Michael Royden compares what the differences are when selling your dental practice to a corporate or to a buyer acquiring their first practice.
This year has been unexpected for obvious reasons. The pandemic has caused all manner of disruption in normal life, both work and personal. Sadly it shows no signs of going away any time soon.
However, one thing which hasn’t changed significantly is the market for dental practices.
It isn’t quite the same as in recent years, but it is very much still an active market.
Some potential purchasers have been slightly more hesitant this year due to the uncertainties around the NHS payment structure for dentistry, and so on. However, what hasn’t changed at all is the appetite of the corporate groups to buy practices.
The dental team at Thorntons has seen continued practice sales throughout the lockdown period. A large part of those sales has been to corporates.
Many of you who are practice owners will have received enquiries from corporates asking if you are interesting in selling. Some of these by unsolicited mailshot, and by other means.
But what does it mean to sell to a corporate, how might that differ from selling to a buyer acquiring their first practice?
One of the key elements of any practice sale, rather obviously, is the price. What will it be in pounds and pence?
With a sale to a corporate, it is very common to have a proportion of the price paid up front on completion of the sale. With the remaining balance at a future date.
The balance is often (but not always) payable provided certain conditions are met. Most commonly if the turnover of the practice in specified future periods meets set targets, which are agreed as part of the sale.
There are more elaborate forms of price structure, but this is the one which we see most regularly.
This type of structure carries some risk. You will have sold your practice without the certainty of receiving the deferred elements of the price.
It goes without saying that the changes in NHS payment structures which have occurred through the course of this year (and those still to come) bring a greater degree of uncertainty regarding income levels than in the past.
However, provided that you fully understand the mechanics of the price and what you need to do to achieve the deferred payments, this can work for many buyers.
Tie in as an associate
Alongside part of the price being deferred, many corporates require that you remain with the practice as an associate for a period of time. This is often anywhere between one and four years.
That doesn’t suit someone wishing to immediately sail off into the sunset. But if you are someone who has planned ahead to retire, this can work if you get the timing right.
In that context, aside from how long you need to stay with the practice, questions such as your associate percentage will need negotiating. And you will no doubt take that into account in deciding whether the deal is for you.
You will also need to think about how you will feel remaining as an associate in the practice where you are currently the boss.
All practice sales involve the purchaser wanting to check out what they are buying. This is usually achieved through a process known as diligence. Where the purchaser asks for a great deal of information and documentation regarding the practice. This will be partly financial information, and partly legal information.
This process tends to be even more detailed when a practice is being sold to a corporate.
All of the corporates have fairly extensive lists of questions, which they will put to you. They will analyse the responses to a very granular level.
As a result, the process of diligence in such a case shouldn’t be underestimated and is very time consuming.
Legal documentation for the sale
In turn, the contracts that corporates put forward for their acquisition of a practice (often called a business purchase agreement) are fairly lengthy and detailed.
The same applies to other documents which you will be required to sign. Such as your new associate contract if you are remaining with the practice for a period.
At the end of the day, the contracts aren’t dramatically different to those found in a sale to an individual purchaser. Although the detail is fairly bespoke.
So is selling to a corporate for you?
The whole process of selling to a corporate can appear very daunting at first glance. But with advice from sales agents, solicitors and accountants who are familiar with the sale of practices to corporates, the process can be made much more straightforward than you think it might be.
For more information visit Thorntons Law at www.thorntons-law.co.uk.