This article, written by attorney Jason Gregoire, was originally published by seacoastonline.com and can be found here.
The COVID-19 pandemic has fueled an unprecedented level of dental practice transition activity. Although some predicted deal flow would slow in the wake of the 2020 shutdown, corporate and private buyers have continued purchasing dental practices in record numbers given the speed with which most practices have rebounded. If you are a practice owner that is looking to sell in the near term, here are a few tips to help you prepare for the sale process.
1. Engage a Team of Experienced Advisors. It is extremely important to assemble a team of trusted and experienced dental advisors to guide you through the sales process. At a minimum, you should retain an accountant and an attorney familiar with dental practice transitions. These advisors will counsel you on common deal points, deal structure options and tax implications, among other important considerations. If you plan on selling to a Dental Service Organization (DSO) or private buyer, then you will likely need to hire a broker to assist with the valuation, marketing, and sale processes.
2. Start Planning Early. Ideally, you should start the transition planning process with your advisors 2-5 years before you intend to sell to have the time necessary to best position the practice in order to capture the highest sales price and make the practice more appealing to buyers. It is obviously easier to market a thriving practice than a fledgling practice. If you hope to sell some or all of your practice to an associate, you will likely want to give the associate 1-2 years to prove they are committed, a good fit, and ready for practice ownership.
3. Select the Type of Buyer You Want to Attract. There are essentially four types of dental buyers: (a) an existing partner or partners; (b) an associate dentist; (c) a private, unaffiliated buyer; and (d) a DSO. There are pros and cons associated with each buyer type. Accordingly, you should have candid discussions with your advisors about your goals and motivations for selling to enable you to select the ideal buyer type. If you are 75 years old and plan to immediately retire and move far away after closing, then selling to a DSO that requires a 5-year post-closing employment commitment is not the right choice.
4. Ensure that Your Practice is Adequately Staffed and Outfitted. One advantage of starting your planning efforts early is that you can take the time needed to adequately staff and outfit the office. Buyers and their advisors will analyze staffing levels to ensure that the office is staffed to enable growth and productivity. Given the current staffing crisis, it may take more time to find qualified talent especially if your practice is located in a remote area. Similarly, a pristine, clean, and updated office will be more attractive than an outdated one. Invest now and it will pay dividends once your practice hits the market.
5. Be Mindful of Deal Structure. Once you list your practice and start soliciting offers, ask your advisors to carefully evaluate the transaction structure proposed by each offer based on your financial objectives. For example, one DSO might present an offer that promises more cash at closing but gives a small amount of rollover equity whereas another DSO might offer a higher equity roll but be contingent on acceptance of a risky earnout structure or a large escrow holdback to cover potential indemnification claims. In other words, do not simply accept the offer that contains the highest multiple of EBITDA; analyze the structure of each offer and its risks and benefits (e.g., taxes, short-term vs. long-term gain, etc.).
These are only a few of the many considerations you should consider when planning to sell your dental practice. Find your team of advisors, outline your priorities, and get planning. By following the steps outlined above, you will be better prepared for what is ahead and can better position your practice for a successful and lucrative transition.