kind of that seed practice for a platform, and he's now got PE backing him to go out and do that. He's creating the playbook.

James Turcott

That's great.

Max Baybak

And he's the CEO of that platform, and he's putting the infrastructure there, and so it makes a lot of sense. Um, so there could be some reason — but also some people are looking to partner because they want to go to multi-location, but they don't know how to do that and they want the support.

James Turcott

Right — you feel you can go do that, right, and you want to commit to that. It could have benefits, but it may be — and that's, I mean, that's our consulting work that we do — is, okay, we want to build this, but we want to build it responsibly, and we want to build it with all those strategic type of mindsets, yeah — you know, as you know how to go about it, do it, because you can get into deep water very quickly, uh, if you aren't paying attention and you just want to scale for the sake of scaling. And so that's a lot of our job, is to mitigate that risk and have them understand what they're kind of jumping into here.

Max Baybak

It's so funny — in business, we do tend to scale for the sake of it — everything about what I was doing — it's fun.

James Turcott

It feels fun, yeah.

Max Baybak

You know, hiring, and you've got cash flow — or is it really cash flow? You have revenue — but really, what's the goal, and where are you going, and are you heading in the right —

James Turcott

Absolutely.

Max Baybak

Okay, I want to be mindful of your time — you probably have places to be. This is fun — it's really helpful for me to pick — I've talked — I have a lot of these conversations, but I don't get to just, like, barrage some of the questions like this, so I appreciate it. Yeah, and I want to understand — or I want to make sure that also our audience understands — when we talk about partners, we talked about the second bite at the apple, the next round of consolidation after, say, they buy you. You usually, in all cases — let me ask you, let me frame it this way: is there a case, ever, in which a practice is purchased and the physician-surgeon owner doesn't still own some piece of equity?

James Turcott

It's rare, I'll say. Uh, it's very rare. Uh, the reason being is, um, they're a provider at the end of the day, and we call it golden handcuffs. Um, yeah — but from a partnership perspective, it aligns people to grow together. Um, so that equity — we get the question all the time, like, is this equity really worth anything? Like, what are they tying me into? Why are they asking me to roll this portion back away? And — I don't know if it's helpful — I can go through a very quick, like, proceeds of: you have your cash at close, you have your, uh, rollover equity is what they call it. Um, most of the time they're gonna buy you net of debt and cash, because it's gonna be an asset purchase sale. So keep in mind, if you have three million dollars of debt on the books, that has to get paid off at closing.

So — all right, real quick — you know, our clients, um, educating them on: they say they're going to buy you for 10 million, and then you look at that closing and you have four million dollars, and you're like, where did six million dollars go in this process? And so just understand where the different aspects of the deal structure come into play and kind of what you're going to get. But, um, but yeah, that's kind of that education.

Max Baybak

If you were going to be purchased for 10 million dollars, and a portion of that is upfront, and you're going to also retain some equity — is a portion of that in equity in the new entity?

James Turcott

Correct, mostly.

Max Baybak

That's not a million of that 10 million, right?

James Turcott

So if, let's just say, they sell for 10 million — most of the time we see about 20 to 30 percent is what they're going to ask our sellers to roll. Um, so, you know, call it — what is that — three million or so, somewhere in that range. Um, and so, again, private equity's goal is to turn that three million into 9 million, and so that's the value of that equity. And most of the time we see that equity live at what we call topco — so up at the platform, up at the top level. We've seen what we call joint venture models, where, you know, your equity lives in your practice, and as you continue to grow, you're just building value along the way. Again, there's a thousand ways to skin that cat, but the point is, that equity is worth something.

And our — the question from our clients is, is that really gonna happen? Like, is this group actually going to do that?

Max Baybak

Usually really gonna happen — resell what they've rolled up to the next, and monetize that equity that you rolled — and that's the true exit for this sort of —

James Turcott

A hundred percent.

Max Baybak

I guess they also still need to stick around?

