Market Appraisal: Transitions & Valuations

By Greg Auerbach, , MBA, Henry Schein Dental Practice Transitions

Leading up to early March 2020, practice values and sale prices in Florida were among the highest they had been in years, if not decades. This was driven by solo practicing dentists, smaller multi-dentist groups and DSOs in the marketplace hungry for acquisition. Smaller, local lenders had access to money that was readily available from reputable national lenders. There simply were more purchasers in the market than there were sellers. Aided by practices continuing to strengthen after the economic challenges of prior years and increasing net income, the market could not have been better. Then the clock stopped as we saw practices close abruptly early 2020. We all know what happened, but what was the result? Where did things go and what can we learn? 

After reopening, we saw a very strong recovery with many practices increasing their average monthly collections over 2019, despite the shutdown. For many, this continued into 2021 where, after accounting for the time of forced inactivity, it was almost as if 2020 was just another data point in continued year-over-year growth. This created a “first” amongst evaluators and transitions specialists — specifically, how is 2020 accounted for and how is the continued viability and sustainability of the practice made evident?  What has that meant going forward? Value has remained high and practice sale prices have similarly remained high. We note that investments made in the practices, whether by way of equipment/technology, team training, patient communications or personal education, proved a strong positive return on investment.    

In all, the timeless question continues to be top of mind: Where does value come from? How is the real value, the intangible of a practice quantified and how does value get protected and transferred in a transition? Even now, it is not uncommon to hear a doctor firmly state that practice value is 60-70% (of something). That “something” may be collections, production, an average of three years’ of collections or some other “methodology.“ While we, and many others, have published articles locally, regionally and nationally, and presented casework to demonstrate how this is incorrect, the myth persists. If you are looking to purchase an existing practice, it could mean that you miss out on stellar opportunities because your mental “evaluation“ of an asking price is not consistent with the current market. If you are considering a sale, it could mean that you agree to sell at a lesser price that could have been otherwise obtained. There is no magic formula that can be applied to all practices.

Once the hurdle of pricing is conquered, though, the pitfalls of the process abound. Transition is not about two people making an agreement, it’s two (or more) doctors — often, it’s two spouses, two accountants, two attorneys — at least one banker and their team (if not more), not to mention any other advisors, all whom are vital to crossing the goal line. Who are these other participants, though, and what should they do? 

We often come across “experts“ who stray from their experience or knowledge to try to do more, with real-life scenarios resulting in a deal that is not consummated or made very difficult from start to finish. We are seeing more out-of-state advisors who are evaluating and providing advice for practices in Florida with no local knowledge. In a lot of cases, their credentials are internet-based and there is no real personal relationship, let alone hometown or “on the ground” knowledge.

Having advisors is important; the goal is for everyone to work in concert while properly representing their client. How is this done? Further, what are the best practices for evaluating the practice and transition, working with the staff, retaining the patient base and setting the table for success? The stories of the “bad” are numerous and can be a point of education, but so can the successes. 

Experience and expertise matter in every aspect of dentistry, and this does not exclude practice transitions and evaluations. Learning how to best ready yourself, whether as owner looking to transition or non-owner looking to take the next step in your career, understanding the ins and outs of the methodologies and processes and the members of the team around you is vital. 

Mr. Auerbach is an FDC2022 speaker and will be presenting “Transitioning Transitions and Valuing Value: The Good, the Bad and the Ugly” on Thursday, June 23 at 9 a.m. Visit floridadentalconvention.com for more information.

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