Selling to the corporates
Throwing your lot in with the devil or a sound business decision? With practices in Scotland an attractive proposition for English-based corporates, the current active market is good for sellers. With careful thought and expert advice, it may be the right move for some principals considering a sale
Over the years, the prospect of selling to one of the corporates was at times seen as like selling your soul to the devil. The view from some was that the focus of the practice would be entirely shifted, potentially to the detriment of patient care, and that the corporates would do anything to avoid paying the full price to the former principal, some of which was deferred and dependent upon various targets being met after the sale. On the latter point, that wasn’t generally our experience of how things panned out, but it was the perception within the profession.
As a team, we act for a large number of principals who have decided to sell their practices, and, in the last year or so in particular, we have been struck by the growing proportion who are selling to a corporate buyer. So why is that?
Well, first of all it is clear that Scottish practices are seen as very attractive by English-based corporates, compared to England and Wales where values (and therefore prices) can be much higher. In turn, Scotland doesn’t have the added complications of an NHS Dental Contract, the CQC, etc. Couple these buyers with other corporates based in Scotland as well as private buyers
and it makes for a fairly active market, which can only be good for sellers.
In turn, many sellers have decided that while they may not wish to retire fully, they want to take advantage of the currently strong goodwill values that are being secured. That fits in quite well with the corporate model of sale that often (but not always) involves the principal committing to remain with the practice for a small number of years after the sale completes.
One final reason for the increased sales to corporates is the value that has been built up in some larger practices. Some of these are beyond the financial capabilities of private buyers, particularly associates who would struggle to gather together sufficient funding (whether through borrowing or otherwise) to acquire such a practice. In these cases a corporate buyer may be the most viable option, as they tend to have much greater access to finance at the required level.
So for a principal contemplating a sale to a corporate, what are some of the key issues which you should be looking out for in the deal?
Make sure that you understand and are comfortable with the terms of the price, including any part that is deferred. For example, if targets are set for the post-sale years, are they linked to you as an individual or the practice as a whole?
Agree the detail of your continued involvement in the practice, such as your associate terms.
What are the terms in relation to your property? If you own the surgery, will the buyer acquire it from you? Leaving it with you has potential tax implications for the future. If they are buying the premises, you should endeavour to agree a value at an early stage.
Rather obviously, you should be sure that you are comfortable moving from being the boss to being an associate in the practice.
With careful thought and advice from those who know how the corporates tick (such as sales agents, solicitors and accountants), a sale to one of the corporates should not be seen as selling your soul to the devil, and may well be the right move for those considering retirement.
For further information please contact:Michael Royden Partner for Thorntons Solicitors Tel: 01382 346222