Issues to consider when selling your dental practice post pandemic
The effects of the COVID-19 pandemic have placed unprecedented challenges on healthcare professionals across the world and dentistry is no exception to this. From practices being placed in complete lockdown in early 2020 to the increased regulatory measures of the current day where daily patient numbers are restricted, and additional hygiene measures are required. Each factor has its own economic and personal consequences.
These added pressures have forced many dentists to drastically alter the way they operate both in the short and long term. This, in turn, has caused practice owners to reconsider their plans for the future and in some instances, accelerate their sale plans.
Should you wish to consider selling your practice during these uncertain times, the next steps are crucial in ensuring you can realise the maximum potential from the sale of your practice.
Is now the right time to sell?
There are many factors which may drive a sale. Some may have been brought about by the pandemic and others simply attributable to the practitioners’ own exit strategies. Either way, continuity of the practice is key and with the dental landscape changing considerably over the last 12 months, this poses a challenge for buyers and sellers alike.
We saw a large number of ongoing practice sales being suspended during the early part of the pandemic. However, there are signs the market is recovering well with growing confidence in the sector from both buyers and funders. The healthcare sector has always been considered a safe sector to lend in and there is no sign of this changing.
We have also seen a renewed appetite for investment in the regions, outside of the traditional cities. This reflects the current changes in society with a shift to home working and therefore wanting more local amenities including the convenience of visiting a local dentist. Regional areas are therefore becoming more popular with buyers looking to capitalise on this.
Who is my potential buyer?
The dental corporates have remained active during the pandemic – they have money and they want to spend it. However, let’s not forget ambitious associates who are hungry to become practice owners and are looking for an opportunity to invest.
Traditionally, a dentist considering sale or retirement was likely to be restricted to selling the practice to another dentist. Today, there remain various options open to sellers including:
– Large national dental corporates.
– Investor led groups.
– Smaller regional corporates.
– Independent buyers.
– Associates(s) who may already work with you.
The decision as to who to sell to is a personal one. However, it seems prudent, particularly in the current market, that marketing through a specialist agent will ensure the price achieved is maximised and enables you to consider all offers on their own merits.
Other factors you may wish to consider are whether your team and patients will have continuity in standards of customer service and the clinical care you have provided. A lot of time and effort goes into building a successful practice and you need to be comfortable that a potential buyer – whether an individual or company – will protect the team you have built up, protect your brand, your patients and everything that has made it a success. You may also end up staying on at the practice for some time post sale and in such instances, it is imperative you can work collaboratively with the incoming party.
How can I maximise property valuations?
Your dental practice is a valuable asset so if you have decided to sell, it remains critical to obtain a valuation from an independent expert with specialist dental experience before you put the practice on the market and accept an offer. The dental sector is complex and dental practices vary significantly in terms of how they are run, what assets and property they hold and what their patient list looks like in terms of NHS contracts and private services. There are many key factors which will impact on practice value. This, coupled with the additional practical challenges we face today with remote valuations, makes it more important than ever to instruct a broker with specialist dental experience and access to a good supply of buyers.
There are some concerns around whether practice goodwill values would be prejudiced by the uncertainty which the pandemic has caused but this is yet to be seen. Banks are being very realistic about values and acknowledging that a dip in turnover is temporary and completely justified given the initial lockdown period and strict trading measures.
In any market, when selling your practice, you want to get the best possible value for it. The best way of achieving this is by preparing the practice for sale at the earliest opportunity.
- Look at efficiencies within the practice – many practice owners have taken the lockdown period to look at running costs and make potential savings. Lower running costs in turn increases profitability and maximises values.
- Look at sustainability of income – there are issues to address around list numbers and how the income of the practice will be maintained. This is more prevalent for NHS practices and the manner in which they are being paid.
- Look at liabilities of the practice – obtaining mortgage/loan settlement figures at an early stage. Are there any early repayment charges?
- Look at getting your house in order – gathering key documentation for due diligence purposes at an early stage including: management accounts, patient lists, title deeds to the property, lease (if applicable), employee list/contracts, CQC registration details etc.
How can I ensure the sale goes through quickly and efficiently?
Each practice sale is unique, and timeframes will vary depending on individual circumstances. However, to give you the best footing, it is always good practice to agree a thorough set of heads of terms at the outset of a transaction.
Given the changing landscape of both NHS and private practices, there are a number of emerging risks to sellers which, together with the commercial terms of the deal, need to be approached with caution and addressed at heads of terms stage:
- Deferred consideration – this is where part of the price is paid on completion of the sale and the balance at a later date. The balance is often contingent on future earnings of the practice with income targets being set. Are the targets realistic and are you comfortable with what is being paid upfront and the amount that is being deferred? These are important points to carefully consider and negotiate at an early stage in the process.
- Costs undertakings – it is sometimes agreed that if one party pulls out of the deal under certain circumstances, they will pick up any aborted professional costs incurred by the other as a result. If this is to be agreed, make sure the parameters are clearly set within the heads of terms and otherwise approved by your legal team. The intricacies of such provisions can often be heavily reliant on diligent drafting.
CQC registrations – The Care Quality Commission has a backlog of work due to the pandemic, with applications taking up to 20 weeks to progress. This can cause significant delays to transactions and highlights the importance of engaging with regulatory bodies as soon as possible in the transaction.
Selling a practice is quite different from selling other businesses. There are a great number of specialised legal and financial issues that must be correctly handled. Employing a specialist healthcare lawyer and accountant with experience in the dental sector will ensure you are guided through the complex procedures required when transferring a dental practice to a new owner.
If nothing else, the pandemic has taught us that the future is unpredictable. With that in mind, it isn’t surprising that sellers are continuing to approach the market with caution.
However, dental practices are expected to remain viable businesses in the medium and long term with a pent-up demand from a wide pool of buyers and readily available funding options continuing to be available. With a well thought out exit strategy, a team of specialist advisers and realistic expectations, you will be best placed to focus on continuity of the practice robust enough to sustain any future changes to the dental landscape.