How Has COVID-19 Changed the Selling of Dental Practices?
COVID-19 has had an undeniable impact on every facet of daily life. For big businesses, it has left them potentially unable to make large purchases, and without the courage necessary to make a vital sale.
In the past, dental practices for sale used to be bought and sold in such a way that mutually benefited both parties. However, as a result of COVID-19, the way in which things are being done has had to change. Understanding exactly how things have changed is vital for moving forward with the sale and having the necessary knowledge to strike the best deals.
A Mixed Bag for the Future
The financial market for selling a dental practice is in flux at the moment. COVID-19 has brought confusion to what was a fairly structured and organised industry, and consequently there have been serious ramifications that will continue for the rest of 2020.
At the time of writing, it is predicted that the industry will level out in the second half of 2020, with most dental practice sales picking up in the fourth quarter, when banks are in a position where they can start lending again.
Sales Before COVID-19
If we are going to understand exactly what has changed in the wake of COVID-19, we have to look at how sales used to be before the pandemic.
Regularly, buyers could afford to meet the asking price that was being offered by the selling agent. The average turnover was a target that could be met feasibly within a year or so, and there was limited deferment on payments, so the transaction was completed in full or with a small deferment of the price.
The Consequences of COVID-19
When lockdown happened, things began to change. The deals were still going forward, some buyers were happy to carry on, but many were understandably concerned about the risks, and about the speed at which the turnover period would recover. Basically, buyers were worried that it would take longer for the turnover and profit margins that was offered to be met in these new conditions.
In a post-COVID world, we start to look at the main difference that is being seen in the buying and selling dental practices. Most dental practices for sale are now offered on what is called a "deferred price structure".
A deferred price structure, in this case, means that while the initial price pre-COVID is often still being met, a percentage of this price is being deferred for two-three years also as a way to retain the original enterprise value of the sale and to minimise risk for investors.
By doing this, you ensure that the buyers don’t overpay, and that they have a hedge against any issues with turnover recovery. For the seller, it means that the pre-COVID price is still achievable, the practice stays working, and thus there is oversight, and finally it becomes easier to meet the new turnover target, one which is higher than before, over a period of 2 to 3 years because the new owner or partner will help bring patients and clients with them, supporting the marketing activity and growth of the dental practice.
This is the optimum way in which we can work towards the transaction still being mutually beneficial for both parties. It’s expected more transactions like these will be seen in future, as the NHS sector is set to be a little bit more fluid than the private sector in terms of sales, and the private sector offers growth potential, and also that the dental sector has been more formally recognised as a vital one.
Pluto Partners’ expertise can help maximise the value of your dental practice, Director and Partner Max Bazzucchini is waiting to hear from you.