Summary

In this conversation, John McNabb shares his extensive experience in mergers and acquisitions, detailing his journey from a banker to a successful entrepreneur in the dental healthcare sector. He discusses the challenges and strategies involved in corporate restructuring, the importance of negotiation, and the unique opportunities within the dental M&A market. McNabb emphasizes the need for careful planning and integration in acquisitions, as well as the significance of understanding the industry before diving in. In this conversation, John McNabb discusses his journey in the dental acquisition industry, focusing on the challenges faced during the pandemic, the importance of delegating authority, and the need for effective management structures. He shares insights on the business acumen of dentists, the strategies for successful acquisitions, and the value of mentorship in his career. McNabb also explores new opportunities in consulting and emphasizes the significance of capital raising strategies for successful business operations.

Takeaways

John's early experience in banking shaped his career in M&A.
The thrill of closing large deals can be addictive.
Corporate restructuring requires a strategic, long-term view.
Negotiation skills are crucial in M&A transactions.
The healthcare sector, especially dental, offers unique opportunities.
Understanding the industry is key before making acquisitions.
Integration post-acquisition is vital for success.
The financial community favors sectors with low bankruptcy rates.
Building a strong management team is essential for growth.
A CEO's role should focus on strategy and capital allocation. Delegating acquisitions is crucial for growth.
The pandemic posed significant challenges for businesses.
Dentists often lack business knowledge despite high education.
Implementing management structures can free up dentists' time.
Quality acquisitions are preferred over fixer-uppers.
Learning from mentors can save time and money.
Exploring new opportunities can lead to growth.
Capital raising strategies are essential for acquisitions.
Cash availability is critical in competitive markets.
Maintaining staff during tough times can pay off in the long run.

 

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Transcript:

JON STODDARD (00:02.523)
Welcome to the top M&A entrepreneurs today. My guest is John McNabb. John is in Toronto, Canada, and he's done $2 million in transactions over 40 years, and we're gonna get into that. So that's over his entire career. Welcome to the show, John. How you doing?

John McNabb (00:20.91)
Well, John, it's a real pleasure to be here, and thank you for having me.

JON STODDARD (00:25.231)
Yeah, so let's talk a little bit about how you started. I like the origin story, what you were doing before this, and how did you get into it. And then what did you realize? This is what I'm going to do for the next 39 years.

John McNabb (00:45.195)
Well, I was a banker way back when as a young businessman and I got thrown into the deep end within my first year and a half of being a banker. I was thrown into the corporate restructuring group at one of the biggest Canadian banks. This was in the big recession in the early 1980s when interest rates were in nosebleed territory.

and we had more problem loans than we had managers to manage them. So everybody was all hands on deck and I got called on to manage a portfolio of large corporate problem loans. My first deal was a 26 million dollar deal and I never looked back. I loved it. I thrived on the adrenaline. I thrived on working 12-hour days.

It's exciting. And once you get into it, doing M&A work at that scale, it's like an addiction almost.

JON STODDARD (01:53.927)
Yeah, let me ask you about that deal, if you can remember the details. $26 million deal, it was a problem loan, it was in a portfolio, because the interest rates were high and what was happening?

John McNabb (02:05.478)
It was a single loan. It was a mining company. They had a gold mine in the northwest territories of Canada, literally a thousand miles from nowhere. You had to fly supplies in, fly people in. You couldn't get in in the wintertime because of the weather. And they decided for some unknown reason that doing a gold mine there...

and sinking shafts 3000 feet underground was a good idea. Well, of course it turned out not to be.

JON STODDARD (02:40.568)
Yeah, that's kind of, that was way before the gold rush on the history channel with those guys. How do you find, just as curious, how do you find investors to do a $26 million deal, thousand miles from anywhere, and what are they, don't you have to have samples and say, hey, this is per unit per pound ground and.

John McNabb (02:47.966)
Yes, the.

JON STODDARD (03:06.471)
This is what we think is going to come out of there. The yield's going to be like, how are they getting investors for this gold mine? Yeah.

John McNabb (03:13.038)
Well, you have it, you hit it exactly on the head. And this was before sophisticated 3D computer modeling of underground ore bodies. So in those days, they would drill a pattern of holes in the ground on sort of a square grid pattern. And then they would log the results of all those sample cores and try to create a two dimensional picture of the three dimensional underground ore body. Well, of course that.

really doesn't work very well. And what we found was after they spent the 26 million bucks that the bank put into developing the mine, their geology was wrong. And the main ore body was about a mile away from where they had sunk the two primary shafts.

