Shorr Solutions: The Podcast Ep. 93 - Breaking Boundaries: The New Wave of Aesthetics Through Private Equity & Autonomous Partnerships with John Wheeler - Shorr Solutions


Discover the groundbreaking world of private equity in the aesthetics industry through this enlightening podcast episode featuring our host and practice management expert, Jay Shorr, along with our special guest, CEO of Alpha Aesthetics Partners, John Wheeler. In this eye-opening conversation, they delve into the transformative potential of partnering with platforms like Alpha Aesthetics Partners. Contrary to common misconceptions, this isn’t just about selling your practice.

Tune in to this episode of Shorr Solutions: The Podcast and harness the power of private equity while maintaining your practice’s autonomy. Explore the game-changing concept of leveraging your assets to drive growth and profitability, all while redefining the traditional practice-selling narrative. This engaging dialogue reshapes your understanding of private equity, unveiling a path that lets you scale your practice while preserving its unique essence. Tune in to gain insights that will revolutionize your perspective on the future of aesthetics.

Schedule your free 30-min consult with our expert, Jay Shorr, here!

Convert more patients and boost your revenue! Sign up for our Conversion Cascade online course to attract more patients, convert calls to consults, convert consults to treatment and keep patients coming back for more. Get started here! Use code PODCAST to save 20% OFF!

Free Workbook: “How to Build & Maintain Your Dream Cosmetic Practice”. Download now here!

Connect with John Wheeler:

00:00:04:08 – 00:00:53:05

Jay Shorr

Welcome to Shorr Solutions: The Podcast. I’m your host, Jay Shorr. I’m the CEO and Founder of Shorr Solutions, a national and award-winning consulting firm, assisting aesthetic and surgical practices with their operational, administrative and financial success. I have an amazing team of practice management experts and clients across the U.S. and as an industry expert with firsthand experience owning a multi-million-dollar cosmetic dermatology and plastic surgery practice.

Listen in as I lend you my expertise and best tips to successfully manage and grow your aesthetic practice. I will also be bringing in guests along the way, so get ready to be equipped to operate your aesthetic practice strategically and profitably. Welcome to Shorr Solutions: The Podcast.

00:00:55:09 – 00:04:58:18

Jay Shorr

Hello, everybody, and welcome to another edition of Shorr Solutions: The Podcast.

Today I have a very special guest on John Wheeler, and John is the CEO of Alpha Esthetics Partners. Say hello, John.

John Wheeler

How’s it going, everybody? Jay Thanks for having me.

Jay Shorr

All right. It’s absolutely my pleasure. I happen to have been an honored guest on John’s podcast about a week or two ago, and John and I go back several years. He actually told me it was many more years than I had thought it was. But that goes to tell you, when you get a little bit older, everything runs together, so you try not to think of getting old.

And that’s been one of my problems. I’m not young and spry like you anymore. I used to have hair. John you’re not going to believe it, but you’re going to see it. I really did. I used to have hair.

John Wheeler

Well, I can’t be too young and spry, and I have a torn Achilles. I don’t think that that you do. So you got one up on me there?

Jay Shorr

Well, it’s a good thing I don’t have a torn Achilles, but I recently had a knee replacement, so you’ll get there. But let me start off and give a little bit of an intro about John. I’ve known John for many years now and before I was a national speaker and John was an attendee. And after that John became a speaker.

So we are cohorts in crime and we speak together at many different conferences throughout the U.S. And, you know, we’re moderators together, we’re speakers together. But a little bit about John. John is the CEO of Alpha Asthetics Partners and he is also internationally recognized as a speaker, a luminary and a thought leader within the aesthetics industry speaking at many major conferences and events.

But prior to joining Alpha Partners, John co-founded and grew his Sacramento based medical spa Aesthetic Center to three clinics and a facial plastic surgery center and within four years he grew revenue to over $1,000,000 per month. And he did this by building a great team and a great team is everything. We spoke about that last time. And you see many of our webinars and podcast speak about that.

And he did this by building a great team, best in class, branding and marketing and creating a raving fan experience. And there is something that I had heard many, many years ago but never really saw it, and I’m amazed by it. But John’s background before the aesthetic industry is in pastoral ministry and he earned his bachelor’s degree in theology in 2009 and his master’s in divinity in 2015.

