When it comes to selling a dental practice, no two sales are the same. From variations in goodwill to due diligence to the type of contract in place, each process is unique. The latter in particular can have a huge impact on the overall transaction, especially NHS practices with an orthodontic contract.
There is no doubt that NHS practices are highly sought after and they typically command higher prices than private practices. However, since the implementation of the dental contract reforms in 2013 – in place of the original 2006 framework – the process of selling a practice with an NHS orthodontic contract has become much harder. It is important to note that if you hold an NHS orthodontic contract, you most likely have a PDS agreement – and it is this not so small detail that will affect the way in which your practice is sold.
From PCT to LAT
The difficulty stems from the fact that unlike GDS contracts, a PDS agreement cannot be shared through partnership. When contracts were under management by PCTs the transfer was sometimes viable, as although there was provision for this within the drafting of the PDS agreement, most turned a blind eye to the absence of the relevant clauses, or simply didn’t know the difference! So what’s the alternative? Essentially, there are two possible pathways; you can either sell the assets or incorporate to sell the shares.
Gain Consent From NHS
The first way an orthodontic practice can be sold is though the sale of assets accompanied by a direct transfer of the contract between the seller and the buyer. However, this can only be achieved with permission from the LATs, which requires long and laborious negotiations. It is important to note that as the NHS is under no obligation to accept a proposal to transfer a contract, this is not a guaranteed route. In fact, this is incredibly rare as most are petrified of being challenged under the EU Procurement Regulations.
The other option is to incorporate the dental practice into a limited company structure, which means transferring the company’s assets as well as the contract to the limited company. By selling the shares to a buyer, the transfer can then be completed. Although incorporation is certainly a viable option for practices with an orthodontic contact, it is not one that comes without difficulty. Once an initial request has been made an LAT will consider each application individually based on its merits and key criteria. Only an approved application will progress to the next stage of being issued with a new PDS contract in the name of the limited company. As it stands NHS England Policy allows LATs to approve these requests but there are still local politics to deal with, and many try and refuse such applications. They can demand a benefit for the application, with the focus typically placed on how the incorporation will benefit the LAT itself rather than the practice. You guessed it – a price per Unit reduction! Thus, it would be prudent to accept that certain compromises may need to be made in order to incorporate, and later sell, a practice.
Lastly, it is important to note that if a PDS contract is permitted to become a limited company and a practice decides to sell, the LAT must give approval and produce what is known as a Deed of Novation. This is an agreement that transfers one party’s rights and obligations under a contract or agreement to a new third party. But what does this entail? The first section of the document that sellers should be aware of, is that the LAT will require a personal guarantee from the contractor that the contract will meet requirements and perform to the expected standard. Similarly, this is also a lifetime financial guarantee against under-performance – a guarantee that cannot necessarily be swapped to a purchaser at a later stage.
However, because of the way the Deed of Novation is designed, the LAT is not obliged to agree with the sale. Due to the change of control clause, any transference of share holdings of 10% or more must be approved by the LAT. While there would need to be a valid reason for the refusal, it’s an aspect of the process that is important to be aware of, as challenging the refusal is very difficult.
All in all, selling a PDS orthodontic contract is not a straightforward process – but it is not impossible. Seeking the advice of a trusted and experienced agency in this situation, such as Dental Elite, is therefore imperative, and will ensure that you follow the procedure to the letter.