JON STODDARD (04:03.635)
Well, I guess that bank's not gonna do that risk anymore. Did you, what did you do? How did you save it? Did you sell it? What happened? Close it down?

John McNabb (04:13.57)
I'll give you the very short version, but if anybody who is watching this is interested, I wrote a magazine story about this and it was published and it's featured on the top part of my LinkedIn profile. It's called The Deal That Wouldn't Die because it went on and on, but we managed to save it at the tail end. So what happened basically was I spent 11 months of my life.

finding new investors in England. And we shall I say politely suckered them in to investing $26 million to buy the company and in the process pay off the bank loan. So they became the proud owners of the gold mine in Northern Canada and the bank got out of it clean. We didn't lose a penny.

JON STODDARD (05:08.283)
So how do you turn around a gold mining? Don't you have to provide some samples that there's gold there? Did they do that ultimately or what happened?

John McNabb (05:19.518)
Yes, unfortunately, the problem with the geology and the mislocation of the ore body didn't really become apparent until after the mine was in operation. And we closed the mine down very quickly as soon as we realized that the ore body was not where we thought it was.

John McNabb (05:49.146)
To make a long story short, one of the conditions of the transaction was that we provided them with the geological data that we had, but they didn't go and do any more new drilling on their own. So they relied on the faulty geological data.

JON STODDARD (06:08.591)
Yeah, so buyer beware on that case, huh? Yeah.

John McNabb (06:11.778)
buyer beware is exactly the message, especially when you're gonna write a check for 26 million bucks.

JON STODDARD (06:18.319)
Yeah, so in that private placement memorandum, all the risks are associated with the likelihood of there's no samples in that ore. 100% likely.

John McNabb (06:33.142)
So it was, that was my introduction. It was trial by fire. I had never done anything of that sort before, but I found I had a bit of a natural affinity for it. I loved negotiating. I have become very good at negotiating over the years through all the deals I've done, which now number over 60. And...

The more I do it, the more I love it. You know, it's sort of like a professional athlete. If it's in your blood, it's in your blood.

JON STODDARD (07:05.947)
Yeah, so when you get into a deal, you find you're now into your 60s, 61st deal. Now, once you see it, do you get immersed in it so much that you forget about the rest of your life?

John McNabb (07:20.786)
In the early days I certainly did. In my, you know, I started doing this in my 20s and from there up until I was about 40ish, for sort of the first 15 years of it, yes, that was how it was. I worked seven days a week, 14 hours a day sometimes.

I would be on the phone taking calls at home at 10 o'clock at night because of time differences across North America. In that early deal, the first one involving the English investors, we had a five-hour time difference to deal with. So I was taking phone calls at, you know, sometimes at three o'clock in the morning. Yes. You become so immersed.

that it overrides many other things in your life. And I suffered from that. My marriage suffered from that. It takes away a lot of other things that, in retrospect, you probably should be doing and should be enjoying.

JON STODDARD (08:31.451)
Yeah, that's how humans are, man. We were full of frailties that we become addicted to something. So I want to ask you about the rest of the portfolio. You fixed that one, but you got a whole bunch of others in this portfolio that they ask you to fix or sell off or raise capital for. What did that look like?

John McNabb (08:50.478)
Well, I did large corporate restructurings for almost 10 years. So over that space of time, I managed probably about 30 or 35 major accounts over the space of 10 years. And they ranged in size from the smallest one was $3 million, the largest one was $280.

Um, and the average size in between was somewhere in the 50 to the hundred million dollar range. Um, probably around, probably closer to 50. Of course, those are in, you know, older dollars. If we were to turn them into 20, $23, the, the value would be much higher. Um, the industries were all over the place.

I did a lot of real estate, hotels, land development, residential development. I was in agricultural equipment with two of the largest household name agricultural manufacturers in North America. I was in retail.

a chain of 140 odd stores across Canada that took us five years to restructure and find a new investor for. In that case, we found some American investors as opposed to English investors. That's one of the things that's really interesting about this. It's an international business. You get to meet people from everywhere.

You learn about cultures. I did mining deals, more mining deals, one of them in the coal industry, where we were working with Japanese and Korean investors. So it was exciting and very interesting.

JON STODDARD (10:58.459)
Yeah, let me ask you about that when you recapitalize. What are you exactly doing for them? I know that on a simple level, you either have to increase sales or reduce debt or take longer to play. What are you doing for these companies?

