Is 2019 going to be the year you buy or sell a dental practice? We caught up with Lily Head of Lily Head Dental Practice Sales for an update on how the market’s doing and what to look for in a dental practice broker.
Lily, what’s the mood in the market?
The market is buoyant. We increased the size of our team by 20% in 2018 to ensure we can deliver the best results for our clients. In the final quarter of 2018 we achieved some record outcomes for our clients. Private dental practice values have strengthened from 122% to 129% of gross turnover year on year. NHS dental practice values are remaining consistent.
How has the market changed?
When I first became a dental practice broker some 13 years ago NHS practices were not in high demand. That then changed and the market was all about NHS dental practices. Now we’ve seen a huge resurgence in demand for high quality private dental practices and specialist practices. We’re seeing a lot of NHS practices coming to the market with high contract values. Buyers and lenders are now looking carefully at EBITDA, location and risk elements like contract breaches and clawbacks. Dentists are not paying the same sky high prices they were 18 months ago. They’re more circumspect. This is partly because there is more choice available to buyers.
How do you value a practice?
We’re always being asked if it’s an art or science. It’s both. We drill into all the details.
- Location of the dental practice
- Multiples of EBITDA comparable with associate gross
- Potential of the dental practice
- Benchmarking financial performance
- Our own historical data by practice type and location
- Data that is the in the public domain
- Expected buyer demand
- Our own intuition and experience of what a good deal would look like for our clients
Lily Head Dental Practice Sales is UK wide. That’s how we get to the values we can achieve. We don’t make assumptions on the figures and we do use our experience to reach the figure we think a practice can fetch on the market. A valuation and a go to market price are two different things.
What’s the difference between brokers?
I am not sure I am qualified to tell you about our competition. Dentists will make their own mind up based upon what they see, hear and experience. But I can tell you about us.
When I founded Lily Head Dental Practice Sales in 2010, 90% of our clients were disenchanted dentists who had not got any kind of result with their first-choice dental broker. Invariably their practices had been over valued and promises of ‘buyers waiting in the wings to pounce’ were myths. Many of those dentists felt they had been abandoned by their dental broker.
It’s helped us to hear first hand what dentists wanted done better. We are still engaged by those ‘distressed dentists’ but our client profile has changed significantly. We obviously have many more clients than back then but now 90% of our clients meet and engage us when they are doing their initial research into deciding which dental practice broker to trust and partner with.
I am a naturally enthusiastic person. I have always been that way. I bring that enthusiasm to my professional and personal life. I can’t help it! My team share the same enthusiasm I have, to do a great job for our clients. We ‘help dentists fulfil their business ambitions’. That is our tag line, and it is why we go to work every day. If you do not share the enthusiasm that the leadership team here have you are working for the wrong dental broker.
Lily Head Dental Practice Sales is my business and I am accountable to all our clients (buyers and sellers), my family, my team and their families. The senior leadership team are all shareholders. We are not employees, we are not accountable to shareholders, silent partners or investors. We plough our own furrow. We are professional, flexible, tenacious, responsive, good negotiators and get the outcomes our clients want and need.
What makes life easier for buyers and sellers?
The most important thing if you are considering selling is to hire a dental practice broker. I could write an entire article on why you should do this. Once you have decided which broker to trust your business sale with, I would recommend you carefully consider all the advice they give you as they will know more about the process and pitfalls than you do, even if you already own multiple dental practices.
If you are considering buying, then talk to us about your funding position so we can work with you to understand what type and value of practice will make sense for you. We help buyers and sellers by providing services around funding for buyers, CQC registration / de-registration for buyers and sellers, wealth management advice for sellers as well as consulting on how to maximise the value of your dental practice. All this in addition to finding the right buyer for your dental practice who is willing to pay the right price for your business.
It is also essential to get all parties and their advisors (solicitors and lenders) on board with a plan to complete a deal. We use a timeline plan which we share with all parties. If you get to week five and the CQC stuff hasn’t been done it pops up as a red flag. That helps everyone. We are constantly working at getting everyone to work together and communicating so we can stick to the plan.
