Twelve years after graduating from Yale SOM, Ryan McCostlin (SOM 2010) has partnered with search fund investors at The Nashton Company to launch and grow a dental practice acquisition platform, Tailwater Dental Partners. Nashville-based Tailwater is an example of a popular trend in the search fund ecosystem in which entrepreneurs apply a programmatic acquisition strategy to purchase scores of targets in a specific industry.
“I’ve always wanted to be a CEO,” said McCostlin. “After Yale, I joined a startup, where I spent a decade gaining experience in every functional area you can imagine. Now, I have an opportunity to lead Tailwater Dental Partners, and so far, it’s the most fun I’ve had professionally. I don’t fit the profile of a typical searcher. For one, I’m starting at 40, not 30. Also, I have a family, and I’m not interested in leaving Nashville to buy and operate a business elsewhere.” McCostlin exemplifies a new breed of searcher; pursuing geographically defined strategies has become increasingly common.
McCostlin’s search fund approach is not plain vanilla. Instead, he has creatively established a differentiated strategy to grow and create value. First, instead of focusing on acquiring one business to operate as CEO, he seeks multiple acquisitions in a highly fragmented industry, creating value by building infrastructure to support them all by building a dental services organization. Second, rather than raising capital from multiple investors, he sourced all the equity from a single capital provider. This simplified the capital formation process and investor management but introduces some concentration risk. Finally, McCostlin does not aim to purchase a single business with earnings in the $1 to $5 million range, as most search funds do; instead, he plans to acquire multiple dental practices with earnings between $300,000 and $1 million and lots of growth potential.
Jason Pananos, a principal at The Nashton Company and an investor in Tailwater, said, “Dentistry has had the attention of private equity investors for a long time. It’s attractive because it’s stable and recession-resistant with predictable recurring revenue. But we’re not private equity. Ryan’s approach appealed to us because he’s not building just another dental business intending to sell it in five years. That model can create misaligned incentives. Instead, Ryan and his team at Tailwater are creating long-term value built on a foundation of great culture and cash flow.”
Jay Davis, another Nashton investor, added, “Ryan was built to be a CEO. He’s smart, driven, and analytical and has the soft skills necessary to win. We knew we wanted to invest in Ryan even before he had an industry focus.”
In their first year, McCostlin and his team at Tailwater have acquired five general dental practices in Tennessee. They plan to add eight more in 2023 and eventually expand to surrounding southeastern states. He indicated, “I’m a bit jealous of today’s SOM students who have access to multiple courses on search funds and small businesses. These were not in the air at Yale when I was a student. Today’s students are definitely starting with a stronger foundation than I had. I’ve recently connected with about 25 Yale folks who are in various stages of search fund activity. Those touchpoints have been friendly, enthusiastic, and supportive. Yale is building a real community in the space—and it’s fantastic.”
McCostlin reflected, “There’s so much consolidation happening in dentistry, but it’s not always done well. Too often, the people buying dental practices focus on short-term value creation. They’re short-sighted. Myopic. When dental practices are managed like factory floors, they compromise the lifetime value of patients—and customer service. This is healthcare, not widgets. We too, measure everything, but we’re laser-focused on creating long-term value. There’s a way to be highly profitable without compromising patient care or employee well-being. There’s a way to do this with soul. I learned that at Yale.”