As a solicitor, I have been acting primarily for dentists in the purchase and sale of practices now for 10 years.
Just over 4 years ago I joined Meade King LLP. Earlier this year, my team and I completed the purchase or sale of the 200th practice in that period.
That felt like a real achievement and it has prompted me to reflect on the activity, trends and developments in the dental market over the years and in particular the last 48 months.
The dental practice market has always been busy. We have acted for dentists who have both bought and sold different practices during the period. Some clients have asked us to help with both buying and then later selling the same practice!
The value of goodwill has steadily risen. The aggregate value of the 200 practices was £136,944,408, an average of £684,722 per practice. However the transactions included all practices great and small, from a £30,000 part time private leasehold practice, to a £7 million 12 surgery freehold practice.
The average value in 2012/13 was £506,959 but that rose each year to £931,331 over the last 12 months. Only 8 % of the practices we helped to sell or buy in 2012/13 had a price tag of in excess £1 million. However, in the last 12 months such practices have made up 40% of the practices we have helped to buy or sell.
What has driven this? Well, firstly it must be ‘supply and demand’. An aging section of the dentist population are pleased to find out that their business is a valuable asset that can be sold and contribute to their retirement finances, and there is a good supply of entrepreneurial young dentists whose ambition is to own their own practice – indeed even a chain of practices.
In terms of funding, there have been ups and downs, new entrants to the market, and there are banks which have been aggressive and some less so at times – but generally there has always been access to funding. Banks have generally always been willing to support dentists in such acquisitions – despite recession, Brexit, and elections!
The corporate chains have been busy too. Some speculate that their activity fuels the heat in the market. 27 of the 93 sales (i.e. 13% of the 200) in which we assisted during the period (13% of the 200) were sales to Oasis, IDH, Portman, Southern Dental and Rodericks.
Good agents play their part in getting the very most for their client vendors and are actively involved in progressing transactions. Some professional agents we have the pleasure to work with on a daily basis work tirelessly to get the best deal for their clients and act as an intermediary.
The proportion of transactions in which an agent is involved appears to have steadily risen so that it is now relatively rare for there to be no agent involved in one way or another. Those few are usually situations where a partner is retiring and being bought out (or vice versa) or where an associate is buying / buying into a practice where he already works.
Yes, despite rising values, there are still lots of associates who are able and willing to buy practices (or a share in it). In fact 31% of all purchases in 2012/13 were sole purchasers buying their first practice, but that has increased to 42% of purchasers during the last 12 months.
Shares versus Assets
It is perhaps not surprising that there has been a steady increase in company share transactions. The legal opportunity to use a private limited company arose in 2005 and many took it up due to the tax reliefs available (many of which have since been removed).
10-12 years later, many of those dentists who incorporated are bringing their practices to the market. In 2012/13 the number of company share transactions completed by us accounted for just 5% of the total, but that has steadily risen every year to 9 % of all transactions completed in the last 12 months.
Transactions are often not straight-forward these days.
On a positive note, there are many more options. Sales of part or joint ventures with certain organisations (e.g. with Denplan/Simply Health Professionals, or Dentex Healthcare) are attractive to some.
The CQC seem to have progressively learnt about the nuances of the sector and are often pleased to help, focusing on what they feel is important.
On the downside, increased regulation and the continuing failure of certain NHS Local Area Teams to be sensible and proportionate often frustrates and delays transactions.
Landlords will always have their own agenda – and the inherent risks in having a leasehold practice remains the highest threat to a successful sale. We try very hard to find solutions to problems and keep the deal afloat and sailing towards completion – but if a landlord has decided to knock the building down and build apartments then sometimes there is little way of convincing a landlord otherwise!
So the figure might have been a little higher than 200, but sadly there are a few transactions where the parties involved (whether that be the seller, buyer, landlord, bank, NHS England, CQC … or indeed even HMRC) fatally fail to see eye to eye.
I am pleased to say that Brexit caused only one of our sales to falter, when a nervous buyer decided practice ownership was not for him after all, withdrawing the week of the Brexit vote!
Speed remains key for all players in the drama - though for most dentists getting it done right, avoiding liability and trouble, is most important. So many factors have a bearing on how long the legal part of a transaction takes. During the period, the same client of ours set the record for the fastest purchase (1 week – from a ‘Trustee in Bankruptcy in waiting’) and the longest (4 years – from an NHS Trust)!
On average the legal process takes around 6 months, but that can be quicker with a properly constituted company share transaction. However, it can often feel a lot longer as buyers spend many months looking for the right practice and sellers preparing for sale, and negotiations can also be lengthy ; all this before lawyers are involved.
Since the milestone earlier in the year, we have assisted in the completion of 28 more dental practice transactions and are instructed daily (on 84 more, as of the date of writing). I therefore suspect that my trained team of 10 will reach the next 200 far quicker than another 4 years!
For now we look forward to the event we are holding at our offices on the evening of Thursday 21st September, joined by many of our clients who we assisted, and by those professionals we work closely with to make the successful completion of many dental practice sales and purchases happen, so that our sellers can realise their retirement dreams and buyers their practice ownership ambitions!
If you'd like to come to our event, please do get in touch or if you need help with the legal side of buying or selling a dental practice, call us on 0117 926 4121 or make a free online enquiry.
This article was written for and featured in the Dentist Magazine September edition.