And he actually worked as a pastor for seven years. So in his free time, he enjoys spending time with his wife, Danica, as well as her two daughters, Addie and Sloane. And what I found out is that his wife is a nurse, all right? And she’s a nurse injector. So none of this, none of this is really new to John.

So very interesting. John, our paths kind of run a very similar path because in my youth, I was going to go to the Yeshiva University to become a rabbi. And so we kind of run in that same path. And you know, what’s interesting about this is people who speak professionally have this in them, and they they actually want to share the wealth, share the knowledge, you know, and and give back everything that we’ve been giving to make it a better place, whether it’s in the world or whether it’s in business.

And truly, if you make it a better place in business, you’re going to make it a better place in the world. So I want to try to share one of the things that we have is in speaking today about a medical practice and selling a medical practice is how do we create this exit strategy. It’s a very interesting topic.

And John, I come to you because as this is really what you do, Alpha Aesthetics Partners, give a little bit of a brief about Alpha Aesthetics Partners so the audience will know before we get into it. Exactly how you fit and how this is going to work into our podcast today.

00:04:59:04 – 00:07:35:04

John Wheeler

Absolutely. And again, thanks for having me Jay. So yeah, like you said, I started Aesthetics Center with my business partner and my father in law. Actually, my father in law’s family business in 2017 was kind of our soft opening, 2018 was a hard launch. We started that hard launch with about $30,000 a month. Now we’re at about a million and a half, the kind of put us in a stratosphere where we were a very attractive target for a lot of buyers in the private equity space, because once you kind of get to that two, three, $4 million in EBITDA range, that’s a really good, again, entry point to build a platform, an M&A platform

for a private equity firm. So that idea is that you’re really good place for them to start and then they can add more companies via mergers and acquisitions to your platform. And again, we were just kind of in a range where it’s very advantageous for private equity firms. So we did our homework. We met with a ton of different firms.

Probably 8 to 10 different firms narrowed it down to our top two and Thurston was just kind of the clear choice, the easy winner, that’s the private equity firm that we went with. They’ve just serially done health care roll ups with the highest amount of success for decades. They’ve been around for 40 years. And I mean, you can compare their track record to anybody else.

I mean, you’re going to be hard pressed to find a single other health care private equity firm with even similar type of returns. They’re just in another stratosphere. And so they wanted Aesthetic Center to be their very first company that they’d acquired in the aesthetic space. We obliged. They asked me to be the CEO to run the whole company and of course I obliged.

And now that’s my role. My job is we’re partnering with and acquiring medspas throughout the country. We’re partnering with the best of the best top of the Rolodex type of medspas. And it’s an incredible type of role and environment. I was a pastor for seven years, like you said, I never thought I’d be doing this. But the interesting thing, Jay, is this. I have a lot of friends throughout the investment community, and a lot of them have been doing this for 20, 30 years.

And they say every single one of them, to a person, they say, I’ve never seen this type of euphoria in any other industry like I have in medical aesthetics right now. There’s just this euphoria around mergers and acquisitions in our industry. And so it’s really fun to be tip of the spear and to be, you know, major part of that.

00:07:35:16 – 00:11:18:12

Jay Shorr

Why do you think that is, John? I see it as well. Every day there’s a medspa popping up and every day there’s a medspa being sold. Why do you think that euphoria, what could cause that?

John Wheeler

Yeah, so there’s a few things. Number one is fragmentation. So when we talk about fragmentation, it’s really the opposite of consolidation. So fragmentation being there’s a large number of medical suppliers and most of them are completely independent of one another. And so, you know, 95, 97% plus percent of medspas are you know, owner operated, completely independent, not owned by a chain or a private equity firm or any other type of outside funding.

It’s just like a mom and pop type medspa. So that’s the first thing that’s a major factor. And what we’re seeing is just the whitespace that’s available within any type of a consolidation approach. The second would be the industry size. And so we’re a 15 to $20 billion industry. So we’ve reached maturity. You think about private equity versus venture capital.

What private equity typically looks for is a mature industry that’s durable, durable, meaning we actually did quite well during the 2008 recession. We did quite well during COVID. So there’s a large amount of durability there as well as just a total addressable market. And a total industry size. These are all things that are advantageous for private equity, whereas people think about hey, what’s the difference between VC and PE, well venture capital looks more to take something from 0 to 1.

