22 August 2017 | Dental Practices

A second opinion could maximise your investment

We recently completed on the sale of a landmark 10 surgery practice in the South East. The project started with an initial enquiry from one of the owner-partners who admitted that he had received an offer from a corporate and was just looking for a ‘sense check’ that the offer was fair value.

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Simon Hughes
Managing Director - Medical
While it appeared to be, no other parties had been introduced and there was no way therefore that anybody could say whether or not it was ‘market value’. This is a common occurrence in the dental sector with companies (not surprisingly) targeting practice owners direct and trying to acquire businesses off-market, often at significant discounts.
 

The key features of this transaction were as follows:

  • A 10 surgery practice of the highest quality, the partners had built it and wished to retain the freehold as an investment
  • Mainly private income – the total turnover was £2,200,000 of which approximately only 10% was from the NHS
  • There were three working partners who between them generated 50% of the turnover
  • The NHS Orthodontic contract was in the name of an Associate
  • The partners all wished to remain post completion but on staggered exits
  • The partners were very clear in terms of what was and wasn’t right for the practice, and a smooth transition for patients and staff was key. As well as the financial terms, the choice of buyer was crucial so that the culture of the practice was protected
 

The process

  • As so much income was generated by the working partners, we remodeled the profit and loss accounts to reflect the cost of the partners remaining as Associates post completion. This was essential to accurately show what the EBITDA (earnings before interest, tax, depreciation and amortisation) would be under an Associate-led model
  • ​We produced a detailed IM (Information Memorandum) which included sufficient information to enable a purchaser to submit an informed offer
  • We confidentially approached a shortlist of parties, all of whom met the owners and pitched to acquire the practice
  • A closing date for offers was set and after a period of negotiation, Heads of terms were agreed
 

The outcome

  • The sale was concluded no more than eight weeks from agreeing on the Heads of terms with the eventual buyer
  • The price was at least 10% higher than the offer that was tabled by the Corporate party who had originally approached the owners directly
  • The buyer was actually unknown to the owner-partners 
  • The owner-partners  achieved a full market rent and therefore maximised their future investment
 

Key points to note

  • Sometimes it suits practice owners to sell off-market, but in today’s modern market the only way to ensure that best price and terms are achieved is by undertaking a professional process and approaching a variety or parties
  • Established dental specialist solicitors were used which undoubtedly speeded up the process. An ‘all parties’ meeting was arranged at a critical point which enabled weeks’ worth of negotiations to be concluded in less than a day
  • An accurate appraisal of the practice was essential to give the purchasers what they needed to assess EBITDA and value. This underpinned the price agreed and ensured that the practice valued up independently
  • The property element was important to the vendors. The choice of buyer affected the yield and therefore the investment value of the retained property
  • Demand for quality practices is still strong and the multiple of EBITDA achieved was as high (if not higher) than it would have been had the practice been predominantly NHS

At Christie & Co we were able to make the most of our experience and in-depth sector knowledge and contacts to approach potential buyers without having to market the sale on the open market, as a result the final price paid, and the purchasers, were ideal for the outgoing owners.






 
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