John McNabb (11:14.286)
Well, when you're leading a bank restructuring team, as I did, you basically become a restructuring consultant, a management consultant, to the company's management team. Because you bring an objective view about what's going on, whereas company management is in the eye of the hurricane. And many times, they have difficulty doing anything more than just surviving day to day or week to week.

you know their priorities meeting payroll at the end of next week. My priority on the bank side is looking a year down the road and saying what does the company have to do both operationally and financially to rehabilitate itself so that they can become a good client for the bank again. And so we would help create strategic plans. We would help

We would give them advice on what their capital structure needed to look like. We would act as intermediaries to help them raise equity or different kinds of debt to restructure their balance sheet. In the process of doing that, we would try to take some pressure off them from a management point of view so that they could focus on operations and they could fix any operational issues they had.

They could work to increase revenue. They could do the things on the P&L that we couldn't really influence from the bank, but we would help them on the balance sheet.

JON STODDARD (12:52.191)
Yeah, so how did you do that? I mean, when you're staying there in the eye of the storm and that's what it feels like, I've been in that with a smaller business, but you can't see through that eye of the storm because it's just swirling around you. What do you do? You just go, okay, we took that debt and instead of a $2 million a month payment, it's now 1 million, but it's extended out 10 years. Now you have more cashflow for your business.

John McNabb (13:20.242)
doing it- you know in some cases you will- voluntarily exchange some of your debt. For equity in the company- usually it's preferred shares of some sorts so that you rank. At the top of the equity stock- if if things go south- so that your liquidation rights and recovery rights are better than the common shareholders- but-

You know, it removes a cash flow issue because what you're looking at is some sort of deferred coupon on the press instead of money.

JON STODDARD (13:58.003)
What's it, well how long is that deferred for coupon? Six months, 12 months?

John McNabb (14:02.21)
Well, in many cases, you see, that's the beauty if you take equity. So let's think about this from a loan versus equity point of view, because it works not just in restructurings, but for anybody who's doing an acquisition.

If you can get somebody to fund your acquisition using equity, even if it's preferred shares, the coupon on the preferred shares can often be extended for years as opposed to paying monthly or quarterly interest on a loan. That makes an enormous difference in your cash flow, particularly in the early stages. And particularly, oh, the first year is brutal.

JON STODDARD (14:44.263)
You don't know what's going to happen in that first year, right?

John McNabb (14:49.778)
in most cases. And particularly if you've acquired a fixer-upper and you need to make some investments in it to improve it, either operationally or equipment-wise for CapEx, you need that breathing space on your cash flow.

JON STODDARD (15:08.635)
Yeah. What do you recommend if somebody is going to raise capital for, let's say, a down payment or maybe just 51%? What do you recommend? Lower middle market or SMB to defer that coupon for 12 months or more?

John McNabb (15:25.898)
would always try to look for a minimum of 12 months. There are, you know, even here in Canada now, and I'm going to segue, you've given me a great opportunity here in the healthcare acquisitions, which is where I've been for the last 13 years, doing smaller deals. But the terms of these deals are very innovative and very creative.

the Canadian banking system and the Canadian financial system is very supportive of the healthcare sector. They love it. So they will give very generous terms for loans and for debt financing so that the characteristics of the debt financing become almost like equity. They will defer principal.

JON STODDARD (16:12.871)
Let me ask you a question when they say they love it. And I'm sorry to interrupt, but the United States loves SMBs because SMBs pay more to the taxes to the government. That's why they love giving loans out, because there's more tax revenue. Does the Canadian government love healthcare is because the government pays for healthcare? Is that why they love it?

John McNabb (16:39.078)
not because in the dental health care sector which is where I primarily have have worked up until the last year or two dental health care in Canada is not part of the nationalized government funded health care system it's similar to the American dental system it's a essentially a private pay form of health care

No, the reason actually that the financial community loves dental health care is because bankruptcies are almost non-existent in the sector. And so loan losses are very, very few and far between. And as a result, they're willing to be much more generous and lenient on the terms that they provide in their funding.

JON STODDARD (17:29.895)
like debt financing is it's lower there's a lower number on that

John McNabb (17:36.923)
They will provide up to 100% debt financing for healthcare acquisitions with terms on term loans ranging up to 10 to 12 years.

JON STODDARD (17:51.483)
Wow, wow. And then what kind of interest rates are we looking at? Single digits or double digits?

John McNabb (17:57.902)
interest rates- would be. long- to give you a sort of a Ten year- amortization the be no principal payments

John McNabb (18:27.306)
So in the low interest rate environment that we had for most of the last decade, you were paying, you know, two and a half or 3% for a 10 year term loan.