They say, Hey, this doesn’t exist, let’s build it. Private equity says this exists, it’s massive, let’s consolidate it. And then the other thing that a lot of firms are really excited about and the investment community is very excited about, is the recurring revenue in the medical spa space. And so it almost acts like a Netflix subscription where every three months people have to come in and get their Botox or their Dysport, or every six months they’re coming and getting their filler or whatever it is, they’re just seeing the cyclical cash pay that’s very important, the cyclical cash pay nature of our industry and again, the lack of consolidation and they’re just saying, it’s time, let’s consolidate medical aesthetics and it’s just a perfect moment and climate for it. The last thing I’ll say is there’s but 8841 medical spas in the US, which sounds like a lot. The thing about our industry though, Jay, you know, everybody knows everybody. And so it’s a lot, it’s big, but it’s also a lot smaller communally than a lot of other industries where, you know, a lot of other industries, I think, are more just geographically centered and oriented where, you know, an ophthalmologist in Redding, California, probably doesn’t has never heard of a lot of ophthalmologists in other regions.

But in our industry is very social media driven and it’s very, very communally oriented where we all just know each other. And so these platforms can build with great speed because again, we have this built in recruiting arm because we all know each other.

Jay Shorr

Communally, that brings up a very good point communally, that could be a very good thing, but it could also be a very bad thing because if you do something wrong and you have a heritage cowboy, for example, cowboy cowgirl, I don’t want to differentiate between because in our world now there are male and female PAs and nurse practitioners, and 50% of all medical school graduates are in excess now, are more female.

All right, so you do something wrong. People are going to know it.

00:11:22:12 00:19:55:01

Jay Shorr

But it brings up a very interesting point to me, John. And here’s what it is. When do you think about selling this practice and why do I say that? Because, guys, look at this guy here. Remember I said, I’m going to show you that I used to have hair right now.

I had serious plans for the future, but the world doesn’t always hand you what you plan. So when you say that, you look at it a year, five years, seven years, do you look at it now? And there we go. Because there is the younger me and now there’s the much more mature me. So what I said to you, John, I used to have hair.

I actually meant it, right? So when do we start looking? Because I have people calling me all the time. And when I lecture and I speak on exit strategies and I speak on, I personally had serious plans for the future, but the world didn’t hand me the deck of cards that I chose. And through the death of my late wife, the medical director of our practice, I had to kind of pivot and do something different that I had planned because I had planned three, five years out.

And all along I was making those plans so that when that day comes and we finally say, peace out, do we want to work part time or do we just want to buy a Winnebago and travel the world and be a locum tennants? So with that, I’ll ask you when when you start thinking about it.

John Wheeler

Well, first of all, I mean, that photo for people that are audio only, I mean, you were like a Greek god, man. That hair that chiseled physique. I mean, I’m jealous. Like, look at that mustache. Just a beautiful man.

Jay Shorr

People tell me I looked like, I was in Miami here, they said, are you are you interviewing for Miami Vice? Right.

John Wheeler

But, well, you’re bronze god, I’ll tell you that.

Jay Shorr

Did you notice John? Did you notice even at 21 years old; I still wore a tie. That’s back in 1975. Right?

John Wheeler

Dressed for success. I like it. So, I mean, we’re talking about when, right? And that’s essentially a conversation about compounding returns. And so when we think about private equity, the really good book I would recommend to anybody that wants to know more about this business model is the book The Private Equity Playbook you can find it on Kindle, costs a couple of bucks to download, take a couple hours to read.

It’s a really good primer on the business model. So we’ll say is that if you’re thinking about timing, the ideal time horizon would actually be more time, not less. So when we think about, again, the nature of private equity, how it works is you can think about it in a really simple way. There’s early stage, middle stage, mature stage, private equity firms, and the goal of the early stage is to get in, you know, again at the ground floor to partner with a practice, one practice that has say, between two and three, two and $4 million in profit and via mergers and acquisitions typically or even through maybe de novo strategy.

De novo strategy is where every business, every location looks identical, functions identically, has one EMR. M&A would be buying a ton of different medical supplies with a complete array of EMR and products of the use, things like that. So again, the early stage comes in. They buy a firm, let’s say, $2 million in EBITDA in profit, their goal is to grow it to say 30 million or $40 million in profit and sell it to another firm.

