About 15 years ago, a friend of mine became involved in a start-up dental business with a charismatic dental founder who had made a lot of money in dentistry and decided that because they'd made good money in dentistry, it meant they would be good at making money in pretty much anything else. They decided to set up a business, and my friend became part of that organisation.
I watched this business from a distance as it changed from one thing to the next to the next, trying to become a money-making machine. In the end, I was presented with a glossy brochure (which was very glossy) asking for money from external investors effectively to keep the business afloat until they went on to the next scheme to start making more money again.
The brochure guaranteed the investors this extraordinary return, but it was clear that the return would only be possible if the business had any money at that time; you can't pay somebody something you don't have.
The organisation experienced much heartbreak, embarrassment, bankruptcy, disaster, and devastation, as happens when these things go down. The founder disappeared underground, never to be heard of again, and other people left carrying the can both financially and legally.
I tell you this because I was recently given another one of these glossy brochures (albeit via WhatsApp, but if it were printed, it would be very glossy) from a very large dental organisation in the United Kingdom addressing its shareholders.
I don't need to name any names; you'd be able to guess who's been listed here, but the organisation itself has undergone extraordinary expansion in the last few years, buying assets, businesses, and practices at prices that seem to be insane.
At that stage, lots of guys seemed to do really, really well and make it like bandits as it was a race to buy practices, which were in finite numbers and therefore, the supply and demand model meant that the price went up and up.
People were paid money for practices that they could never have dreamed of, and therefore, they set themselves up to ride off into the sunset in 3 to 5 years time when the earnout period had finished.
What seems clear from this brochure (which looks devastatingly similar to the brochure I saw 15 years ago) is that the organisation is struggling for money.
I was also; when I was given this brochure by a friend given a snapshot of the balance sheet, the profit and loss declaring how the business is actually doing (profit and loss is really the law in finance, isn't it?).
Last year, the business lost tens of millions of pounds but was able to 'write off' over £100 million, therefore 'creating a profit'.
With this in mind, they could convince everybody that the business was actually in great shape, and if you invested money into the business, you would get this big return back later on.
As I said before, you can only get the return if the business actually has any money.
In the world of shareholder primacy, there are some shareholders that are more equal than other shareholders, and therefore it looks very much to me (and to others) that if you signed up for an earnout when you sold your practice, you might struggle to get it, and you certainly might struggle to get it soon.
What this shows is the age-old problem juxtaposition of whether to stay in an organisation that you sold, where people don't like you anymore and it's completely different to what it was before for the longest period of time in order to get some more money or leave and give up the money.
Either way, the big organisation 'wins' even though they're losing because the share price has dropped by 50% so the value of the business is way less than it ever was.
It's fascinating to watch, easy if you're not selling your practice to just watch the wheels go round and round like John Lennon said.
There's a bubble; it bursts and flattens. Everybody runs to the hills. We start again, and the bubble returns.
It all seems quite easy, doesn't it? Just time the sale of your business for the maximum amount at the other end, where it always seems to go like this.
I remember watching Integrated Dental Holdings (MyDentist) go through all the same stuff.
People forget that when they're in the middle of the collapse after the bubble bursts, it's carnage.
The guys who invested all their money in practices have to get it back. Jobs go, systems go, materials get worse, everything gets squeezed, and it becomes a sh*tter and sh*tter and sh*tter place to work. You stay there for a huge amount of time, waiting for a check to come so that you can get the rest of your money out.
It's just mortgaging your life away, working on something you don't believe in for a few more coins.
Not for me; I just couldn't stand it, but then I'm weird.
Blog Post Number - 3815