JON STODDARD (18:38.367)
That's why you're in dentist M&A transactions. Yeah.

John McNabb (18:43.33)
It was a highly attractive field to be in.

JON STODDARD (18:47.693)
Yeah, how did you discover that? Where did you come on like somebody came to you and say, hey, help me buy this or you did it yourself or what?

John McNabb (18:55.938)
Well, I fell into the dental healthcare sector by accident really through a friend of a friend who was an orthodontist and had a small group of three offices in the Toronto area. He was having some management problems as many dentists do. You know, they're very good at being dentists but they're not great business managers. And...

it came to me through the grapevine that he needed some management help. At that point in my career, this is 2010, I was just finishing sort of a chapter in my life of doing venture capital and private equity and private portfolio management, and I wasn't quite sure what I wanted to do. So this came along and I said sure I'll help him out. We fixed his little business and word got around that I was good at it.

And I found it interesting. I like healthcare professionals. I like working with them. And so it turned into a business. I consulted for four years from 2010 to 2014, learned the ropes. And I really say in all sincerity to anybody who is considering acquisitions, learn the ropes in whatever industry you want to get in. Don't go in cold. Don't just start throwing darts at the wall, trying to find...

an industry to buy something, go and learn about it. Understand how the industry works, what's important in it, why companies both succeed and fail. It took me roughly four years to get to the point where I figured I was as much of a master on the business side of dentistry as one could be. And then I started doing it on my own account and started...

acquiring dental offices and building up a group. So, you know, in those first four years, I consulted on six acquisitions. Total revenue for those six was a little under $12 million. Total enterprise value was about 17 on the acquisitions.

John McNabb (21:16.53)
And then I went out and started doing it on my own in 2014 in my own business, which is called Canadance Corporation. And we've done nine acquisitions, total revenue, about 18 million bucks and total enterprise value of 35 mil plus or minus something.

JON STODDARD (21:39.879)
Do you still own those? That portfolio? Do you still own those?

John McNabb (21:42.126)
Sorry.

I do. I own the group, yes.

JON STODDARD (21:48.519)
question for you because that's a very challenging thing in the United States. You could see this practice, medical practice, that is run by a doctor. They want to sell because they're, you know, they're exhausted. They have no more gas in the tank. But you have to find a doctor to come in to replace them and finding a doctor is probably easier than getting a bill through Congress.

John McNabb (22:16.466)
It depends which part of the healthcare sector you're in as to what that supply and demand balance looks like. One of the things that makes the dental sector, particularly in Canada, very appealing and easy to work in for M&A is that there is an almost endless supply of eager buyers. Canada has encouraged

a large and growing stream of younger immigrant, in other words, foreign-trained dentists in the last decade. And many of them, as soon as they come and they qualify here and they spend a few years getting their feet under them and understanding the Canadian dental world, the first thing they want to do is buy a practice and become an owner. So the sector is a thriving sector as far as M&A goes.

JON STODDARD (23:16.391)
Yeah, how did you buy those? What was the, you're buying them one at a time, right? Or a couple at a time. How did you purchase them? You threw a.

John McNabb (23:24.87)
Only once did I ever go after more than one. That was a pair. All the others were singles. I found when I was working on my own where I was a one-man acquisition team, it's hard to do more than one deal at a time. You just don't have the capacity both from a personal resources point of view.

what I mean is energy and mental focus and stamina to be doing more than one. And you also, and this comes to another main issue in M&A, which is often overlooked, but it can be the crux. It can be the make or break issue is integration of that acquisition after you close on the deal. If you don't integrate your acquisition into your other existing business,

well, then you may cause yourself more problems than the acquisition was ever worth. And you may spend much more time and effort trying to repair a broken integration. So you really need to focus on the post-closing period, which could run anywhere from a few months to as much as a year to make sure that the

the acquisition is properly integrated before you rev up to do the next one.

JON STODDARD (24:58.195)
Yeah, let me ask you to go back. So there's definitely a source of cheap debt to help you acquire these cashflow dentists. There's resources of management to bring in. How much are you offering of ownership to these people that are coming in? Or are they 100% employees to manage your practice?

John McNabb (25:21.53)
have a very small core group of my management team which you could count on the fingers of one hand to whom I have offered single digit lowest single digit amounts of equity on an earning basis where the equity vests over a period of time and is based on their performance

So it's not just given by right when they join, but they have to show that they are capable of adding value to the business to earn the equity in the business. But that amount of equity will make every one of them wealthy if and when they choose to leave.