And in doing so their goal would be to between three and seven X, basically their investors money, their own money, their partners money to again say a 3 to 7 X. So let’s just take the middle of those and let’s say that they’re able to achieve a 5x, right? So from day one…

Jay Shorr

For those listening, John uses two terms that I really want to explain because we don’t want to get ahead o f ourselves here. He uses the term EBITDA. You may have heard of it , and what that means is earnings before interest, taxes, depreciation and amortization, it’s kind of an accounting term because you have to back out certain things in expenses.

And when he talks about 3X 5X 7X, he’s not talking about the size of somebody’s shirt. All right. What he’s talking about is a multiple of that EBITA. So it’s 3x, 3 times. So if it’s EBITA of $1,000,000, then they may be willing to pay three X they would be might be willing to pay 3 million, five X would be 5 million on that million.

So I just wanted to share some definitions because some people I had somebody asked me the other day when I was speaking about finances, what does PNL stand for? And I said, No, actually it’s P and an ampersand sign and the L for the profit and loss. And I never like to think about anything being non elementary or to elementary because everybody is a specialist in their own field but needs to understand the three letter algorithms that we use and everything has, you know, some type of synergy of terminology. So I just wanted to share that. And so going now, John.

John Wheeler

Yeah, so let’s say, let’s say it takes about 3 to 4 years to get that first, what’s called an equity event. Equity event again is where the small, or the early stage private equity firm sells to the middle stage, right? That’s when everybody’s shares become liquid. I can’t think of a private equity firm like a stock market.

Stock market. I can buy and sell a single stock, you know, 100 times in a day. If I wanted to, I can put my money in and take my money out very easily and quickly. Private equity. Your money is only liquid. You can only take it out during these equity events. And again, the equity event is where the early stage firm sells to the middle stage firm.

So the reason that the middle stage firm doesn’t like to get in earlier typically is they’re working out of a little bit bigger fund. There’s a lot more hand-holding that is required. I mean, you could think about. So my company Aesthetic Center that I started so Thurston, our private equity backer, you know, getting in as early as they did.

It’s really the work that we’re all doing of turning a local business into a national business and adding corporate infrastructure. I mean, that’s a pretty big lift, right? And there’s a lot of firms that are like, we just don’t want to have to work that hard because that’s a lot of work. Right?

And so again, let’s say that Thurston, They’re with Alpha, they’re able to 4X, you know, the original value of the share, take it to an equity event. Let’s say that takes about 3 to 4 years. Well, there’s another buyer that comes in another private equity firm. Well, they want a 3 to 5 X their money as well. Right. And their shareholders money as well.

And that might take another 3 to 5 years. And so now you’re let’s say you’re eight, you’re ten. Some are somewhere between year seven and ten. Well, now you’ve been through two different equity events. Right. And each equity event, let’s say you got a 4X and then another 4X on those shares. So the interesting thing about that is that is a compounding return.

And so if you had $1,000,000 in shares on day one and then you got to 4X and then another 4X, you wouldn’t have $8 million, right. 4X plus 4X is not 8X,

Jay Shorr


John Wheeler

It’s actually 16X, and so if you’re able to roll in all of your money now, you probably wouldn’t. But if you were, that would actually turn into $16 million.

And so we talk about time horizons. Well, if you’re if you’re saying, hey, I need an exit today, Alpha isn’t probably the solution for you. We like to partner with people. We want people that are going to, you know, commit to working together, running at this thing for another five years or so, maybe even more, if that’s something that our partners want to do.

But I think, again, if you can plan 10 to 12 years out, well, now you’re looking at taking advantage of two, maybe even three equity events, compounding returns 2 to 3 times, and making what I call a hospital wing money. If you have a practice that has a lot of profit, I mean, you can be ready to write a check to a hospital to build them a new wing.

Go to your old college, build them a new dorm. That’s the type of money that we’re talking about If you can get in early and hold those shares and keep working for another 10 to 12 years.

00:19:56:09 – 00:21:38:05

Jay Shorr

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00:21:38:07 – 00:22:50:17

Jay Shorr

So now that brings me to another point is where do we find these people? All right. There’s all kinds of people out there. Naturally, you and I speak at all these events and will hear of people. I have people coming up to me all the time because I’m structuring a lot of my lectures now on exit strategies and succession planning.

So where do you find these people?

