Just as the US is starting to re-open from this pandemic so are dental practices across the country. Dental practices are faced with a new set of protocols along with a new set of overhead expenses known as PPE. While many practice owners are processing this new norm and implementing these new procedures in their practices, some are opting to retire earlier than planned for various reasons.
This might indicate an increase or spike in practices for sale over the next 12-24 months which you would think could lead to a buyers market. However, we’re also seeing an increase in buyers. Initially, I suspected these buyers were just the same buyers who started looking shortly before COVID-19 however, I’m hearing from some that it was COVID-19 that pushed them out of their comfort zone working as associates for someone else. These associates were laid off or furloughed during the closures and they realized they had no control over their destiny working for someone else.
If we set aside COVID-19 for a moment I doubt that this increase on both sellers and buyers alone would have any impact on the value of practices. With that said, COVID-19 is absolutely a factor and I am seeing and hearing that some of these new sellers just want out, NOW, and are willing to lower their expected selling prices just to get out. This could lead to some nice deals for many buyers.
For practices that were for sale pre-COVID-19 and for those sellers who may be listing their practices with no rush to get out, I don’t believe the values of these practices will see a reduction in price nor should they in most cases. However, what we are seeing is that deals that were in the process of exchanging hands when COVID-19 hit, buyers and lenders both are more hesitant completing these deals under the agreed-upon terms pre-COVID-19 and are asking sellers to re-evaluate the terms whether its price, holdbacks, contingencies, etc. and sellers are listening for the most part.
For example, sellers of general dentistry practices that were in the process of being sold OR have come up recently will need to consider holdbacks on their agreed-upon prices contingent on certain criteria post-COVID-19 so that both buyers and lenders will be comfortable that these practices will return to their pre-COVID-19 levels of both production and collections. In my opinion, some of the criteria for general dentistry practices NEEDS to include hygiene-related statistics, NOT just total practice collections.
Based on what I’m hearing and seeing, as general dentistry practices re-open some are struggling to get their patients back into the office for regular recall visits. The doctors are telling me that their dental production schedules are filling up rather quickly, more so than they expected. We believe that’s just a matter of a backlog of dentistry that patients have been waiting to get done, especially the no-pain related issues like chipped teeth and loose crowns. Some practices are unable to return to their normal weekly hygiene schedules and have been unable to bring back their hygienists to the same hours they were working pre-COVID-19 Therefore, while you might see total practice collections getting to pre-COVID-19 levels sooner than expected, it may just be the dentist clearing up some of the backlogs of dentistry that’s been waiting on the sidelines for two-plus months. It will be interesting to see how quickly the hygiene schedules return to some sense of normalcy.
Hopefully, buyers and sellers can work together with the professionals assisting them to work out a transaction where both parties are protected to some degree considering our current times. I don’t believe this will be the “new norm”, I do believe we’ll seeing more holdbacks and contingencies in the short term, at least for 12-24 months until practices return to a level of consistency in which sellers, buyers, and lenders are comfortable.
About Tim Lott
Tim Lott, CPA, CVA, has decades of experience working with dentists at all stages of their careers. He is a regular speaker at study clubs, societies, and dental schools. Tim is a frequent participant and a moderator of Dentaltown.com. You can reach Tim at firstname.lastname@example.org or any of the other dental partners/principals at (800)772-1065 or email@example.com