JON STODDARD (26:11.283)
So they have some kind of option to say, hey, I'm leaving. I'm going to go start something else. I sell back to market value. Yeah. Gotcha. And how does that structure set up? Are you in the United States? Maybe it's similar in Canada, where it's a holding company on top and a number of LLCs on the bottom.

John McNabb (26:20.635)
Exactly.

John McNabb (26:36.242)
roughly speaking, yes, without getting into all the legal nitty gritty, that's essentially the structure. It's a two tier holding company on top with operating companies underneath. Yes.

JON STODDARD (26:48.015)
Yeah, and your majority owner of this holding company or does it you share with the partner? Because I want to tap into that a little bit more that you partnered up with somebody and now you 10x you're able to 10x your efforts. But I want to ask you about that. Yeah.

John McNabb (27:02.954)
They, my management people who have equity in the business have equity in the holding company. And so if everything goes right, and if they work hard and make things go right, then they benefit from the accretion in value that happens across all of the operating companies below. So.

responsibilities I mean for example the chief operating officer the chief marketing officer- their responsibilities span the group. And they're expected to add value to the group as a whole. Their equity is in the holding company which covers the group as a whole and so if they are adding value across the group. Then they benefit from that in the value of the equity that they hold.

JON STODDARD (27:58.079)
And what's your role? I mean, are you doing data operations or are you a capital allocator or are you, you know, the two year, five year roadmap?

John McNabb (28:10.262)
I have tried to move back as time has gone on to more and more of a classic CEO role, which is divorced from operations. I don't like second guessing my executives. I don't like nitpicking them or looking over their shoulders too closely. I try to hire very carefully. I pay them very well to do a good job.

there's no point in me trying to do their job if I've hired them because they're supposed to be very good in doing it. So my role is strategy, acquisition, planning, not necessarily acquisition execution anymore, but acquisition planning, capital allocation, capital sourcing.

those kinds of things which happen at the CEO level.

JON STODDARD (29:09.203)
Yeah, are you wanting to go to a spot of size where you can delegate acquisitions to? I mean, if I reference like Mark Leonard over a Constellation software, he does, his general managers can acquire companies without his knowledge.

John McNabb (29:27.502)
We're not quite there size-wise yet. I have a senior executive in a business development role, which is a euphemism for acquisitions. We work closely together and I've been working on grooming that person to get him to the point where I will feel comfortable in delegating authority to him.

probably within some broad parameters, whether it's dollar amounts for the size of the acquisition or whether it's other parameters that relate to the kind of the health care practice. That's where I want to get. We're pretty close to that and I would think we'll be there maybe in the next year or so. The pandemic screwed things up. Everything ground to a halt for two years, basically.

And, you know, it was very difficult in 2020, particularly. We were under a much more rigorous lockdown environment here in Canada than you were in many parts of the US. So we went for months with no revenue, literally months. The only dental offices that were allowed to be open were a very small group to do emergency dental work.

general practices, which is what my group is, we were shot. So my job became finding capital, finding short-term financing, writing repetitive applications for government support programs to keep us going, all that kind of thing. But that's what you do when you're the CEO. We did not lay off staff.

JON STODDARD (31:21.719)
stops with God. Yeah.

John McNabb (31:25.206)
I made a decision at the very beginning that we were not going to lay off staff. I did not want to run the risk because I knew that sooner or later things would get back to normal. And I've seen it happen before in recessions where a company starts to lay off staff, cut expenses, do whatever. And then when things start to turn around, the staff that you laid off who were in many

good staff, they're not available anymore. They found another job somewhere. They've gone to another industry. You can't get them back easily. We weren't doing that. There was no way we were doing that. So my decision was the hardest one, which was no layoffs. The staff, sorry.

JON STODDARD (32:15.455)
How many employees was that? How many employees did you have?

John McNabb (32:20.97)
We were running over 200 employees.

JON STODDARD (32:23.187)
200 and nobody get laid off, yeah.

John McNabb (32:27.343)
Um, the staff between the combination of government support programs that were available and capital that I raised privately, um, we managed to keep the staff going on about 70 to 75% of normal salary.

JON STODDARD (32:45.963)
capital raise did did you raise it was that debt or was that equity and they feel like they got a discount to people take advantage of you when you. You know so yeah I I I we need some capital to keep these open these doors open and go yeah I'll give you- you know. It's worth ten dollars and they give you you know look at the make an offer for a dollar you go.