We absolutely recommend that you engage highly experienced and expert dental professionals to your team. We have our own list of recommendations which we are always happy to share.
If you are buying or selling through Lily Head Dental Practice Sales or another specialist broker then I would advise against using solicitors who are aligned with another dental practice broker. The simple fact is that their masters will always expect them to prioritise deals their own parent company is broking ahead of yours.
Putting together the right team around you will keep things moving along and mitigates the risk of buyers or sellers getting “transaction fatigue” and losing interest in a deal. We have an open bidding process. We find it is helpful to buyers and sellers if we keep this open. I hear about sealed bidding processes, but I am sceptical that it really helps sellers or buyers.
How do you get the best outcome for a seller?
Once we have interest in a dental practice it is about truly understanding the value of the dental practice we are representing and negotiating with buyers and lenders to ensure they can see the same value too. We work with a lot of first-time buyers. We also work a lot with corporate buyers who are repeat clients. To get the best out of the corporate buyer you must do two things.
- Give the seller some options.
- Understand what is important to the corporate buyer at that time.
We have various go to market strategies depending on what outcomes clients are looking for. Whilst the sale price is a critical outcome, it is not always the most important thing to clients. Their priority may be sale price, it may be the clinical care their patients will receive when they have left, it may be the specific person they sell to, it may be they want an ultra-confidential sale process. So firstly, find out what your client’s priorities are.
If the goal is to create as competitive an environment around a dental practice sale as possible then it makes sense to share the sales details (this does not identify the practice but simply provides some headline information) as widely as possible.
We maintain a database of 4,000+ registered dental practice buyers and an additional 650 business professionals such as solicitors, accountants, lenders and plan providers who may know of clients who are interested in a purchase. We have systems in place to ensure our email campaigns are sanitised (do not get screened as spam) and actively manage our website (SEO) to make sure dentists looking to buy or sell a dental practice can easily find us online. Our registered buyers can obtain information on dental practices which are for sale 24/7 from our website. All these things combined ensure our clients get maximum exposure.
On the subject of SEO (search engine optimisation), you can see we invested in the domain name www.dentalpracticesales.co.uk to help dentists find us easily. But it also takes human capital to get the results we do for our clients. Never underestimate this. It takes skill, determination and a sound knowledge of the game.
I sometimes think I should have been born part border collie and part fireman. Herding people together and putting out fires when required. A sale can have bumps along the way. Our job is to navigate and help our clients to see where they could be and agree a way around them. It’s about getting the best out of people. Even if, at times, it’s emotional. If you are working with a someone who does not know you or maybe does not care enough, I’d say you only have a 50:50 chance of getting the outcome you want.
How are the finance options looking for buyers?
The debt market remains challenging and there is a wide range in appetite from lenders. That said, for the properly considered application lending can be secured. The lenders are all about profitability. The lenders are looking more forensically into the accounts and buyers are having to jump through more hoops. But the market looks strong. There’s a range of types and styles of lender and they all have their own method of calculating EBITDA. A corporate will have a very different cost base to a couple who went to university together.
What’s the golden secret to getting a good price?
Ultimately the market (supply and demand) will dictate the sale price of a business. However a good broker will get you that extra bit of value. Most clients are borrowing to make a purchase and the lenders will not lend against vanity valuations. That said, there are buyers who will pay a premium for practices in a location which is particularly important to them or which have a specific clinical profile. But these buyers will need to have some of their own cash to spend.
To get the best price I would recommend dentists
- Plan their exit five years in advance
- Build the profitability of their business
- Appoint a dental broker they trust
- Appoint a dental broker who does business across the UK
- Appoint a dental broker that you believe can see the full value of your business and who will then work hard to turn that vision into cash
We provide a guide for dental practice sellers which covers these things.
Where are the hotter areas of the market?
The major cities such as London, Manchester, Birmingham, Leeds and Cardiff. The home counties and anything around the M25 are popular.
There are in fact some great deals to be had in more rural areas but buyers simply have to take into account potentially higher staff costs to encourage people to move there. West Wales is my tip for anyone who wants a great dental practice at a reasonable price in a stunning location.