Selling your practice in uncertain times
The right person might be just waiting in the wings to help you realise your plans
As most of you will know, the market for dental practices in Scotland has been strong for many years.
There have been periods in the last few years where the turnover in practices has been at an all-time high. That isn’t reflective of a lack of confidence and principals rushing for the exit (although I’m sure that some were keen for the exit door to open!). Instead, it reflects the perception (quite rightly) of the intrinsic value in practices, and the strength of belief from a number of stakeholders (including crucially the banks) that owning a practice is a good investment for the future.
Rewind to March 2020 and of course the world was turned on its axis. Lockdown proper was put in place throughout the globe, and that impacted on people’s perspectives on life in general. Many saw their futures very differently, and that is continuing to influence how everyone views their lives and their careers. So how has that affected the practice market?
The simple answer, you will be pleased to hear, is very little. Admittedly the initial period of lockdown flattened practice activity to almost zero. That was understandable, who would want to buy a business which was closed for several months (and of course no one knew how long that would last)?
Coming out of the closure period, however, many practices sales and acquisitions were reactivated and since that time the Thorntons dental team has seen a very high level of activity, with deals being regularly agreed between willing buyers and sellers. So why is that and what sort of activity is there?
I think the first reason for the high level of sales at the moment is due to the pandemic. Principals who were perhaps still a few years from looking to sell have re-evaluated the future and decided that the burden of running a practice is heavy and is only going to increase in coming years. That is undoubtedly true to an extent, and so we can understand why some of our clients are looking to sell at this time.
Conversely, some associates have seen the upheaval caused by the pandemic and decided that they would rather have more control over their destiny by being a practice owner. That has meant that we have seen more associates buying their first practice, either outright or through a partnership buy-in.
Added to that, the corporates still have a very strong appetite to acquire practices, with a number of them being very active in Scotland. That has driven the level of the market to an extent, and of course ties in quite neatly with some sellers who have decided to sell earlier than originally planned. In those cases, the sellers are comfortable to work for the corporate for a number of years whilst realising most of the value in their practice now.
Coming out of the period of practice closures, there was a concern that the value of practices would be less than before the pandemic. That really hasn’t transpired. The fact remains that practices are seen as a substantial asset, and the pandemic hasn’t really affected that view. There is a lot more uncertainty about the future, such as how NHS dentistry in Scotland will develop in future years, what will the financial/contract model look like, etc? However, in the main the perception of the profession hasn’t changed significantly.
The banks’ willingness to lend to dentists buying a practice has changed slightly, but it remains the case that finance for dentists is much more readily available than in many other business areas.
In turn, we have seen strong competition for some practices, which tends to have the effect of bolstering prices. In some cases practices have gone to what would be called in the housing market a ‘closing date’, with multiple offers being received.
There was some argument from one or two of the corporates last year that the uncertainty caused by the pandemic had a negative influence on practice values. However, that hasn’t panned out, largely as practices are viewed as being a long-term investment, and the instrinsic value in practices has not dissipated.
So, if you are a principal who has been thinking about selling, don’t be put off by concerns that now is not the right time, and that there is too much uncertainty to take the plunge. There are definitely a lot of willing buyers out there, with available sources of finance, and the right person might be just waiting in the wings to help you realise your sale plans.
Michael Royden is a Partner at Thorntons Law LLP
T: 01382 346222