Practice sales and purchases round-up

Following his talks at the Scottish Dental Show on practice sales and practice purchases, Martyn Bradshaw shares his considerable knowledge of the current market

31 May, 2016 / management
 Martyn Bradshaw  

To my mind this year’s show was the busiest and most successful ever and I have had the pleasure of being a CPD speaker at every Scottish Dental Show. My talks on practice sales and practice purchases are always popular and so it was this year. I was also able to chat informally to a number of visitors to the show who were either thinking of purchasing or selling a practice. I gave them advice which I hope they will find helpful.

For those of you unable to attend the show or to speak with me, I’m pleased to give an overview of what I talked about as well as adding more information on some points.

Current market conditions

Things are changing very fast at the moment and stock exchange traders would probably describe it as a ‘bull market’. The values now being achieved are in excess of those of a couple of years ago. This is mainly due to the high demand for practices – especially those where the majority of income is through the NHS, which may surprise some practice owners.

On average, I expect around 10 to 15 interested parties, and subsequent offers, for each practice sale we handle. This is especially true for practices located in and around Edinburgh or Glasgow.

Because of the current state of the market, it is imperative that potential purchasers or sellers arrange for a formal valuation. Failure to do so could result in a huge discrepancy between the price achieved or paid and the true market worth of the practice.

Although the situation changes daily and not all practices for sale are shown, you can look on the Practices for Sale section of our website to get an idea of prices.

Dental practice valuations

One of the main topics of my talks was valuations and chiefly how they are conducted. Gone are the days when a practice was valued on turnover. There are now two ways my team and I value the majority of practices, both of which are based on multiples of profitability.

A so-called associate-led practice assumes that all income at the practice is generated by associates. We make adjustments for ‘tax reducers’ and personal items in the accounts, which then provides us with the true profitability of the practice. This is commonly referred to as the ‘earnings before interest, tax, depreciation and amortisation’ or EBITDA.

For principal-led practices the valuation is similar to the EBITDA calculation. However, where it is assumed (and financially modelled) that a principal will remain at the practice there is a higher level of profitability, although a smaller income multiple is then used.

To ensure that people selling get the best value for their practice we determine which model is the most financially rewarding. The valuation basis could mean that different practices appeal to corporate rather than private buyers. However, an attractive EBITDA model would attract interest from the whole market.

Body corporates

When I refer to body corporates, I mean someone who is looking to have an associate-led practice, i.e. not work in it themselves. Contrary to popular beliefs I tend to find that the well-established body corporates do not pay the higher prices. In fact, private buyers and smaller ‘boutique corporates’ can offer tens or hundreds of thousands of pounds more.

About the author

Martyn Bradshaw is a director of leading practice sales agents, PFM Dental, with offices in Edinburgh and York. For practice sales and valuations and information on practices for sale in Scotland, visit www.pfmdental.co.uk

Categories: Magazine

Comments are closed here.

Scottish Dental magazine