3 Reasons to Sell Your Large Practice or Group Today
(or wait 4+ years to attain the same after-tax benefit)
When demand exceeds supply, prices go up. Today, demand from DSOs and Private Equity Groups (PEGs) far exceeds supply for dental practices and dental groups. On all deals we have taken to market in 2021, we have noticed a remarkable phenomenon: we have more aggressive bidders than ever (more than 2019) and higher offers than we ever thought attainable. Below are some real examples of what our clients are experiencing:
Multi-Specialty | 3 Owners | $18.0M Revenue | $4.0M of EBTIDA
In 2020, the original strategic buyer for this group was unable to close this transaction due to a lack of appetite from their PE sponsor and lender. Once exclusivity expired, we were able to find a new financial buyer (Private Equity Group) with an offer at a much higher multiple with richer deal terms all around than the original deal in 2019. We are working with the PEG to aid them in building a new DSO platform to help them aggregate another $3.0M of acquisitions. Once this deal closes, it will be a $7.0M EBTIDA DSO looking to scale and grow through acquisition.
Oral Surgery | 3 Owners | $18.9M Revenue | $3.3M EBITDA
We are in market today with an Oral Surgery Platform and 4 strong bidders (financial and strategic) that far exceeded our expectations – the highest bid is north of 11.5x! These offers translate to a valuation of close to 200% of collections, $8M of CASH to EACH of the THREE OWNERS while they retain 20% of the equity in their business going forward. We took this deal to market in mid-January and will likely close this transaction in May of 2021.
Orthodontics | 2 Owners | $4.2M Revenue | $1.5M EBITDA
Our client came to TUSK Partners with an unsolicited offer that they spent time negotiating on their own. Within 3 weeks in market, we were able to collect 5 solid offers from Strategics (to include the DSO that provided the unsolicited offer). Our clients ultimately took a deal from a buyer we brought to the table that translated into 270% of collections. They are only selling 70% of their business and we forecast that EACH DOCTOR WILL NET OVER $10M over the life of the transaction.
Watch the video below to learn more about the importance of selling your business today:
3 Reasons we are seeing this type of activity in the market:
- DSOs that grow through acquisition did not meet their growth targets in 2020 (due to COVID) and must add practices in 2021 to get back on track. These DSOs are under tremendous pressure to make up for lost time and put their acquisition capital to work now.
- Dentistry and specifically Specialists like Oral Surgery and Endodontics proved to be pandemic-resistant. PEGs and outside investors recognized this coming out of the pandemic and are flooding our inbox and voicemail with inquiries to partners with groups.
- Many DSOs are looking to recap before the end of the year to avoid the tax changes (read 50% increase to Long Term Capital Gain Taxes) that are expected in 2022. They are looking to add EBITDA to their group pre-trade to bolster their valuation and returns to shareholders.
The key to driving up the purchase price of your practice or group is knowing who these buyers are and how to attract as many of them to bid on your business.
If you want to get your transaction closed before the end of the year, connect with TUSK today to find out how. We will happily provide you a complimentary evaluation of your business and provide you guidance around valuation and deal structure based on our experience in the market.
If you are thinking of selling your practice or group in the next 5 years, now is the time.
3 primary reasons to sell your large practice or group now:
- Demand has never been higher for large practices and groups. Demand leads to higher prices and more importantly, the largest number of bidders. As you know, every DSO is different. We like to say if you have seen one DSO, you have only seen one DSO. Each DSO has its own culture, leadership, vision, and strategy for growth. Some are doctor-founded and doctor-focused, some are not. Some provide complete autonomy for the seller regarding team, systems, practice management software, hiring, and growth strategy, while others have a more top-down approach. I say all of this to share with you that most of our clients DO NOT TAKE THE TOP OFFER. And this is what I love most about TUSK! We want our clients to have as many options as possible and encourage them to choose the right FIT over the highest BID. I am elated to share that most of our clients do not choose the top offer but the group that they feel is the best fit for them, their team, and their patients.
- Taxes are Going Up. President Biden took the Whitehouse with a promise to increase taxes. The current plan is to increase both the Long-Term Capital Gains Rate and the Ordinary Income Tax Rates to 39.6%. See the math below, but this will result in an increase in the taxes paid on the Federal Government in the sale of your business by over 82%! You will also see in the example below that if you are selling $1M of EBITDA at 6.0x this year compared to next year, you will need to increase your EBITDA by 30% to net the same take-home after-tax proceeds. You can see below that if you sell a group with $1.0M of EBITDA today at 6.0x for a total of $6M of Enterprise Value, you will have an after-tax net income of $4.69M. In 2022 if taxes increase as suspected, your after-tax net income on that same deal goes down to $3.62M (a net reduction over $1M!).
To put that in perspective, assuming your business is growing a 5% top-line per year, you would need to wait (and grow) for 5 years until your EBTIDA grew to around $1.3M. Exiting at a 6.0x multiple under the expected new tax structure will net you the same after-tax net income for your business as though you sold TODAY.
- Great deals take time. It can take 6-9 months to close a large transaction. We run each client through the same time-tested process to maximize the value of their business. We are rigorous in our analytics and discovery of your Adj. EBTIDA and leave no stone unturned in the process. We have gained a reputation in the market from buyers for getting the numbers right, and in 2020, we did not have a single deal face a reduction in value because of the Quality of Earnings process. To ensure that your deal closes in 2021, you need to begin working with us this month!
If you are thinking about selling your large practice or group in the next 3-5 years, we strongly recommend that you connect with us today to allow us to work through a complimentary evaluation for you and provide you a Clear Price where we are certain that your deal will trade at or above.
About TUSK Partners: TUSK Partners provides industry-leading resources to group dental practices and DSOs. We help you START, GROW and SELL your DSO. For an overview of our services, please click HERE or visit our website, blog or YouTube channel.