We often have prospective clients come to us and ask if it's time to sell. We've written exhaustively on the subject and do all we can to keep up with burgeoning trends to ensure we're keeping both our clients and the broader community as informed as possible about trends, financial drivers, and the mergers and acquisitions (M&A) climate. There are some basic questions I'll ask below that will likely inform your decision as to whether or not it's time to sell your dental practice.
Plan ahead to maximize deal value
If your goal is to exit your business in the next five years, you should sell now. For maximum value, every buyer is looking for a five-year post-close employment agreement from the previous owner.
That agreement provides a level of risk mitigation for the business and helps the buyer justify higher valuations in a transaction. If three or four years is the maximum time you're interested in remaining on, then you'll see a lower valuation for your business, as the buyer must commit to finding your replacement (which is not always easy) within a couple of years post-close. This is especially true if you're a specialist or a super GP handling a lot of complex cases and procedures.
Prepare yourself to be an associate/employee
Selling your life's work is an emotional process. It requires a requisite level of humility, pride, determination, and cooperative drive. Your buyer will likely look at things differently than you, and you need to be able to help support any new directives given while influencing the team positively.
Being in a position emotionally to handle change is critical and the buyers will pick up on your motivations quickly. The good news is that there is an increasing number of buyers whose management style will impact very little post-close. We can cater your process around these types of buyers, or if you hope to hand off all responsibility post-close, focus on those prospective buyers who can step in and provide more guidance.
Financial readiness
Ultimately, you're going to be deciding on a significant phase of your retirement strategy. Understanding what your number is and how well you've planned your exit are critical components of the transaction.
We can provide you with a five- or 10-year cash flow analysis for your offers, a reasonable estimate of rollover equity value, what your exit timeline from the business will look like, and how to plan around a private equity schedule. However, tying in your personal financial analysis and understanding the net impact of your transaction is equally critical.
We regularly work with financial planners throughout the process of the deals we represent, and the clients who fully understand their current and future financial plans are far more educated on the type of deals they can/want to consider and whether the market can support their future financial needs.
Goals
Are you looking at an exit strategy from your business? Are you simply looking to free up your time so you can spend more time with your family? Do you enjoy the prestige of ownership but would rather not handle the more mundane responsibilities? Are you looking to monetize your investment but see ongoing growth in your business?
Hopefully, you have the answers to some of the questions above. However, if you don't, understanding your driving motivations will go a long way toward finding the right buyer for your business.
In the dental practice sale transaction process, the valuation is critically important. However, as important, if not more so, are the structure of the deal, the principles that the dental service organization (DSO) was founded upon, the leadership within the DSO, and the investment thesis of the private equity sponsor writing the checks. Understanding who you're going to partner with is critically important, and slight fluctuations in any of the above factors can create significant reverberations across your tenure with the new owners.
The ideal sale
Hopefully, this article has given you a few things to think about as you contemplate selling your life's work. The economic drivers in the market have a definitive impact on M&A valuations as a whole.
All of that is navigable, provided you have a clear idea of where your business is, where you are as a leader, and where you hope to go in the next five or so years. Take a few minutes to map out your goals for the transaction economically, personally, and professionally. We'll find a buyer that can serve as many of those goals as possible.
Kevin Cumbus is the founder and president of Tusk Partners, an M&A advisory firm focused exclusively on large and group practices that want to partner with a dental service organization or private equity group.
The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.