John Wheeler

I mean, so for me, I speak all around the country. I speak 40 to 50 times a year throughout the nation. A lot of these people that are early partners, are personal friends of mine and they are a lot of the best and brightest in our industry. We have some people that are advisors for us that they’re vouching for new partners, saying these are some friends that I have from around the industry, that if I was you, I’d be partnering with them.

You know, there are some broker deals that are happening with some of these broker firms, like you know, that we’ve all seen. I won’t even name names because I want people to think I’m playing favorites, but there are some brokers that are brokering deals and they’ll they’ll run a process and they’ll they’ll send these deals to a number of different firms like Alpha.

And so we’re privy to all of those deals. But a lot of it’s just personal relationships and personal connections, people that I want to work with personally.

00:22:51:06 – 00:27:09:12

Jay Shorr

So if I’m looking me personally, if I’m looking, what do I look for in a buyer if I have a practice for sale?

John Wheeler

So number one, what I would look for is a private equity firm that’s backing the platform that has a really good track record of success. So one thing that I believe is that past performance in the private equity world will dictate future success. So if you have a private equity firm that you know, they’ve had a couple of successes, a lot of misses, I’d be pretty wary of partnering with any platform as backed by that firm.

If you on the inverse of that, have a firm who has had nothing but wild success, they’ll give you a pretty good idea of how your shares will perform. Because what we’re actually talking about, Jay, is we’re talking about, you know, first of all, nobody can buy your practice. That’s not happening. It’s not a thing. So in most states, there’s something called the corporate practice of medicine.

And so a firm like Alpha, we don’t buy your practice. You actually maintain ownership of your practice, what we purchase is the assets and the goodwill. But an easier way to think about it is we’re actually just buying access to your profits. So we are now licensing your profits from you and we through a support services agreement or through a management services organization, are extracting all of the profits from your business.

So while we don’t own your practice, while you’re not selling your practice, you are selling the right to your profits. I think that’s that’s really important distinction.

Jay Shorr

Let’s define some of those terms. When John spoke about the management service organization, many of you out there might have heard the term MSO and never really understood what that meant. And John just explained that. Now with that he’s buying the rights to everything else. He’s going to manage your team, he’s going to own the capital equipment, he’s going to have the real estate, the rents are going to be in their name and then they’re going to have what they call an MSA, the MSO, which is the management service organization, will create an MSA, which is the management service agreement with the doctor that dictates the terms and conditions from the organization and the agreement to the practice.

And the only thing that an MSO cannot do is govern the way that the actual doctors perform medicine. Now, there are certain states in the country that do allow non physicians to own a medical practice. For example, Florida. I was an owner of a practice. As long as it’s an LLC or a corporation, it’s not an MDPA, DOPA, PLLC, PC then a non physician may own it, still may not govern the way medical medicine is practiced because they’re not licensed.

All right. So it is very important. With that, John, let’s move on to my next topic that when you’re doing this, you need to seek the advice of many, many people when you’re doing this, because if your company were to come to a medical practice and what I’m doing is I’m going to play devil’s advocate, but of course you’re always going to win.

That’s the purpose of what I want this podcast to be. I want you to be the winner of it, not as an advocate, advertisement or promotion. But I want to get professional and I mean really good professional advice. But I would urge any one of my clients that they said to me, well, Alpha has come to me and they want to buy me.

First thing I would say to them is you need guidance. All right. And where are you going to find the guidance? Yes, you can trust John Wheeler. I’ve known him for a very long time, but you really need to have an attorney, an accountant, an appraiser, a consultant, someone like us who will help you along the way. Our fiduciary is with whomever hires us naturally.

All right. But once again, here comes the key to it. How do you evaluate the assets and evaluate the value in which Alpha is going to pay?

00:27:10:01 – 00:35:25:03

John Wheeler

Yeah. So, I mean, for us, we’re really proud of our diligence process. I think that’s what separates Alpha from everybody else. I mean, we do deals up against a lot of other firms, do similar kind of model to us. And what we hear all the time is, hey, I felt like those guys spent about 20 minutes on my numbers.

I feel like you guys spent a lot of time and you actually really understand my business. The other thing I think it’s important to point out is no matter who you’re working with, I mean, we all have the same goal, and our goal is to actually find as much profit in your business as we can, because we all have a goal that we want to hit a certain you know, EBITDA or profit target as a company, as a platform.

