Good News for Independent Practitioners in the Ever-Changing Marketplace of Dentistry
By: Marie Chatterley, CTC Associates
So much good news to report in the ever-changing marketplace of dentistry! I am thrilled with what we have seen over the last two years in practice transitions and with the growth of practices owned by independent practitioners. Dental professionals are seeing positive changes in buyer makeup, lending ability, sales price, lease negotiations, new patient flow and revenues.
Quality of Our Independent Buyer
One of the most relevant changes in the marketplace of transitions is the quality of our independent buyers. Current buyers are older and more experienced than ever. They are focused on high-quality work and a positive work environment. Buyers seeking to acquire a practice are looking for their forever family. They are looking for Sellers who mirror the quality of care they have been striving to achieve since leaving dental school. With an increase in corporate buyers, don’t overlook the growing number of independent buyers looking to fill the shoes of a high-quality clinician. They are in a position to be just as competitive as a DSO when it comes to bidding for and acquiring a practice. There also seems to be an influx of buyers moving from other states mid-career, bringing high-quality skills and financial stability. These buyers are continuous learners, always striving for improvement and growth through extensive continuing education.
Increased Lending Ability for Independent Buyers
The second remarkable change in the marketplace is the approval of higher loan amounts by lenders specializing in dental practice acquisition financing. Lenders are adapting to the market and have started approving loans at a higher percentage of gross collections than in the past. This is a gigantic win for independent buyers. With the help of this progressive approach among lenders, independent buyers can be just as competitive as a DSO or better when it comes to tendering an offer on an ideal practice.
Increase in Practice Sales Prices
Valuations have not seen a significant impact from the COVID-19 closure. In general, practices continue to sell at the same percentage of gross and net as in prior years. Over the last 15 years, practices in Colorado have generally sold for values within 50-75% of gross collections or an average of 130-190% of adjusted net income. However, in the last two years, practices have sold for an average of 55-100% of gross collections or an average of 145-200% of adjusted net income. There has been a substantial shift in the buyer’s perception of value and premium practices are selling for premium prices.
Many are approaching practice appraisals differently, considering the weeks of closure in 2020. A standard valuation may account for a weighted average of three years’ financials, and now we are considering four years of financials. Additionally, we annualize earnings for 2020, removing the weeks of closure or a ramp-up period. This provides a more accurate representation of what practice earnings would look like had the practice not been closed or slower for a portion of the year. Thankfully, most practices have similar, if not higher, collection numbers for 2020 compared to 2019.
Greater Leverage in Real Estate Negotiations
There has also been a significant change in leverage within the real estate market for anyone looking to lease or purchase commercial real estate. If your lease is coming up for renewal soon or if you have an option to purchase, now is a great time to engage a real estate broker to assist you with more competitive rates. If you are considering buying or selling a practice
in the next few years, reach out to the local network of real estate brokers to assist with a lease agreement that will be advantageous when you sell.
Increased Growth and Health of Our Independent Practitioner
Many independently-owned practices are seeing higher numbers of new patients and have become busier over the last two years. There are multiple reasons for this growth. Many are aware of the ever-increasing growth rate in Colorado in conjunction with the local patient base becoming more educated and seeking out practices with high-quality care. The blessing of increased volume has been additional openings for high-quality associate opportunities with independently-owned practices offering outstanding mentorship for young providers.
Additionally, a surprising number of offices are moving away from in-network PPO dental participation. This has had a positive impact on cash flow for offices that have made this transition successfully. These practices have also attracted and maintained higher quality staff as they can pay higher wages or offer greater benefits.
At times it may feel as a dentist you are practicing alone on an island, but if you are an independent owner of a practice, many are cheering for your success. If you notice it, you will see that patients are loyal even when you change insurance participation. Additionally, new patients are seeking you out because you are doing all the right things.
It is a blessing to be a part of the dental industry, and I hope to see many more positive changes in the years to come!
Marie Chatterley is a partner at CTC Associates, a practice transition consulting company that has helped facilitate over 1,500 practice transitions in the last 29 years. You can reach her at firstname.lastname@example.org.