James Turcott

It depends. You know, they're going to have an employment agreement. So, to your point, the two, uh, women that say, hey, this is our 10-year plan — well, maybe that first group sells, but they're gonna roll and they're gonna continue to grow with that next firm. There's, uh, you know, sellers that say, after three years I am done, and that's their employment agreement — they have the option to leave. The hope is, during that time, that that platform understands that, hey, this guy or girl is gonna lose that production — I'm gonna have to recruit and replace that production. So it gives that timeline for them to understand it. But yeah, there is that option to leave, or keep going if you want — if you love what you're doing and you want to, you can roll again.

Max Baybak

So meaning you can take some of your proceeds and roll to the new topco?

James Turcott

A hundred percent.

Max Baybak

Okay, yeah, really interesting. So, uh — and if you're the first kind of acquisition to begin a platform, I guess maybe a topco is formed that you then own, and you're the first kind of — current on the PE group, or the first one?

James Turcott

Yeah, so think of it as, you know, a stock, right. Like, so if you're the first investment at the ground floor, that stock price is one dollar. Um, as the platform continues to grow — we'll think of it as a hockey stick — so that stock price continues to grow and grow and grow. So if you get acquired or partner with a firm that is maybe one year from their recapitalization event — well, my assumption is that stock price is gonna be a whole lot higher, because they built something. And so your equity, while you roll it — this is a little weedy, so I'll try and stay out of it as much as I can — but let's just say that three million dollars got rolled, but they're only a year away from recapitalizing — that share price is a whole lot higher, but they're going to return that to you much quicker than three to five years. So maybe your return is two times, versus three times or four times.

Max Baybak

So one, on the timetable — and that's coming into a strategic who's already kind of close to their —

James Turcott

A hundred percent, yeah.

Max Baybak

So maybe it's less, but you're looking at a way quicker return.

James Turcott

Yep. And you can roll again, right — if you love what you're doing, you can continue to go.

Max Baybak

Yeah, and if you're an initial — I just have a few more questions, I promise I'm gonna let you go. If you're the kind of the initial purchase to form a platform — you're looking — I always see people say, we really felt that we have to partner with someone to go to the next level. You're then getting some cash, and you're getting some portion of the newly formed entity. Where does the capital come to go to the next level? It really has to come out of that initial investment, correct?

James Turcott

Yeah, mostly.

Max Baybak

It's not — they're not going to then put in more afterwards, right?

James Turcott

Right, yeah. And the goal is, you know, they're investing — they want to, uh, leverage the processes, probably, that you have in place — again, that playbook, right. And so they see a playbook and they say, okay, I can put capital behind this. And, you know, the hardest part, I think, for our clients is to go out and find funding from a debt perspective. So people who want to grow and scale and have something really great — well, if they're ready to take some chips off the table, if they're ready to almost, like, professionalize their business too — like, you have sophisticated private equity groups who have built massive organizations and have the knowledge to do it. Now, do they have the operational knowledge? No — that's why they're investing in you. That's partnership, right. And so that's where the partnership comes into play, of: I know that you can help us, guide us here — we know the financial aspects of what we're trying to achieve — and how can we partner to then grow?

Max Baybak

So the free cash flow — that's why they're looking, like you said, more like three to five EBITDA — and that's helping to continue to sustain this central organization and all the admin systems. But where new capital will come in, whether it's debt or PE-backed capital, is on the new acquisitions that get then attached in.

James Turcott

Absolutely, right. And then you're just growing EBITDA along the way, and more cash flow, and continue to roll, yeah.

Max Baybak

Uh, the last thing I want to ask you to share with us is a little bit of what you're seeing in terms of — you made some mentions about — I'm just — because I'm trying to take the temperature of what's happening right now — you made some interesting comments about practices getting inundated with offers. You talked about how many buyers — this is before we started rolling — will you tell me about how many buyers you have that are out there? I don't know if you're all working with all of them.