John McNabb (33:11.342)
Well, two things happened. One of the things that was to my benefit was my background in the banking world. And even though I hadn't been specifically in the banking world for some time, my Rolodex was still full of high level banking connections. And so I was able to access some of those and that made life a little easier than it was.

or would have been otherwise. Some of it related to personal capital. And between it all, we also had a fairly, as you did in the States, we had a fairly extensive federal government business support network here. And between it all, we managed to hold it together.

JON STODDARD (34:05.671)
That's fantastic. Good job for you. You know, Pat on the back. Yeah. What what over this 10 plus years that you've been doing dental acquisitions and nine what what did you find that was the most difficult to you? Obviously, the COVID was difficult finding capital. But what else emotionally was difficult that, you know, for somebody else is not but to you, it's like, that is my blind spot.

John McNabb (34:36.525)
Probably the thing that I found most surprising, or that was a bit of a blind spot going into this industry, was that the level of education that the dentists have, because they're all highly educated people, they've all spent six or seven or eight years in university with multiple university degrees to become the dentist.

that they are, that doesn't translate into business knowledge. I just assumed at the very beginning that because they had at least two degrees, and some of them have more than that, that they were worldly, that they were smart in a business sense. And they're not. They're wonderful at what they do in the medical sense. But they're not.

JON STODDARD (35:26.131)
Zero accounting, right?

John McNabb (35:35.286)
Very few of them understand the business side of healthcare.

JON STODDARD (35:40.891)
Yeah, so that took a lot of your time to fix. What do you do there? Do you put them through business school or accounting classes or what? How are you fixing it?

John McNabb (35:54.134)
Well, our particular strategy and the structure in our business was that we superimposed a management structure, very similar to a large dental service organization, a DSO. So we took over all of the back office, the accounting, the hiring, the human resources management, all of those things that the dentists weren't good at.

we freed up in that process probably about 20 hours a week of their time. So we could do it more efficiently time-wise. We could do a better job of all of those management functions and we basically gave them 20 hours a week to go and earn more revenue as a dentist than they had before. So it's a win-win when you get into that kind of situation.

JON STODDARD (36:48.959)
Does that happen?

JON STODDARD (36:53.447)
Has that happened? You freed up time. They're not doing all the, you know, menial admin task. Do you see an increase in revenue after you free up that time? Yeah.

John McNabb (37:05.314)
We do, you know, it takes a little time and some of it requires bringing in new services. It sometimes requires expanded clinical training. So you can bring in new services, but typically speaking over the first 18 to 24 months, we will see about a 15 to 20% increase in

dentistry revenue in a practice after we acquire it.

JON STODDARD (37:38.275)
Yeah. How big is your home office, central office? How many people do you have working there?

John McNabb (37:44.146)
It's not very large. The home office is barely over a dozen people.

JON STODDARD (37:50.319)
Yeah. And when you buy a practice and they are killing it, do you take their techniques to cross-pollinize to other practices or sometimes it is just because their personality? And the reason I bring that up is there's a, you know, great Dr. Jha here. He did some of my work. He did some of my kids work, but he had a great personality, which is not transferable to other

practices.

John McNabb (38:23.054)
personality is you're quite right. It's very much a part of the health care world. The bedside manner as it used to be called. Some health care practitioners have it and some don't. Some are great technical practitioners. They can do things technically, medically that border on magic almost.

but they just don't have that chair-side manner at all. And yet others have a chair-side manner that can make you feel comfortable and make you want to go back in six months to see them again.

JON STODDARD (39:07.215)
Yeah, I had a great emotional experience with that person. I know he drilled a hole in my teeth, but I had a great emotional experience with him.

John McNabb (39:16.174)
Exactly. So you try to you try to do some training on those issues if a person isn't good at that. Some of it is teachable. But some of it is just innate in the personality. And you just try to one of the things that we try to bring in having a group is that different practices offer different opportunities.

JON STODDARD (39:30.215)
Yeah.

John McNabb (39:44.574)
you know, some practices because of the nature of their patient base, the patients are more oriented towards certain kinds of healthcare requirements. They may need dentists who are more technically proficient and the the chair side manner is less important so we can move people from office to office and try to provide them with a working environment that

best suits who they are.

JON STODDARD (40:16.175)
Yeah, what kind of deals do you look for? Do you look for turnaround situations or great run companies that you can get for a reasonable price or say, hey, you know what? We'll take this ugly looking company because I'm a banker and I'll fix it, right? I can recapitalize it, et cetera.

