Practice Transitions – Selling and Buying Practices
Buying a practice or selling one has its own special challenges. Few dentists have the requisite knowledge and understanding needed to do this alone.
Attorneys and accountants help, but unless they are in the business of selling or buying practices, their knowledge can be incomplete.
So it just makes sense to get some guidance on evaluating values. What used to be standard valuation using rules of thumb just isn’t enough anymore.
Demand, especially by corporate buyers, is skewing prices upward.
Do you know the value of the practice you want to sell?
Do you know the value of the practice you want to buy?
The eventuality reality that every dentist faces at some point is that you will sell your practice or practices. We help owners that are selling recognize values and build them to make the acquisition of your practice more desirable and a better price.
Two different classes of buyers exist.
The first is the financial buyer, who merely gives a multiple of the EBITDA (earnings before interest, taxes, depreciation and amortization. Today there is no typical EBITDA multiplier. One to Five Times EBITDA with most in the three times EBITDA range. The more locations and the larger the practice and its stability, the higher this EBITDA multiplier can go. Typically, the corporate buyer wants the seller to stay for 3 years and holds back 30% of the purchase price. 10% gets paid on the purchase price for each year of the seller stays on with the practice. The downside of this equation is that the seller no longer has control of the productivity of the practice and can lose some or all of these held back monies. It is estimated that 90% plus of all sales are made to a financial buyer.
The second type of buyer is the strategic buyer. This kind of buyer still looks at financial side, but considers the strategic advantage of owning a practice more than just an EBITDA multiple. Here the EBITDA multiples can balloon much higher including 2-5x normal pricing. Strategic buyers are most common in businesses where the buyer is looking to acquire certain intellectual property or a certain workforce. It can be a simple synergy of the acquirer and the seller where 1+1 is more than 2.
Contact us for more. We can coach on building values, acquiring practices and selling to the most desirable buyers.