Getting The Value
Sometimes when I speak to Principals they ask ‘please can you find me a buyer for my dental practice?’ Sometimes they ask ‘what do you do for your fee’?
In our business the true definition of a buyer is a person(s) or organisations which hands over an agreed sum of money and the deal is legally completed. I have a database of several thousand prospective buyers. Many of them will buy a practice one day. Some of them will buy more than one practice. And an as yet unknown number will never buy a dental practice. But interestingly, when I am asked to ‘find a buyer’ I think people often visualise a person(s) or organisation who is a long way from reaching our definition of a buyer.
In this article I want to share more about what dentists can expect from a good dental broker and what they might be doing for their fee. This is not intended to be a highly detailed description of every step in the process.
In essence we project manage the sale. We plan the sale process and organise the work of all the people involved in it.
Open Mindset
We coach and advise on the emotional mindset required to get a deal to completion. This is a business transaction. You will be seeing commentary and negotiating positions based simply on money (£) which you will feel does not fully reflect the value of your practice. We will provide perspective at all stages of the process to help Principals retain that healthy open mindset.
Valuation
We will provide a go to market valuation with all the supporting rationale for the conclusions we have drawn. We will apply our own market intelligence as well as information drawn from other relevant sources. A practice has to be valued to reflect the market to make it interesting to prospective buyers. If our market valuation does not meet the vendors expectations or requirements then we have to consider what remedial action can be taken and what the timescales are to take the practice to the market. It could mean a delay of years in some cases.
Finding A Buyer
Finding a buyer is not the same as finding the ideal buyer. We have spent years vigorously gathering the details of everyone and every organisation who is interested in purchasing a practice. GDPR regulations that became law in May 2018 make it impossible for new organisations to compile that information from scratch. We take our practices to the entire market in a confidential way. We do not have a ‘black book’ of buyers. We do not just ‘flip’ practices to corporates. This is the only way to find the ideal buyer for a practice. Along the way we will find several parties who want to buy the practice. But we are not looking for them. We are looking for the ideal buyer who will buy the practice. One way I can guarantee a Principal will not find the ideal buyer is by working with an organisation who takes fees from the buyer and represents the buyer. Only work with brokers who you pay and who represent you. This is a subject in itself which I am happy to discuss with anyone.
Negotiating A Deal
The focus is on leveraging interested parties to get the best deal with the best terms that are aligned to the vendors objectives. I take calls from Principals regularly who have found buyers themselves who turn out not to be ideal buyers. Their buyers delay, they don’t have the funds, they make unreasonable demands etc, etc. We advise our clients what a good deal looks like for them in the current market. We want our clients to make informed decisions that work for them.
Ongoing Negotiations
When a deal is agreed the purchaser and their representatives get the chance to drill into all the details of the practice. This is where they undertake their ‘due diligence’ to satisfy themselves and their lenders that what they are buying is what they think they were buying and that the amount they are paying stacks up.
Our role is to hold the purchaser to their offer or renegotiate on your behalf in the event genuine issues arise which will affect the goodwill value. We will also work with both parties to mitigate any identifiable risks. Re-negotiating the prices is often not necessary to resolve an issue.
It is a 90 minute game (Bill Shankly)
Business time between agreeing a deal and completing is variable. If the price is aligned with the market and enough time is allowed to get a result then all transactions should complete. The main exception to this rule is some corporates who withdraw from deals with no notice because it is part of a wider re structure or refocus. We have examples where practice are sold within a couple and weeks and some which take 2 years.
What do we do for our fee?
Forget about all the milestones I have just shared. It is widely agreed that vendors sacrifice 20%-30% of the value of their business when they do not go to the entire market and negotiate their own sale. It makes sense, most Principals are not trained business sellers and private buyers are often trained buyers. If a dental practice is worth £800,000 and you agree a sale 20% off the full market price because you have no comparable data and no one representing you then you are giving the buyer a discount of £160,000. If your broker can secure the ideal buyer who will pay the full £800,000 then they will deliver an ROI in the region of 7 times the fee they charged you. Hence the adage, focus on the value and not the cost.
This article was written by Chris Mayor, Commercial Director of Lily Head Dental Practice Sales . It was first published in the September 2024 edition of The Probe.
If you would like to talk about anything to do with buying, selling, financing or refinancing a dental practice anywhere in the UK then Contact Us today.