James Turcott

Yep. Yeah, so, I mean, we do have a list of buyers who are interested in the space. Uh, our goal with our clients is to do diligence on those buyers. Meaning, um, a lot of the times we hear, hey, I got approached by this group, and they gave me this offer, and I think I'm gonna go with it. And our first response is: do you know anything about this group? Have they built a platform before? Do they know medical aesthetics? Have they been in healthcare? What's the return on that equity? Can they prove what they've done? So, again, a lot of diligence is done not only on our sellers, but we do it right back to the buyers, and say, tell us about yourself — what's kind of your plan?

So, um, from that perspective, yeah, we've seen a lot of interest in the space from a buyer perspective. We've seen, uh, the activity — you mentioned, uh, the offers kind of on the table. I mean, when we have a business that's ready to go to market, and we put together a really nice marketing package — tell everyone who they are, what they're trying to achieve, um, and understand, you know, the value — uh, the activity has been unbelievable. Um, and again, I think it's just getting started — I think we're in chapter one of this. I think we've seen — uh, we've had groups reach out to us and ask us, what do we think about the space, should they get into it? And I think everyone has been excited about where it's going. But, to your point, yeah, it's been very, very active.

Max Baybak

How many buyers did you say are out there?

James Turcott

I mean, off the top of my head, we see 150-plus, I think, right now — I think, you know, who we've had conversations with. So whether or not they're fully invested and they want to do it, versus exploring — but I mean, there's significant, uh, interest within the space. And so, again, going back to the education piece — that's educating our clients that, hey, you don't have to talk to one person. Uh, there's a significant amount of interest, and so why not see what's out there? And maybe that partner isn't the right partner — maybe you like someone else that you kind of get introduced to through our process, right. And so our goal is to present these groups and say, we've vetted these groups essentially, and said, you know, we believe in what they're doing, and, you know, when we present you, they're gonna say, great — like, this makes sense from a partnership perspective, and the right fit.

Max Baybak

Well, it's pretty clear from this conversation that money's not everything, right — there's so many ways that this could be a mismatch, and finances shouldn't be the first thing looked at. So I could see why your service is super valuable. But you also mentioned — and you never gave me any practice names — but you mentioned the deal where — you said there was some huge amount of offers ranging from a very broad number, yeah. And I said — this was before we started rolling — and I said, why would it be so different? You said there's just — the different groups look at it different ways, they value it a different way. So that's another reason to make sure you are coming to work with someone like yourself — to hear all the offers, right?

James Turcott

Absolutely. I mean, uh, going back to that unsolicited offer — I mean, if you have an LOI presented to you — letter of intent, so, you know, that's, hey, I want to purchase your practice — and you only have one in front of you, you probably want to take a step back and either have a conversation with an advisor and say, does this make sense, is this the right deal, how does the structure — what does this all mean — whether that's legal, whether that's a broker, an investment banker — but have a conversation around that, and educate yourself on what you're about to sign, and understand what that value is.

And to your point of the ranges of value — um, a lot of times those unsolicited offers are a whole lot lower, because they didn't have to go through a bidding process, they didn't have to compete against zero rings — they're hoping to kind of buy a pocket listing, right.

Max Baybak

Right — before it gets put to market, right.

James Turcott

And so, you know, that's where a lot of, you know, our role comes in, and getting full value for the business that you built. Um, Skytale is almost built on that notion of, we want to see our clients achieve that scaling, achieve that growing, and at the end of the day get that full value for what they've built. I mean, I think we say it's, like, the top five — you know, one of the top five things you do in your lifetime is sell your business. So — and people get one shot at this, most of the time. I mean, obviously there's anomalies, but you should go through a process to understand it — not sign when it is too quick.

Max Baybak

Right, right. I keep saying one last question — I'm a liar — but, uh, these kind of bank weaknesses we've seen — do you see that coming to kind of impact all this dry powder that's lying around, and maybe people will get a little more shyness to be deploying all this capital soon, these groups? Or, so far, it doesn't seem to have — no, I've only seen it accelerate since, uh, Silicon Valley and the others.

