Just like life, the market conditions for the sale of a dental practice go in a cycle – once popular NHS practices no longer are in favour over private specialist practices. Where does that leave most sellers, and how does the process of selling affect this?
When I initially speak to sellers and they’ve received an offer from a proposed buyer – sometimes more than one – they are excited and keen to sell their dental practice and hold on to the heads of terms as a sure promise that they will sell their practice at the price set out in the timescales outlined. While useful to set out the main key terms, heads of terms aren’t, in the main, legally binding.
Deposits for a dental practice
Further to the heads of terms, many sellers choose to ask for a deposit from a buyer and this can range between anything from 1-3% of the overall purchase price. Most sellers feel that this will ensure that a buyer will not look to alter their terms. However, this is not strictly true and instead, we often see deposits paid freely and then later when the parties are no longer looking to proceed with the transaction, the deposit is repaid to the buyer. The buyer argues that the practice is not worth the price it was marketed for and establishes issues that are unresolvable.
Indeed, the deposits paid can be low in value such that the cost of arguing about the issues and who is entitled to receive back the deposit costs more than the deposit itself, not just in financial value but also in time. Consequently, we are seeing more and more deals brokered without a deposit paid.
In previous times, a signed set of heads of terms and deposit would give everyone involved in the sale and purchase a lot of comfort that the deal was going to happen. But heads of terms are nothing more than an indication that there may be a transaction and the headlines terms of the transaction.
Selling your practice
Sellers are keen to sell and will tell me various stories of dental friends who sold out in years gone by – with buyers fighting over the practice and paying upwards of 10% over asking. Whilst for some sellers that may still be the case, there are other contributing factors to consider.
Read post: 5 things to get right when selling your practice
For one, who is the buyer? Is the buyer backed by an investor, or are they an individual first-time buyer?
Secondly, how is the buyer financing the purchase? Few are purchased in cash, with buyers either needing to borrow from family members and the bank, or an investor with certain lending criteria. Often, a bank valuation is required, which can come in lower. Or an investor’s financial due diligence will highlight that the financial figures need re-addressing. Something to remind sellers of when they have the excitement of their offer in hand.
Indeed, those buyers requiring bank funding or investment have changing interest rates to contend with – many deals in 2022 saw those interest rates raise a day or two before the sale was due to complete, meaning buyers could either no longer afford to borrow or the price had to be re-structured.
Thirdly, timescales. The average sale takes around six to nine months, and it can be a very anxious time. Some sellers have mentally signed off on signing the heads of terms, and it’s easy to forget that until completed and sold, anything can happen.
What can you do?
If you’re a seller looking to sell your dental practice, what can you do? The best way is to reduce the timescale and ensure a quicker sale, and in doing so, try and prevent any renegotiation of the terms.
Be prepared. Deal with enquiries and questions about the practice promptly and efficiently. For example, take the seller who was sent the due diligence enquires on a Friday afternoon, and by Sunday afternoon had answered those enquiries fully, and provided the supporting documents in full, all labelled. Their sale went through in just over eight weeks. To the other end of the spectrum, where enquiries sent through on a Friday afternoon took the best part of three months to be answered and the client arrived at the office with a car boot full of loose papers, most of which were photocopies that didn’t correctly copy the original documents. Their sale took over 12 months, and they had to sell for less than they hoped.
Agreeing a sale is only part of the job – taking it to the finish line and across is what we specialise in at Carter Bond Solicitors. With a bright and modern team recognised in the industry from our specialist in healthcare in the Legal 500, led by partners with a wealth of experience and knowledge in the specialist area, having helped over 300 dentists (and counting!) either buy or sell their dental practice.