John McNabb (40:36.006)
One would think from my background as a restructuring artist that I would go for turnarounds and fixer-uppers, but in fact, that's not the case. I spent too many years doing that to, I came to realize by the end of my time doing that, that it could be a lot of fun, but if you want to build a business that is stable,

JON STODDARD (40:40.51)
Yeah.

JON STODDARD (40:44.029)
I'm not gonna get that answer. Yeah, yeah.

John McNabb (41:05.226)
and predictable and relatively easily manageable you want good businesses. And so I'm really a fan of Warren Buffett. You know his his acquisition philosophy is buy good businesses and be willing to pay a good price for a good business. That's my philosophy. I would rather pay a little bit extra to get something that is above average in quality.

JON STODDARD (41:25.438)
Yeah.

John McNabb (41:34.786)
than to go for the fixer upper and struggle with it. And occasionally, you know, it never really turns out the way it should.

JON STODDARD (41:43.927)
and you're sinking more time and money into it trying to fix it.

John McNabb (41:48.122)
Exactly that you know in a portfolio of 10 10 acquisitions. The one acquisition that was the fixer upper that never turned out properly. Will cost you more in terms of time and effort and management attention that the other nine that are running easily and properly and so. It's the 80 20 rule really and in a sense.

20% if you have a portfolio of acquisitions, 20% of them will be the difficult ones and they will take up 80% of your time and effort. So you really want to try to avoid those potential problems from day one.

JON STODDARD (42:31.323)
What do you do with those? Do you unload them like Jack Welch used to do? He goes, hey, top 10, bottom 10%, we, you're fired.

John McNabb (42:39.97)
Well, yes, one of the things I learned very early in my banking career, one of my early mentors in banking said to me one time, he said, your first loss is your best loss. In other words, if something isn't working out well, cut and run early in the game, if it's clear that it's going to take a lot of time and effort to turn it around.

sell it for a small loss early on, rather than spending a long period of time and selling it for a bigger loss further down the road.

JON STODDARD (43:17.516)
Yeah, yeah. And you like Warren Buffett, so he used to say that it's easier to move to a new boat than fix all the leaks in your boat. Yeah. Yeah. So who else are your mentors? For instance, that picture, is that your dad or grandpa on the back?

John McNabb (43:25.455)
Exactly.

John McNabb (43:34.466)
Well, in my banking career, strangely enough, I had two lawyers who I worked with for many years. They were senior partners at the law firm that did most of the work for the bank. And I worked with them for many years on many of the deals I did. They were part of that rare breed of lawyer who both-

is a good lawyer and also thinks business. And as a result, you know, I was in my twenties and thirties, early forties. They were 10 or 15 years older than I was. They had that much more experience. And so they were a great mentor to me. Um, and when I would go to do something, they would say, no, John, be careful because

I was in a deal like this five years ago and it's not going to work out the way you think it's going to work out. So they were really good to me that way. From above.

JON STODDARD (44:41.747)
Did that advice come true?

John McNabb (44:46.81)
In most cases it did. They were on the money more than they were often, let's put it that way. And they saved me a lot of grief and they saved me a fair bit of money along the way too.

JON STODDARD (44:51.845)
Yeah, yeah.

JON STODDARD (45:00.303)
Oh, there you go. Don't lose money.

John McNabb (45:04.782)
Um, you know, in the healthcare world on the other side of the coin, it's all self-taught. Um, I came into the healthcare world with no healthcare experience. I spent four years working as a consultant and I did that intentionally because I, I viewed that as self-education type. And then once I had done my self-education, then I went out and started to

get into M&A actively.

JON STODDARD (45:36.243)
Yeah, so you kind of intimated that, has this run come to the end or are you still acquiring dentist practices or doing something different?

John McNabb (45:48.494)
Well, it's interesting that you asked that question. I've had a bit of crossroads. The business runs itself, basically, at the moment, at its present size and in its present configuration and with the management team I have. So in the last year or two, I've been spending somewhat more time going back to doing consulting, helping other entrepreneurs start

their businesses, find things to acquire. I've broadened my horizons in the healthcare world. I've been, I've branched out a little bit into veterinary where the business model is very similar to dentistry. It's private pay healthcare. It's just that you have four-legged patients instead of two-legged patients. I'm doing some consulting work for a healthcare startup in Virginia.

I'm doing advisory work for an acquisition entrepreneur here in the province of Ontario who wants to get into the dentistry world. And I'm helping him start to build his business. But I still have my eye on more acquisitions. I'm just...