And so trying to lowball deals based on, you know, everybody’s EBITDA actually makes the whole thing take a lot longer and a lot more difficult. So with everybody that we’re appraising their business, we’re mutually aligned on that. But I’ll tell you typically that the process so step one is we just want to talk. We just want to make sure that, you know, it’s a good fit personality wise, you know, culture wise, that we just like each other.

We’re going to be working together. We should probably like each other. So that’s step one to a conversation. Usually numbers don’t even come up on the first call. If they do, it’s like, you know, by the way, I think it’s important to know it can be pretty hard to get a deal done with less than $2 million in top line revenue.

So if you have less than two and a half million, 2 million in sales somewhere less than that, a lot of times there’s not enough profit on the table to make the offer supremely interesting. You know, you think about it like if you have $200,000 or $100,000 in profit, you know, you put a multiple on that. I don’t care what the multiple is.

Once you pay taxes, your attorney, you know, pay off your lasers, there’s not going to be a whole lot of, you know, meat on the bone after that. I mean.

Jay Shorr

Let me stop. You brought a very interesting point that you and I both discussed the other day. Pay off your lasers. Let’s talk about that for a second, because when I speak to many of the practices that want me to help them sell their practice is I look at the capital equipment and I want to know, are they unencumbered?

Because if they’re encumbered, you know, you’re either going to have to pay it off or the buyer’s going to pay it off, but you’re going to get a significantly less payout. So let’s talk about that for a second.

John Wheeler

Yeah. So, I mean, the way that everybody structures their deals is very similar. It is an asset purchase. It’s not an entity purchase, like I said. So even if you have an MSO, that’s not what’s being purchased, it is the assets. And so the buyer, whether it is Alpha or somebody els e, we come in, we don’t want to take on a lot of debt and liability, whether it’s, you know, I mean, yeah, just as any type of liability, whether it’s legal or financial, we don’t really want to take that on.

Right. And so that is where this is an asset purchase. And from the proceeds of the sale there is. So the day that you close let me let me just back up really quick. So me we signed an NDA we get all your numbers typically takes a couple weeks to compile all of those numbers and then from there we present an offer.

And then once you know, all parties say it’s a great offer, we’re excited about it. Then we signed a letter of intent and LOI, and then we go through that post LOI diligence that includes kind of a soft audit on the business.

Jay Shorr

Now, Is that LOI, binding or non-binding, John?

John Wheeler

It’s a non legally binding, but there are actually some that’s a little bit of a misnomer. LOIs are non-binding, but actually some of the points in the LOI are and can be legally binding. Correct? So then we we get through that whole diligence process, kind of like escrow on a house takes 2 to 3 months, then we get to close.

So it close. The way that works is from the deal, let’s say it’s an $8 million deal, right? Typically for Alpha anyway, we give a meaningful amount of equity. We’re really proud of that. We probably give the most equity out of anybody that’s doing this right now because we do believe in true partnership. And again, Thurston’s done this successfully for decades and they found if there’s one thing they’ve learned, it’s to create true partners that are all fully aligned rowing in the same direction.

So we give a fair amount of equity, let’s say 70% of the deals typically in cash, 30% is typically in equity. The day we closed, there’s something called funds flow, and that’s when all the money gets wired to to the seller and then to all of the different people that are owed money from the seller. So if that’s laser companies, if that’s, you know, a personal family friend that loaned you money, we get the routing number of all of the people that you owe money to.

And then from that funds flow. We pay off all the debts that were incurred previously from the seller and then the remainder goes to the seller all through a wire. And that’s kind of what it looks like. And then your deal closes, you get a big pile of cash. And I can tell you firsthand, life gets pretty good after that moment.

Jay Shorr

I like the whole pile of cash deal, really kind of warms me up a lot, Right? So it’s kind of like a settlement on a house. Like nothing different. The title company wires money and pays off all debt. Now, when it comes to that, do you offer do you pay 100% of the non stock or do you have a hold out like 20 30% after a certain period of time like other companies do?

John Wheeler

Yeah, Yeah, it’s pretty standard. There’s going to be two different hold backs. So there’s typically an AP hold back and then there is an indemnity hold back. So the reason for the AP hold  back, whether it’s with the offer or anybody else, is, you know, Thurston, a lot of these firms have done this for a long time. They’ve seen it all A way to game the system would be for a month before close.

