Jun 21, 2024

The Reality of Negotiating Deals

Negotiation – Let Me Take You Backstage

When most people think of negotiations, they imagine a scene from a film: characters seated around a table in a dimly lit room, engaging in intense back-and-forth discussions. 

However, the reality of negotiating a dental practice merger or acquisition (M&A) is quite different: It’s a slow process that unfolds over numerous phone calls and emails, often spanning weeks or even months.

There’s no set formula for these negotiations. Each deal is unique, with its own challenges and opportunities. Like any skill, negotiation takes practice to master. This is why M&A specialists, with their wealth of experience, are so valuable in these situations.

Buyers know this—and will often try to dissuade sellers from using M&A specialists in the hope of securing a better deal! 

But as we’ll see, having an experienced negotiator on your side can make a significant—often life-changing—difference in the outcome.

A Case Study in Dental Practice M&A Negotiation

Let me share a recent experience that illustrates the intricacies of negotiating a dental practice sale:

The Initial Approach

The process began when a corporate buyer approached one of our clients with an offer to purchase their dental practice. At first glance, the practice had a relatively low EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation), which might have led to a lower valuation. However, the buyer offered a high multiple of up to nine times the EBITDA.

Adjusting the EBITDA

My first step was to normalise the EBITDA by adding back costs that wouldn’t be relevant to the incoming buyer. For example, I included marketing costs and accountancy fees, as the corporate buyer had their own in-house teams for these functions. The new owner could either absorb or adjust these costs, effectively increasing the practice’s profitability from the buyer’s perspective.

Creating Competitive Tension

With our adjusted EBITDA figure, we then set out to create competitive tension. We approached other potential buyers and the same Corporate buyer who made their initial offer, with our new EBITDA figure, asking if they agreed with our calculations. This process often leads to negotiations over the EBITDA itself before we even discuss the multiplier.

Negotiating the Multiplier

Once we agreed on the EBITDA, we moved on to negotiating the multiplier. Our strategy was to leverage the interest of other buyers. We informed the original buyer that we had another party prepared to pay a certain amount, putting pressure on them to improve their offer.

Payment Structure

Next, we negotiated the payment structure. Typically, buyers prefer to structure the payment as 70% upfront and 30% deferred, but we pushed for an 80:20 split. To strengthen our position, we mentioned that another buyer was willing to pay more upfront. This allowed us to negotiate even better terms, potentially pushing for an 85:15 or even a 90:10 split.

The Art of the Deal

Throughout this process, I always keep in mind what we want to achieve. It’s exciting to see how far we can push the negotiations and what we can ultimately achieve for our clients. The results of these negotiations can be truly life-changing for practice owners.

A Proven Process

I’ve used this process to successfully negotiate the sale and purchase of veterinary practices, GP surgeries and more than 600 dental practices. While the core principles remain the same, each negotiation is unique, requiring adaptability and quick thinking.

It’s precisely because of the effectiveness of this process that buyers often try to dissuade sellers from using an agency. They know that an experienced M&A specialist can significantly increase the sale price and improve the terms of the deal.

The Value of Expert Negotiation

So, if you’re considering selling your dental practice, don’t be swayed by buyers who suggest you avoid using an M&A specialist. While it might seem like you’re saving money by negotiating on your own, the reality is that you could be leaving a substantial amount on the table.

The negotiation process for dental practice M&A is complex and nuanced. It requires patience, a deep understanding of the market, financial insight, and the ability to heat competitive tension to the max.

Ready to Maximise Your Practice’s Value?

If you’re considering selling your dental practice, don’t go it alone. At Pluto Partners, we have the experience and expertise to negotiate the best possible outcome for your practice sale. Our proven track record spans hundreds of successful transactions.

Don’t leave money on the table. Contact Pluto Partners today, and let us help you achieve a life-changing result from your practice sale.

Christina Diamanti
Abbey Road Dental Owner

A huge thank you to Max for all his help! I would not have been able to buy my practice without his professionalism, expertise and enthusiasm. He was always there to give support and advice and checked in with everyone involved at all times to make sure everything was running smoothly!





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