Practice sales – a softening market

What is the current state of the practice sales market? Have all of the old certainties been overturned by a combination of the pandemic and the economic disruption of the past 18 months? How should dentists now go about succession planning? Practice Plan Sales and Marketing Director, Nigel Jones, spoke to MD of Frank Taylor and Associates, Lis Hughes, to find out more.

Nigel: When it comes to selling a practice, often people are motivated to sell either because they want to move towards something, such as a slower pace of life, travel etc or they want to move away from something, such as the burden of practice ownership. In order to move away from practice ownership, they have to find someone who wants to move towards practice ownership. What advice would you give them in terms of sourcing those people or potentially, preparing their own associates to take on the practice?

Lis: Well, we always have people who want to sell, and people who want to buy. However, it is the buyers who will end up driving the value of a practice, because if people don't want to buy it, then the value that’s been attributed to it will need to be reassessed. Quite often when we get involved with the sale of a dental practice, we can have a relationship with the seller for around two years before it goes to the market. So, if we valued a practice two years prior and the owner decides they’d now like to sell it, we would have to go back and revisit the value, and more importantly, the turnover, and the multiple. We would need to reassess how attractive it is and whether it fits the profile of what our buyers are looking for now.

However, buyers do still want the security of a mixed practice. But if you have a practice that is predominantly NHS, it's far less attractive. I'm not saying you can't sell it, because you can, but it's far less attractive than it was two years ago. And that's because the buyers themselves are wondering whether they can fulfil the contract. They wonder whether they can find the associates to do the work.

Pre COVID, it was incredibly easy to find associates to do NHS work. Since then, we have seen a paradigm shift in the attitudes of associates. I don't believe this is only in dentistry, but across all professions. We are seeing a shift in attitude as to how much work professionals want to do. They want to enjoy a work-life balance. And this is absolutely right and proper. I come from the school of thought that you do as much work as you possibly can because that's what you're meant to do. But I don't think it's wrong that we have a generation that says, “Actually, I want to enjoy life as well as do my job.”

Nigel: I'm a big fan of Oliver Burkeman’s book ‘Four Thousand Weeks’ about how long an average lifetime is, and the fact that we've all become addicted to speed and to busyness even in our personal lives. And I think you're right, our sort of generation has got that attitude. And I look with a degree of admiration on people that are able to balance things a little bit more carefully than perhaps I did.

Lis: Me too. And things are changing. We start talking to people about age 52 when they start to think about where they want to be in the next few years. The majority of them have paid off their loan, and they're in a position of being ready to be able to enjoy it. The people who are looking to buy a practice now really need to look at affordability. So, we now build in an affordability calculator. So, we can say to our buyers, ‘if you wanted to buy this practice, it would cost about X, Y, Z.’

They need to put down a 20% deposit and that used to be quite easy to obtain. However, now, with mortgage rates going up, as well as personal bills, it's become tighter.

And then there are the risks associated with being a practice owner because sometimes people only start to think about the burden of ownership when they become owners themselves. And there is a massive shift between being an associate and going home at five o'clock to being the practice owner who actually starts their other job after five o'clock.

Nigel: So, one of the perceptions many people might have is because of those sorts of financial pressures you mentioned, such as the cost of living and affordability, that most practices are being bought by dental groups or dental corporates. Is that the case?

Lis: No. All the corporates have been on an acquisition trail for quite a while, and now they're stopping to think about the profitability of their practices because interest rates are affecting everybody. The one thing that we have never lost is the desire from associates to become practice owners. We've never lost that, even in the first lockdown. We had more associates register with us in those three months than for the previous year.

We continue to have people wanting to buy practices. However, we also have a sense that the banks are being uber cautious, as they should be, regarding how much money they're going to lend and the profitability of that practice going forward.

Historically, an NHS contract has always been a green tick for the banks and can continue to be. However, the cost of bringing the associates in to do the work probably reduces profitability as practice owners are having to pay associates and nurses better to do the work; also heating and lighting bills have gone up, and so on.

There's still the ambition to buy, and there's always the ambition to sell. But maybe what we're seeing at the moment is a softer market because of the external influences that none of us can control: Brexit, Ukraine, fuel, things none of us can do anything about.

Nigel: Absolutely. I have a client who's converted a practice that was NHS. Three NHS Associates had all left. He couldn't fill the vacancies and was just about to close it down. He then advertised for three private associates, filled the positions almost immediately, and has turned an NHS practice that was on the verge of closure into a thriving private practice. It shows what can be done now, but it also shows the competition that the NHS is up against.

Lis: Indeed. If associates only ever hear practice owners moaning about how difficult they're finding the NHS it doesn't inspire them to become practice owners with a big NHS contract. Practices that have a good mix of private capitation scheme and NHS, they're fine. They'll fulfil it. But if you have a practice that is predominantly NHS, which historically for us would've rocketed off the shelves, they're no longer selling quickly. So, if we have a practice that's a £1m NHS contract, it's a challenge to get people to say they want to buy it. Because as I said before, the concern is can we fulfil that contract?

Nigel: Thanks for the insight, Lis. We’re in very interesting times.

If you’re considering your options away from the NHS and are looking for a provider who will hold your hand through the process whilst moving at a pace that’s right for you, why not start the conversation  with Practice Plan on 01691 684165, or book your one-to-one NHS to private call today: practiceplan.co.uk/nhsvirtual

For more information visit the Practice Plan website: www.practiceplan.co.uk/nhs

About Lis

Lis Hughes is Managing Director of Frank Taylor & Associates, the UK’s most successful sales agent. Lis has worked in the dental sector for many years and offers a depth of understanding in what does and does not work and which pitfalls are best avoided when buying or selling a dental practice.

About Nigel

Nigel Jones, Sales and Marketing Director at Practice Plan, has been working in the dental sector for over 30 years. He has a special interest in the development and future of NHS dentistry in the UK.

His knowledge and passion for dentistry has led him to become a trusted voice, offering invaluable advice on how to strategically and successfully run a practice.