Corporates vs Individuals
If you are looking to sell your practice in the next 1-5 years then you should carefully consider the type of buyer that you are likely to want to sell to, as this will often dictate the starting point of your sale.
We can help you plan your exit timing by building ‘exit scenarios’ for your potentially different buyer types and those that are specifically suitable for your practice. Whilst individual buyers can often be in a position for an immediate take over from the principal, Corporates will often require you to remain at the practice post sale for 2-5 years, dependant on your income levels and treatment types (the harder that you are to replace, the longer the likely tie-in will be).
These different exit scenarios will dictate how far away your retirement may be. For example, an individual buyer will require you to plan for: the time it takes you to bring your practice to market, marketing your practice and the legal process to completions. As practice sales agents with an inbuilt legal team, we can reduce the overall time it takes to sell your practice.
So what are the pros and cons of selling to Corporates over individuals?
Does size matter?
The size of the practice will likely influence your target buyers. For example, a practice with £200,000 of gross fees with typically £100,000 of costs provides £100,000 of profit for the principal, assuming they are working in the practice. However, if a Corporate takes over, the associate costs that they would incur would deplete the profit to the point that it is not financially viable.
Typically, a rough rule of thumb is that a turnover would need to be greater than £750,000 for it to start to work under a Corporate model with most Corporates looking for a minimum of £150,000-£200,000 ‘associate led’ EBITDA (profit).
However, the point should be raised that where practices do suit Corporates they may also appeal to individual buyers, whereas a smaller practice may only have interest from individual buyers. Often the numbers are not as straightforward as described above, and each Corporate will have a different threshold of profit that is acceptable to them. As agents, our job is to help vendors reach out to as many interested parties as possible and identify the most suitable buyers. We work with all Corporates and understand their individual preferences.
Valuation matters
Where your practice has a value in excess of £2,000,000, the number of private buyers is likely to be limited. Clients with practices of this size often ask us to approach Corporates and mini-Corporates without openly marketing the practice. Arriving at this decision is likely to be dependent on a robust valuation of your practice, taking into account a multitude of factors and adjustments to arrive at the best possible price. We take care to discuss and explain our valuation at length, building different valuation scenarios depending on the likely buyer options, ultimately with the objective of achieving the highest price.
Associate shortfall
Over the last 18 months we have seen a number of practices that are not ‘fully staffed’ with associates. There may be an NHS contract where the practice is not able to perform all of their UDA target. Previously a Corporate’s view would have been to take over the practice with their offer based on the full performance of the contract. This is now not the case. Most will require the practice to have all of the required associates in place to hit target or they will pay a value based on the lower turnover, which will in turn reduce the EBITDA and the price.
However, this is where a ‘principal led’ model may come into its own. If a buyer is looking to work in the practice, they can often cover the shortfall so that the practice maintains the whole target income. As they would either replace an associate vacancy or take over the shortfall as an additional performer, the value of the practice is based on the full income.
It may not always be obvious which category your practice sale fits into. Time can often be wasted by pursuing the ‘wrong’ buyer, so using an experienced agent to guide you on this can be invaluable.
Sale price retentions
When agreeing a price with a Corporate they will usually retain some of the purchase price. This could be 20-30% of the purchase amount, generally payable over a tie-in period to ensure that you are financially committed to working in the practice post-sale. Whilst each Corporate will have different requirements for the retention to be paid, most will require a target income to be hit for this to be paid out. Not all Corporates offer the same terms here. Our expert legal team and experienced sales agents can help you negotiate favourable and realistic terms.
Next steps?
If you are looking to sell in the next 5 years then we would urge that you take action now, especially where the practice is likely be suitable for a Corporate. PFM Dental offers a valuation service in which we undertake a full valuation assessment of the practice, and even provide you with ways to enhance the value of your practice. During this time we would discuss the likely buyers of the practice and the likely timescales applicable to your specific practice. This can ensure that you maximise the value by having as many relevant buyers as possible available to you. PFM Dental deal with sales to individuals, mini-Corporates and all of the major Corporates. In fact all of the major Corporates as well active mini-Corporates and individuals and are signed up to PFM Dental’s ‘priority buyer’ scheme, meaning that they will cover the agency fee on your behalf (buyers pay the agency fee to your solicitor along with the sales proceeds). Whilst the sale can be ‘fee free’ you still benefit from our marketing, professional expertise and negotiations to ensure that you maximise the sale price and achieve the most suitable terms.