Let’s not buy anything at all. And then the second we close, let’s make our new buyer have to buy all this stuff that we should have been buying for a month, but we weren’t so that we could hold on to as much money as we can. Because what happens at close actually Jay is you do get all that money, but all of the money that’s left in the account is typically it belongs to the seller.

And so if you have $500,000 left in your account, let’s say now if there is a payroll that’s about to hit, you’d probably be responsible for a prorated version of that payroll. But so what some people might be inclined to do is, yeah, let’s not spend any money and then let’s have the transaction happen and then let’s have the new buyer have to pay for everything.

And so that AP hold back is to make sure that doesn’t happen. And so as long as there’s a pretty consistent amount in AP that’s, you know, historically accurate and in line with what’s happened historically, the seller will get all of that money back from the AP hold back. And then if you know, if there’s a huge Delta, it’d be a conversation of like, well, this is why there’s an AP hold back.

And then the indemnity is just to make sure there’s no lawsuits or litigation that was pending or, you know, anything legally that comes up. And then at about the year mark, sellers get that back as well. So right around that time they’re really made whole within the entire purchase unless there’s some type of an earnout or a kicker that can sometimes be a 1 to 2 year, you know, earnout after the purchase as well, additional money that can come the way of the seller.

But everything in my practice is worth so much money. John, you know, I bought this. I’m not going to mention any specific piece of equipment that’s unfair to do here, but I bought this piece of equipment and it was $200,000 and I bought it three or four years ago. It’s got to be worth at least $150,000 because I paid a lot of money for it.

Jay Shorr

So let’s talk about in the valuation, what is an asset and you mentioned what assets come with the sale. I want you to try to share what assets do not come with the sale and if you could define what an actual cash value is versus a market value of the equipment, because everybody I hate to tell people, don’t fall in love with your ugly baby right?

But to them, the moment they bought that machine in their head, that dollar figure lives in their head forever regardless.

00:35:27:06 – 00:38:51:12

John Wheeler

Yeah. Well, I mean by the way, most of the purchase is goodwill, and the seller should be happy about that because goodwill is taxed to capital gains when we’re paying you to pay off your assets. That’s not actually typically taxed at capital gains that can be taxed more at an income tax type level. And so what we do is we send out asset appraisal firm.

It’s a third party firm out of Colorado, and they come onsite with all of our sellers and they do an asset appraisal. And so I’ll tell you, when I sold our business, I was very happy that, you know, we’d spent millions of dollars on lasers, Millions, truly. We had to pay off a lot of money out of the proceeds or purchase of those lasers because, you know, the end of every year we buy another laser to save on taxes.

May as well have a laser versus pay taxes. But yeah, when the asset appraisal came back, it actually came back very, very low. I think like 10% of our deal was assets versus goodwill and we were the happiest people on earth because again, that meant the majority of our purchase was capital gains.

Jay Shorr

Right? Most people don’t really understand that because goodwill in most businesses is, you know, goodwill is where you donate clothes and old things. You know, clothes and furniture. There’s not really a whole lot of goodwill anymore in medical practices because the doctors felt that they’ve got X amount of thousands of patients and they’re not really active patients.

They may just be patients names in their practice management software, but they haven’t seen that patient in a couple of years yet. They’re still counting them and they want X amount of dollars per patient. All right. Figuring that’s what goodwill is.

John Wheeler

So right now, the valuation metrics are really simple, and I can speak to that. It’s just how much profit are you putting on the bottom line? There’s a market for multiples, so it depends on how big your practices are. Typically, the more EBITDA, the higher your multiple people pay, more money for more EBITDA, more profit. But typically the market for multiples right now is in the mid to upper mid single digits.

And so you just take how much profit you have on the bottom line. You multiply that by the multiple and that’s your valuation. Again, typically 70% cash, 30% equity, 65% cash, 35% equity. That’s the structure to create an offer. And it’s pretty straightforward.

Jay Shorr

All right. Now, see, now as we round this up, something is very important. When you buy a practice, you want the staff to stay, correct?

John Wheeler

Oh, big time.

Jay Shorr

Of course we do, because that creates a lot of disruption. So when you are in the process of selling your business, when do you tell the staff? When do you give them the information that they really need to know? Because you and I both know in my certain situation, I knew that I was going to be selling the practice and closing the practice because when the doctor, my late wife, passed away, you know, when she got sick, I had to tell them there was going to be transformation in the way she looked and the way she acted, the amount of times bringing in locums.

