Business bites – getting a second opinion
Simon Hughes presents a case study illustrating the benefits of consulting experienced dental practice sales agents.
We recently completed on the sale of a landmark 10-surgery practice in the south east of England. The project started with an initial enquiry from one of the owner-partners who admitted that he had received an offer from a corporate and was just looking for a ‘sense check’ that the offer was fair value. While it appeared to be, no other parties had been introduced and there was no way therefore that anybody could say whether or not it was ‘market value’.
This is a common occurrence in the dental sector with companies targeting practice owners directly and trying to acquire businesses off-market, often at significant discounts.
The key features of this transaction were as follows:
- A 10-surgery practice of the highest quality – the partners had built it and wished to retain the freehold as an investment
- Mainly private income – total turnover was £2.2 million, of which approximately only 10% was from the NHS
- Three working partners, who between them generated 50% of the turnover
- NHS orthodontic contract in the name of an associate
- The partners all wished to remain post-completion but on staggered exits.
As well as the financial terms, the choice of buyer was crucial so that the culture of the practice was protected.
As so much income was generated by the working partners, we remodelled the profit and loss accounts to reflect the cost of the partners remaining as associates post-completion. This was essential to accurately show what the EBITDA (earnings before interest, tax, depreciation and amortisation) would be under an associate-led model.
We produced a detailed information memorandum, which included sufficient information to enable a purchaser to submit an informed offer. We confidentially approached a shortlist of parties, all of whom met the owners and pitched to acquire the practice. A closing date for offers was set and after a period of negotiation, heads of terms were agreed.
The sale was concluded no more than eight weeks from agreeing on the heads of terms with the eventual buyer. The price was at least 10% higher than the offer that was tabled by the corporate party that had originally approached the owners directly.
The buyer was actually unknown to the owner-partners, and the owner-partners achieved a full market rent and therefore maximised their future investment.
Key points to note
Sometimes it suits practice owners to sell off-market, but in today’s modern market the only way to ensure that best price and terms are achieved is by undertaking a professional process and approaching a variety of parties.
Established dental specialist solicitors were used, which undoubtedly sped up the process. An accurate appraisal of the practice was essential to give the purchasers what they needed to assess EBITDA and value. This underpinned the price agreed and ensured that the practice valued up independently.
At Christie & Co we were able to make the most of our experience and in-depth sector knowledge and contacts to approach potential buyers as part of a confidential sales process. The final price achieved was the best possible for the owners and the buyers were the best fit for the business.