Simon Hughes offers words of wisdom on an efficient practice sales process.
In strong market conditions for selling dental practices, with some principals receiving direct approaches from prospective purchasers on a weekly basis, it’s easy to think that selling ‘off market’ could be an attractive prospect. However, any practice owner should carefully weigh up their options when considering a sale to ensure that the value they’ve created, sometimes over many years, is fully appreciated on exit.
So, what does an efficient sale process look like and what are the advantages of officially going on to the market? Here are a few points to consider:
- Price – firstly, it is impossible to say whether the full value has been achieved without a range of offers to consider, and you certainly cannot judge the worth of a dental practice by comparing it with one up the road – no two businesses are alike. Pricing in the current market is quite volatile, with many practices selling for figures in excess of the asking price. The only true way you can be sure that you have maximised value is through a competitive sale process
- Buyer choice – particularly for principals who wish or need to tie in post completion, having a number of potential buyers in the frame enables you to choose with whom you want to work for over the subsequent few years. Emotive matters such as the choice of labs, staffing levels and practice branding can all be considered during the bidding process and with multiple buyers in the frame, you will have a much stronger negotiating position
- Speed of sale – as part of the sale process your appointed agent should have thoroughly vetted all buyers and obtained proof of funding. This enables you to judge which buyer is most able to complete the purchase in the shortest time, or timeframe that suits you
- Terms – it may be that part of the sale price is to be deferred over a period of years if the goodwill of the practice is closely aligned to the selling principal. In this case, the negotiation over what proportion and the terms on which it is agreed will be much more favourable to the seller if there are multiple offers on the table.
An efficient sale
In terms of the sale process, for many principals, it is important that the buyer is a good ‘fit’ for the practice, particularly in respect of staff morale and patient continuity. A good agent will know his/her buyer list and will be able to accurately shortlist the group of prospective purchasers, ensuring that the right quality and quantity of prospective buyers are introduced.
It is also vital that a good quality information memorandum (IM) is produced for the business. This not only gives accurate factual information about the practice but also highlights the potential for a buyer to grow it in the future. It also sets out the basis upon which the practice will be sold – asset or share sale – and has details of the marketing timeline and bidding process. A detailed follow-up pack of financial and operational information is then made available once a confidentiality agreement has been received.
Once the IM is agreed and the buyer shortlist prepared, approaches are made confidentially to prospective purchasers to stimulate early interest and viewings are then arranged, generally outside hours. For most practices, multiple expressions of interest are received and these are managed by an agent accordingly.
Depending on the level of interest expressed, a closing date for offers can be set. This should be handled confidentially – an ‘open’ bidding process simply shows buyers what others are offering and reduces the chance of a ‘rogue’ high offer. A sought-after mixed practice could easily attract in excess of 10 offers, each of which has to be carefully considered. Sometimes the most important things are those that are not included.
Once a preferred bidder is selected, terms are agreed and the legal process commences, a good broker will more than cover their success-based fee by ensuring that the vendor’s interests are protected and the best value achieved. But it is always important to seek advice and discuss the process and what approach will be best for each individual sale before committing to anything.