But other people say, I don’t want to tell my staff because afraid they’ll jump ship in this situation. Since you want staff, how do you go about? What is your feeling about that?

00:38:52:14 – 00:43:29:01

John Wheeler

Yeah, you know, I think it’s really important that it’s framed the right way and I’m a big fan of telling the staff earlier rather than later. And also, again, you know, we’ve used the word sell. I don’t like the word sell because again this is not a sale of your business. You’re still the owner of your business. You still have clinical autonomy.

What it is, though, is essentially taking some chips off the table and rolling your equity into Alpha holding company, which is backed by one of the most successful private equity firms in history. And so it’s really not a sale, it’s just a transfer of ownership. And I think when we understand it like that, it’s a lot easier for your staff to digest that.

Hey, guys, this is not an exit. This is actually us rolling in our equity into something that’s really special. It’s nationwide and it’s going to mean a lot more opportunities for my team, right? That’s what it means. So like, for instance, that Alpha were the only platform in the nation where the company nation to have equity for a major swath of our providers by class.

And so they’re actually able just as a matched percentage of revenue to get shares Class A shares in Alpha and there’s a lot of opportunities like that. There’s a lot of professional opportunities around operations, integrations, affiliations, finance. I mean, you just blew the glass ceiling off your entity, off your organization when you partner with a company like Alpha or with Alpha.

Jay Shorr

Do you recommend, John, that when a practice is going to go through this, that they even offer shares of any type to those people remaining? It may be an incentive for them to stay?

John Wheeler

Yeah. I think from the proceeds of the sale it can be a really powerful and kind gesture to say, Hey, getting this money, I have a couple key people that I’d like to give some of my equity to and we obviously always are excited to see that. And then again do have this Pathway to Partnership program. We have the ability for some of the key staff to write a check directly into Alpha to become an investor.

I mean, there’s a lot of alignment that we like to create because we’re not the type of company. There’s a lot of them out there where it’s a less squeeze every ounce of juice out of the orange. Jay You have an office manager that she works for 29 bucks an hour. I think we could get somebody in there for 19 an hour.

So let’s try to get her out of here in three months. Like we don’t we don’t think like that. We think more like we partner with the best. We partner with Medspas, medical service companies are already successful and we want them to keep the magic going, keep doing what they’re doing. But now with greater resources and greater scale and greater buying power, greater efficiencies.

And so what we don’t try to do is save our way to prosperity. We don’t try to engineer the magic out of the hamburger. Right. The magic, the secret sauce out of the burger in order to save a couple bucks here and there, we just say, keep doing what you’re doing. Here’s more training, more cross-pollination with other practices, better benchmarking.

We’re all golfing in the dark. We all think we’re unicorns. Here’s the hard data around that. But by and large, we’re really not sitting around thinking about how do we save two bucks here and there on these employees. It’s just not what’s in our minds.

Jay Shorr

John, How can people that are listening to this podcast get in touch with the John Wheeler if you don’t attend a one of these conferences where you speak like like I do, how can they contact you about an email address, a website, a phone number.

John Wheeler

So yeah, the best way would be number one. You can follow me on LinkedIn @John Wheeler. If you want to know more about Alpha, you can send me a DM. Also, you can definitely check out our website You can check us out on Instagram, @partnerwithalpha, You can listen to my podcast, which you were a guest of two weeks ago.

Now Jay, we launched that episode, Great Friends, the Great Friends podcast. If you look up Great Friends Alpha on the podcast app, you’ll find us and those will be the best ways to get a hold of me.

Jay Shorr

John It has been an absolute pleasure. I look forward to seeing you four or five times between now and the end of the year. We can commiserate, we can share all our stories. For those of you folks, if you’re interested in even thinking about selling your practice, make sure to contact John Wheeler. You’re going to get a wealth of information.

So once again, thank you for spending a good part of your day with me. And we look forward to another episode of Shorr Solutions: The Podcast. Have a great day, everybody.

00:43:30:06 – 00:45:03:05

Jay Shorr

So that wraps up today’s episode of Shorr Solutions: The podcast. If we mentioned any website links, you can find them in our show notes to work directly with me and our award winning team of consultants to increase efficiency, increase revenue and decrease costs in your aesthetic practice, schedule a free consult with us today.

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