A baseball reference… which is funny, considering I’m not even remotely interested in the sport. The term… 3 solid hitters starting off the batting order, and then a fourth, batting cleanup has the opportunity for the grand slam, or to knock a runner in… Often the best hitter in the lineup, they certainly have the best opportunity for run production.
So, how in the world does this apply to dentistry?
You’ve built a successful business. You’re heading down the home stretch and are trying to figure out if it’s time to sell… how to sell… what type of preparation needs to be done heading into a sales process? How do you undertake such a process, without upsetting the performance of the practice(s), while maintaining your team and ensuring you receive a maximum valuation on the back end? How do you hit a grand slam when selling your business?
Well, no process is bullet proof or easy. However, as a current sell-side advisor with a background in buy-side acquisition work, there are some things you can do to help maximize your exit and ensure a successful transition to the next phase of your career. This is by no means an exhaustive list, however it does include some low hanging fruit that should get you started…
Have A P&L Review EARLY
The best place to start is where you are today. Ideally, you’ll begin digging into some level of optimization 18-24 months prior to going to market, but a shorter timeline can also yield positive results. If you are beginning to contemplate what your exit strategy might look like, let us do a Free Practice Valuation for you. It’s a quick and simple exercise that can provide you with an idea of where the market for your business is currently, and what your expectations could be with some additional time and effort. When we discuss these with clients there’s a delicate balance of practice profitability vs. current market conditions and we will always be honest in helping to educate you on the current market for your practice type and geography, and how that may change positively or negatively should you take some time to further enhance the asset you’re selling. This should be square one in your decision-making process.
Pick Off The Easy Wins
I cannot communicate how often we run into simple things like supplies, lab costs, etc., that haven’t been negotiated in years and are significantly out of line with industry norms. This seems like such an easy drum to beat, but truly, most large offices don’t seem to take the time to focus on this. You can do it on your own, or we can refer you to a number of outstanding companies that can help you streamline some of these processes that will yield significant results over the course of a year. And remember, for every dollar saved, you’re looking at a $5, $6, $7 or more dollars return upon exit. IE – if you can save even $20,000 a year across multiple cost categories, that will work out to well over 100k at the time of sale.
Pay Down Your Debt
Warning – these comments are made devoid of any tax considerations, or your personal income/tax situation. This should definitively be discussed with your accountant. That being said, there’s nothing more demoralizing than selling your business and having to pay off all of your business debt prior to receiving any funds at close. Your practice needs to be reasonably modernized. Period. Buyers will want something that can function within their ecosystem somewhat comparably to their existing group of practices. A digital workflow and radiography, intraoral cameras and scanners, etc. are all very reasonably within those boundaries. You do NOT need to replace all of your 10-year-old chairs with the most modern, up to date options available. No need for those fancy 50k-150k toys that you saw on the tradeshow floor a couple of years prior to selling.
Re-Negotiate Your Lease
A lot of localized landlords aren’t terribly familiar with the DSO space. I know, how insulting! Having an assignable lease that has 3+ years left on it, provided it’s at a reasonable market rate, will be viewed positively by any potential buyer. I would highly recommend utilizing a specialty group when negotiating any healthcare lease (initial or extension) as they’ll be fully versed in the type of lease buyers will be looking for, how to beneficially structure it and what current rates should look like. They’re also relentless negotiators and will fight for every penny. Well worth your effort to contact them.
Streamline Your Provider Contracts
Likely the number one concern that any buyer will have is staff, and specifically provider retention. While it’s somewhat unusual, having multi-year assignable associate contracts with clear compensation structures will go a long way in providing comfort to the buyer. What does a clear compensation structure look like? That’s certainly organization specific but in general, 30% of net collections, $1500 in CE provision, 50% of lab responsibility are a good start. These will all transition well to most buyers, and the net benefit to the associate will be tangible based upon lower lab costs, higher reimbursement rates, etc.
Goals (Personal and Professional)
This one is super important. In the competitive process we run, you’ll be faced with a lot of good, but difficult decisions. You’ll likely receive offers from several suitors, all of which offer varying value propositions, timeline, deal structure and post close expectations. We will do all we can to rank each offer based upon the goals you communicate to us. Often, the highest enterprise value offer isn’t the best for our sellers, and I’d say over 75% of the time our sellers don’t accept the highest value offer. Decisions ultimately must be made based upon a myriad of factors the most important of which are your specific post close goals. This includes monetary compensation up front and on an annualized basis, commitment timeline (in years), ongoing involvement in the business, willingness to re-invest a portion (upwards of 30%) in the localized or holding company business, interest in mentoring new team members, and the list goes on. The more you understand how you want the next several years of your professional career to progress, the easier it will be to narrow down the scope of buyers that will be able to satisfy those goals. But it starts with you.
Have A Conversation With Your Accountant and/or Wealth Planner
I can talk ad hoc about nearly any topic with little preparation provided I can use broad brushstrokes. However, you can’t truly understand your needs going into a sales process without conversing with your team. Practice sales are at a valuation level in which generational wealth is being created for the selling doctors. Your financial needs will play a heavy role in how we approach marketing your practice to buyers, and how we slot certain deal structures over others. Many of these financial decisions take time to develop and execute and having the requisite conversations with your advisors 18-24 months in advance will go a long way in helping you be fully prepared financially and from a tax strategy standpoint.
Do NOT Do This Without An Advocate
I’ve said this many times and fully admit that I’m biased. However, as a former buy-side representative for a national DSO I can legitimately communicate that you will be well served throughout the process to have an advocate on your side. Your valuation will be significantly higher and will easily outpace our commission. You’ll have an advocate in searching for additional EBITDA and defending that throughout the quality of earnings process. And, you’ll have an advocate throughout the closing/legal process helping ensure that your post close goals are met. There is no more critical time to ensure you have good expert counsel than during the sale of your life’s work.
Obviously, as mentioned, this list isn’t exhaustive. However, this should begin to put together a framework for how to view the sales process as it relates to your business. The process is quite complex and to ensure maximum valuation requires having the right people involved at the right times. If you’re considering an exit in the next couple of years, there is no better time than now to take a critical look at your business and make any course corrections necessary to improve both the attractiveness and valuation of it. We’re here to help jumpstart or walk with you through the process at any point.
About TUSK Partners: TUSK Partners (“TUSK”) provides M&A Advisory services in the dental industry. TUSK has completed over $650M of transactions across all specialties. With an in-depth understanding of the marketplace and access to 100’s of buyers nationwide, we help our clients confidently pursue M&A transactions that maximize their long-term value. With our significant collective experience of over 40+ years of dental practice transactions, we offer our clients solutions that help them achieve their strategic and financial objectives. For more information, visit https://tusk-partners.com
About The Author: Josh Swearingen has over 15 years of leadership experience in the dental and healthcare industry, most recently serving as the CEO for Vesper Alliance, a DSO located in Cincinnati and Columbus, OH. Prior to that Josh was Director of Corporate Development for American Dental Partners and quarterbacked several of their largest transactions during his tenure there. Josh received his B.S. from THE Ohio State University.