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Hello, everyone, and thank you for tuning into

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the Becker healthcare care podcast.

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My name is Mariah Muhammad, and I'm thrilled

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to be joined today by Ben Hernandez. Hello

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Ceo and Managing Director of Sky hill group.

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Ben thank you so much for joining us

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today. How are you?

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I'm doing well, Mariah, and thank you so

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much for having me. I'm looking forward to

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this.

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Yes. Of course. It's very excited to talk

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with you today. And with that, let's jump

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right into today's conversation. So I'm sure as

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we've all seen from the news. It seems

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like this is the year for

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transformation, either for hospitals,

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universities, As, dental offices,

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etcetera,

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what should practice owners expect with all the

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consolidation occurring right now. And what sellers do

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to make sure their organization is most attractive

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to buyers.

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Yeah. I think overall, we think the

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consolidation in the healthcare space is going to

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continue.

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I think a lot of this is,

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due to cost and operational pressures

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that somewhat drive the pressure for a

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consolidation. And then it tends to be a

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really nice if you're an individual owner, it

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tends to be a really nice way to

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have a nice exit or der risk,

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and provide offer... Opportunities at times to your

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team in a growing

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organization.

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I think if you're a potential seller,

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thinking of going to market,

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The thing that I would think about the

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most is buyers don't like risk. So if

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you think about that from the general thesis

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is anything that you can do to der

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risk. Your business,

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I would... We would recommend I should say.

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And

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beyond that, that's really the reasoning behind, you

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know, a lot of sellers talk about multiple

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what multiple

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valuation am I getting.

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And generally speaking, people tend to think if

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I have a larger cash flow or Eb

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or multi location, multi site. That's going to

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really trend to a larger multiple.

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And that's generally true assuming a healthy business

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But the thesis behind that is that there's

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less risk with those type of businesses. You

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have a larger team. You have more

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sophistication and so forth.

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So I would say anything you can do

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to make your business healthy,

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would be a big positive if you're if

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you're potentially selling.

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So think about year over year growth ideally

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that's going to be positive. If you have

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multi providers, different revenue streams, that's a positive

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healthy margins,

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strong processes,

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so that secret sauce within your

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organization. And then from a culture piece, I

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would say that anything that you can do

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to to minimize a team turnover

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would it be extremely positive as well in

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patient retention.

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Yeah. Yeah. Absolutely, thank you so much for

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giving us that insight. And can support organizations

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compete with the middle market and large organizations

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at this point?

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What did they bring to the table that

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larger companies do not?

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Yeah. I think Mara mariah

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competition overall. It it it'd be difficult. If

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you're talking about competing on margin.

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Larger

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organizations have the ability for greater ballots buying

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power. So the per unit cost is going

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to go down. The

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sophistication on things like technology and marketing,

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are also difficult to compete with. So those

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are the the headwind if you will, if

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you hear a smaller

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organization

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But I do think that there's... There are

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other ways to compete. So smaller

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organizations can still scale. They can still centralize.

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So you have those strategies available to you.

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I think the other thing that smaller

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organizations have, is they're able to pivot faster.

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Right? And The other thing would be mentorship

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abilities. If you're the actual business owner, you

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know, there's the same we use nobody cares

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about your baby like you do. If you're

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the actual owner of the business,

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you know, we see the ability for really

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strong,

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mentorship, And sometimes

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providers don't want to work for extremely large...

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Organization. So you have that operational agility,

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And then from a partnership perspective, with other

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with other providers, you also have the ability

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to have different

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partnership paths. So you can kinda structure deals

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differently.

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If you're looking at recruiting. Those are some

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ways that we see

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smaller

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organizations able to compete with the larger ones.

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Yeah. Yeah. That that completely makes sense. And

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how have interest rates impacted

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valuations?

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If you could talk a little bit about

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that. And what did multiples on Eb look

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like before

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now and impossible compression over the next 5

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years.

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Yeah. I think, you know, interest rates

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overall, I would say I've had an effect,

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maybe not as much on valuations, but certainly

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in the number of deals getting done.

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We're seeing fewer deals getting done certainly in

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20 23, and maybe the end of touch

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20 22.

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You know, we're we're now in 24. Right?

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So we're looking at election years. We were

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supposed to have interest rate 20 drops

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that that may not be happening or at

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least not as many as we thought. So

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there are few fewer deals getting done. Values

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have held

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in most healthcare subs sectors anyway. I would

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say any values

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that have held have been in those subs

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sectors that, have been resistant

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historically

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to economic pressures. Right? Not necessarily full foolproof,

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but at least resistant

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because financial sponsors have to deploy capital somewhere.

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And a lot of health care fortunately

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is does pretty well in a downturn in

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the economy.

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So values have held, deal... They've gotten pick

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year though on what deals they have bought.

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And then... So know, in other subs sectors,

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like, for example, in dentistry, you're seeing shifts

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to more of the specialty where values have

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absolutely helped. You held.

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But we do expect, we do talk to

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sponsors,

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and their thinking is that in the latter

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part of of 24,

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you'll start seeing some uptick even in deal

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activity. Because right now some buyers have kind

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of put pencils down

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on some deals of

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Got it. Got it. And and then before

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I let you go, the last time I

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really wanted to ask you is how can

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a owner perform due diligence on private equity?

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So support organization buyer or before transaction?

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Yeah. So this part's is so important. I

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think a lot of sellers have the general

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understanding that

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if you're thinking of selling your

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organization, the buyer, whether it's a financial sponsor

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strategic is going to do deep diligence on

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you. Right? They're going to look through all

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of your drawers and know everything about you.

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1 thing that sometimes forgotten is that you

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as a seller have the ability to choose

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your partner, your and a lot of folks

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forget that because they get phone calls, they

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get unsolicited offers,

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and so they think that there's 1 buyer

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out there. If I'm thinking of selling my

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business. The thing that we say is this

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is your blood sweat and tears for most

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of us, it might be the only time

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that we sell our business.

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So we call it kind of a magic

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wand, if you will, whether it's a financial

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sponsor or strategic.

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I would go ahead and look at... How

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long has this fund been around, for example,

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do they have a health focus,

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depending on your health care subs sector,

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have they done other

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transactions in this subs sector or something tangent

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gentle to it. So retail health, whatever, whatever

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it may be

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And then 1 of historical returns been. A

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lot of, you know, mid to market private

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equity groups, so we'll actually let you know

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this is what the historical returns have been

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on our platform. Forms on average.

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So that gives you a bit of an

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idea. And then beyond that, as you become

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more interested in deeper

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conversations,

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I would suggest that you get a list

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of other sellers similar to you that have

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sold to the group and call them. And

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then beyond that, I would go ahead and

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get additional names off that list because they'll

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give you their top 5 or 10 if

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you will. So I would look at others

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and call them as well. III think that's

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a really good way to 1,

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as best you can ensure that you're partnering

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potentially with the right group with the right

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Sponsors as well. And then 2 that, you

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know, in these healthcare

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transactions, most of them have a significant amount

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of rollover equity So 2

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is the equity that I'm rolling

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is the probability decent that I'll get a

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good return on that.

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Yeah. Thank you so much for sharing that

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insight and for those final thoughts.

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And also for sharing your time and insights

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with us today Ben.

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As well as Scott group sponsoring today's episode.

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So our listeners. Thank you for joining us,

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and please make sure to check out other

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Becker podcast podcasts. Have a wonderful rest of

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your day.

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Thank you for having me mariah.