James Turcott

Yeah, I know, yeah. I mean, we had this question yesterday when, uh, Ben was speaking, of the interest rates and what does it all mean. And, uh, it kind of goes back to that notion of, there's all this dry powder out there, and they have to put it somewhere. And, um, you know —

Max Baybak

In fact, they'd rather invest it than have it —

James Turcott

Exactly. I mean, because they have a fiduciary responsibility to their investors to return it, so it has to be placed somewhere. And that's why we're seeing the activity within the space be, uh, really, really active.

Max Baybak

Because, as much — in fact, it's actually the reason why it's heated up in some —

James Turcott

Could be, sure.

Max Baybak

In some respects we could almost look at that as why there's some — I've definitely seen — because we're kind of, right, like I said, sort of at this, um, intersection of some of this activity — and we see, like, whoa, like, a real heat-up, and just in 2023, in this year.

James Turcott

Yeah, I mean, deal-wise, I mean, I know within our firm we're probably going to have a record year of deals that we're gonna do, um, just from an activity perspective. So it's been exciting. I mean, we, um — we've enjoyed being in the space, we've enjoyed educating the space and being kind of that voice of, you know, here's kind of the process. So, yeah, we're having some fun.

Max Baybak

Awesome. So if people already have an offer, but they haven't, you know — even an LOI, not an official contract — they can come to you then and say, hey, can you help me with this offer? Or if they're even far away from that, and they want to start thinking about this process, they can come at any point?

James Turcott

Yeah, absolutely. I mean, our goal is education. So if someone comes to us and says, I have this offer, and we talk them through it, and they say, I still want to go — great, like, that's up to you, that's your business. But if you're educated and you understand what you're signing, that's our goal. Um, that is ultimately where we can go to sleep at night and say, okay, we gave them all the information that they needed, and we feel good about their decision.

Max Baybak

So where would they go to learn more, find out about these workshops?

James Turcott

Yeah, so our website has some good information — we post blogs all the time around kind of selling. Um, we do, uh, valuations, I'll say, for free up front. We want our clients to understand what they're getting into and what that value is. So, you know, we'll sign NDAs and we'll go through that process, but we'll do an analysis on their business and give them insight into what is the value of your business and what do we think at market we can get. Again, that's up to them — whether they like the value, don't like the value, it doesn't matter to us — but we want them to know, this is generally what, uh, what you're gonna get.

Um, you know, and then we go to conferences all the time — we're up speaking. Uh, I know at Med Spa Show with AmSpa we do an all-day M&A summit, so we invite, um, people who are looking to sell, and it's more of an educational forum of the marketplace — everything we've talked about today: education of unsolicited offers, um, who private equity is, who a strategic partner is, all those different things. And so that's a really fun day, because you get to kind of interact with these people who have considered this, and, you know, people again say, I didn't know that this was even a thing — and so that's a really, really cool thing. So we do that. Um, and then, yeah, a lot of speaking engagements and moving around the country.

Max Baybak

So that makes sense. And I didn't get — we didn't get a chance to get into this, we'll have to do it another time — med spas. I'd love to pick your brain one time in the future about the difference between surgery practices, and predominantly surgery versus med spa. But you're representing both, right?

James Turcott

We do both, yep. Um, you know, and we have practices that have both in them, right — a plastic surgeon and —

Max Baybak

I think they're probably the best mix.

James Turcott

Yeah, yeah, it's interesting. Um, again, that hit-by-the-bus kind of mindset, right — like, if you can sprinkle in some med spa, and there's a nice mix there — whether they're at 60/40 or, you know, 50/50 — that ends up being really, really, really a nice mix.

Max Baybak

Cool. Where do they find you online?

James Turcott

Uh, so we're at skytalegroup.com.

Max Baybak

T-a-l-e — tale?

James Turcott

Correct. S-k-y-t-a-l-e group dot com.

Max Baybak

Yeah, perfect. Thank you so much — we sat here longer than I expected, but it was really fantastic for me, like I said, to just, like, barrage you with questions, so I really appreciate it. Thank you for your time, and safe travels back home to Dallas.

James Turcott

We appreciate it. Thank you for having us.

Max Baybak

My pleasure.