When advice is essential
For any principal considering selling, along with deciding whether to continue as an associate post completion, pursue academia or take that first step on the road to retirement, one of the first questions to be asked is “What is the state of the practice sales market and how much is my practice worth?”
Once something of a cottage industry where practices changed hands for small amounts or in some cases, were ‘given away’ to lucky associates or practice owners nearby, the dental sector is now among the most dynamic, with an increasing number and variety of buyers seeking opportunities.
With an estimated 450-500 transactions annually and demand exceeding supply in most areas and market segments, it is no surprise that it is a crowded marketplace and one full of mixed messages for those looking to sell their business. As such, a practice owner should consider the following fundamentals.
Whole of market or restricted approach?
While most practice sales are handled confidentially, it is generally advisable to adopt a ‘whole of market’ approach. This ensures that the buyer pool is of sufficient size to create competition, but not so large that it is impossible to control the sale process. It is critical for the selling agent to get to know the practice so that the right buyers can be selected, rather than the ‘round robin’ approach, which is indiscriminate and can lead to wasted time.
On or off market?
Demand for quality practices is at an all-time high. Dental companies often directly appeal to practice owners to join them, and while an ‘off market’ sale will save an agent’s fee, every fee ‘saved’ could also mean a loss of tens of thousands in sale price if the market has not been tested properly. Current pricing is highly volatile and we often see sale prices well in excess of asking when buyers complete, so having an experienced adviser by your side is invaluable. As prices are generally lower in Scotland than in England and Wales, buyers are moving north to find better value acquisitions. However, with so much competition from established buyers already based in Scotland, prices continue to be pushed with premium offers being achieved.
Beware of false profits!
Goodwill is valued by multiplying sustainable profit (EBITDA); it is essential to calculate EBITDA accurately so that it is not under or overstated, leading to issues further down the line. Associate pay scales should not be reduced, nor should extra sessions that do not currently exist be factored in. Price should be maximised but must bear scrutiny to an independent valuation on behalf of a lender or investor. Principals are advised to begin planning their sale well in advance of the likely ‘exit’ date to ensure an orderly sale process.
To discuss how Christie & Co might help you achieve your future plans, contact Paul Graham, Director – Medical at Christie & Co on 0131 524 3416.