I'm just not really active there on my own account right now.

JON STODDARD (47:19.007)
Gotcha. And you have no desire to, you know, cash in the chips. Things are going well. It's throwing off cash. You're getting to do a lot of things you like to do. I mean, you know, I mean, Warren Buffett, Charlie Munger, they're 92, 95, and they're going to be doing per char halfway until they're room temperature.

John McNabb (47:42.714)
know that I'll go quite as long as as Charlie and Warren have gone. But you know my benchmark is- my father worked he worked- actively as a consultant in the insurance industry. Until he was seventy nine. And given the way that I feel physically and mentally and- with what I've accomplished and what I think can still be accomplished.

JON STODDARD (47:44.913)
I'm going to go.

John McNabb (48:12.858)
I don't see any reason not to keep going at least as long as my dad did. So I've got a fair bit of runway ahead of me.

JON STODDARD (48:20.743)
Yeah, what would it take to have you on a board? What does that look like? Because people reach out to me, they watch my show, and they go, god, I'd love that guy to be on my board.

John McNabb (48:35.382)
Something that's interesting, something that represents a challenge. It doesn't have to be healthcare. I've got enough of a diversified background that I can walk into anything from real estate to manufacturing to retail to natural resources and a bunch of things in between. And it's all interesting because I've done it all at least once somewhere through my career.

What I really like are things that are challenging, different, maybe new, maybe a different approach to something. I love building things, so I like doing things that are in their, not necessarily in their infancy as a business, but where it's in growth mode.

JON STODDARD (49:27.739)
Yeah, what about bringing your skills and Rolodex to capital raising?

John McNabb (49:35.814)
That's something that I enjoy doing. I love negotiating deals. I've been negotiating financial deals for literally 40 years. The Rolodex and the negotiating skills are second nature to me in that field. So, and you know, money is geographically agnostic. It's industry agnostic in many ways.

money relates to opportunity and success. So, you know, I have spent thinking back at my career.

I've negotiated probably, and I'm just guessing here because I never really have done this number, but I've done, out of the $2 billion of deals, at least 500 million of it was on your side of the border in the US.

JON STODDARD (50:36.367)
Yeah, yeah. Let me ask you a question. Would you recommend setting a fund up to make acquisitions or go deal by deal raising after you have an LOI in place?

John McNabb (50:50.882)
Well, initially, you know, it's funny. My advice to everyone is to set a fund up because it's extremely time consuming and rather inefficient to be raising your financing deal by deal and struggling that way. And the risk you run there is in finding a good acquisition opportunity and then not being able to get your funding in place quickly enough.

and then the opportunity goes away. Much better to have, you don't have to have a big fund. It could be a fund that, but it can be big enough to fund two or three or four acquisitions so you've always got some runway ahead of you. It's very difficult to keep doing it on a one-off basis because sooner or later you start losing opportunities just because...

JON STODDARD (51:22.459)
Yeah, you got 90 days. Yeah.

John McNabb (51:47.478)
the timing of your funding doesn't match the timing of your opportunities.

JON STODDARD (51:51.839)
Well, yeah, I'll tell you, I interviewed the guy CEO of FE International. They do online businesses. And he said over 10 years, 1,200 deals, $1 billion. He said most of the deals now are buyers, are cash buyers, 51% or more. They move faster. They can get a deal in then 30 days. So coming with debt and getting qualified for debt or putting contingency on raising, you've got eight other offers on the table are cash.

John McNabb (52:24.146)
in the dental healthcare world where I work a lot, the standard terms are 20% deposit when your LOI is accepted. So if you're looking at, say a $3 million deal for a good medium sized healthcare practice, that means you have to be able to put $500 or $600,000 on the table in cash to hold the deal.

If you haven't got the cash available, there's five other people lined up waiting behind you.

JON STODDARD (52:56.087)
It's not a deal. Yeah. Yep. John McNabb, that was fantastic. I really appreciate the time.

John McNabb (53:06.678)
been joined it thoroughly. And you know, one of the things that you raised right at the end, John, the opportunity to work with other people in other situations, perhaps at a board level, I would love to get involved in more situations. And I'd love to get back on to doing things on your side of the border. So if anybody listens to this and has opportunities,

Feel free to pick up the phone or drop me an email. I'm always open and always interested.

JON STODDARD (53:41.235)
John McNabb, that's guaranteed going to happen. I guarantee it. Thank you so much for doing the show.

John McNabb (53:46.322)
Hahaha!

Thank you, John, indeed. It's been great.