- Confidentiality. If an owner tries to sell their own dental practice, that process alone reveals to the world that their practice is for sale. Employees, customers, suppliers, and bankers all get nervous and competitors get predatory. The dental practice broker protects the identity of the practice he represents for sale with a process designed to contact only qualified, pre-approved buyers with a blind profile – a document describing the practice without revealing its identity. In order for the buyer to gain access to any sensitive information, he must sign a confidentiality agreement. That generally eliminates the tire kickers and deters behaviors detrimental to the seller’s practice.
- Practice Continuity. Selling a practice is a full-time job. The practice owner is already performing multiple functions instrumental to the success of their practice. By taking on the load of selling their practice, many of those essential functions will get less attention, sometimes causing irreparable damage to the practice. The owner must maintain focus on operating their practice at its full potential while it is being sold.
- Time to Close. Since the practice broker’s function is to sell the practice, he has a much better chance of closing a transaction faster than the owner. The faster the sale, the lower the risk of practice erosion, customer defection, employee problems and predatory competition.
- Volume of Buyers. Practice brokers subscribe to databases of practices/associates that enable them to screen for buyers that are interested in a certain type of practice/community and have revenues or creditworthiness that would support the potential acquisition. In addition, they maintain relationships with high net worth individual buyers and have access to private equity groups databases that outline their buying criteria.
- Marketing. A dental practice broker can help present the practice in its best light to maximize selling price. He understands how to recast financials to recognize historical cash flow and the EBITDA potential post acquisition. Higher EBITDA = higher selling price. He understands the key value drivers for buyers and can help the owner identify changes that translate into enhanced selling price.
- Valuation Knowledge. The value of a practice is far more difficult to ascertain than the value of a house. Every practice is unique and has hundreds of variables that effect value. Practice brokers have access to practice transaction databases, but those should be used only as guidelines or reference points. The best way for a practice owner to truly feel comfortable that he got the best deal is to have several financially viable parties bidding for their practice. An industry database may indicate the value of your practice based on certain valuation multiples, but the market provides the real answer. An industry database, for example, cannot put a value to a particular buyer on a key customer relationship or a proprietary technology. Most practice owners that act as their own practice broker get only one buyer involved – either another practice that approaches him with an unsolicited offer or a referral from their banker, accountant, or outside attorney.
- Balance of Experience. Most corporate buyers have acquired multiple practices while sellers usually have only one sale. In one situation we represented a first-time seller being pursued by a buyer with 26 previous acquisitions. Buyers want the lowest price and the most favorable terms. The inexperienced seller will be negotiating in the dark. To every term and condition in the buyer’s favor the buyer will respond with, “that is standard practice” or “that is the market,” or “this how we did it in ten other deals.” By engaging a practice broker, the seller has an advocate with a similar experience base to help preserve the seller’s transaction value and structure.
- Maximize the Value of Seller’s Outside Professionals. Practice brokers can save the seller significantly on professional hourly fees by managing several important functions leading up to contract. compensation is usually comprised of a success fee that is a percentage of the transaction value. The practice broker and seller negotiate with the buyer the practice terms of the transaction (sale price, down payment, seller financing, etc.) prior to turning the purchase agreement over to outside counsel for legal review. In the absence of the practice broker that sometimes-exhaustive negotiation process would default to the outside attorney. It is generally not their area of expertise and could result in significant hourly fees.
- Maintain Buyer – Seller Relationship. The sale of a practice is an emotional process and can become contentious. The practice broker acts as a buffer between the buyer and seller. This not only improves the likelihood of the transaction closing but helps preserve a healthy buyer – seller relationship post-closing. Often buyers want sellers to have a portion of their transaction value contingent on the successful performance of the practice post-closing. Buyer and seller need to be on the same team after closing.
A practice broker helps reduce the risk of practice erosion with improved confidentiality while allowing the owner to focus on operating the practice. The practice broker led sale helps maximize sales proceeds by involving a large universe of buyers in a competitive bidding process. Finally, a practice broker can improve the likelihood that the sale closes by buffering buyer – seller negotiations and by balancing the experience scales.
Blog Post Written By : Mark Eric Bailey