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MediFinancial - Dental Practice Finance Case Study
Funding a practice purchase

Dental Practice Finance - Funding a practice purchase

Case Study by MediFinancial Ltd - John Peter, South West


Plan

Our client, John Peter’s approached us regarding a single surgery mixed practice that he was actively seeking in a town in the South west and we began our discussions on his plans for this exciting opportunity. Principal led, the current established the practice over 30 years ago and was selling due to retirement. The setting for the practice was a characteristic 3 storey traditional detached cottage only stone’s throw from the local town. The building was also available for sale and benefited from a flat above the practice that was rented to tenants which further attracted John. This of course provided ample opportunity to convert the flat into a surgery at a later date in order to grow the business.

The principal was happy to remain at the practice for 2-3 years post completion allowing for a smooth transition. This also presented John with the prospect of remaining in his current part time role whilst working at the target practice part time providing him with an additional income which he would live on, allowing him to draw little from the practice whilst establishing himself within it. Currently opening only in the week, John planned to open the practice on weekends in order to provide flexibility for existing patients whilst attracting a new patient base.

Furthermore, John was qualified in Implantology, implant treatments were previously referred out and so this allowed for John to retain these patients. He also planned to take on specialists in Periodontics, Endodontics and oral surgery in order to provide patients with a vast array of treatments whilst ensuring continual growth at the practice.


Practice Financials

There was stability in the income provided by way of an NHS contract if £125,654. The practice delivered a consisted private income of around £71,459 year on year with additional income of £8,485 which included a rental income of £520 per month from the flat above. As the existing principal performed the majority of the work at the practice, direct costs were kept to a minimum. It was important to take into consideration the remuneration of the existing principal post completion during the transitional period but this was offset with John maintaining his existing position and drawing very little from the practice whilst establishing himself there. The current material and lab costs at the practice were relatively high which enable John to negotiate such costs or use other providers in order to keep costs to a minimum. The net profit, with a margin of 50.8% and an adjusted net profit of 53.9% reinforces the practices excellent financial status and consistency was proven with similar net and adjusted net profits recorded historically.

Lenders Feedback

Running with the opportunity, John placed an offer of £288,000 for the purchase of goodwill, fixtures, fittings, equipment and freehold (broken down as £138,000 for the business element and £150,000 for the freehold). John’s offer was accepted and at this stage, he instructed us to approach the lenders for him for which he benefited from responses and preferential rates from our exhaustive panel of 15 healthcare specialist lenders. We are able to use our expertise to present a case in the most favourable way to the banks, obtaining preferential rates that may not be attainable for those who apply directly.


Lenders Offer

The lender with the most favourable indicative terms moved forward to their credit team who indicated that they were happy to proceed with the proposed offer as all aspects of the plan satisfied the lenders criteria; this allowed them to provide credit backed terms. The lenders arranged for a valuation of the practice and property; the surveyor presented their findings indicating that the purchase price of £288,000 was fair. The below offer was then approved:

Full Offer

Amount:
Commercial mortgage of £150,000
Business Loan of £100,000

Term:
Commercial Mortgage of 25 years
Business Loan of 10 years

Interest:
Commercial Mortgage rate of 2.44% above base rate
Business Loan goodwill rate of 4.54% above base rate

Security:
1st legal charge over a *Life policy for £250,000 reducing over a 25 year term

*We at MediFinancial Ltd perform research using a range of providers in order to source the most competitive quotes

Completion

The lender subsequently moved in line with the agency, the vendor’s solicitors and John’s solicitors allowing the process to run as smoothly as possible until completion when the funds were drawn.

General Buyer Terms

This agreement is in relation to MediEstates Limited whose registered office is at 1st Floor, Pacific House, Stanier Way, Wyvern Business Park, Derby, DE21 6BF acting for and on behalf of our clients ("the Vendors"); and yourself (Buyer's Name) in relation for an introduction to a prospective sale of a business as a going concern. By registering through this agreement I agree to all terms set out below:

  1. Definitions
    In this Agreement the following terms and phrases shall have the following meaning unless the context otherwise requires:

    Business
    Dental Practice business providing dental care. This business is under the MediEstates Ltd sale terms.
    Confidential Information
    Means the actual Vendors identity and all confidential information in respect of the Business, including, but not limited to, any ideas, business methods, prices, accounts, finance, marketing, research, development, manpower plans, processes, market opportunities, intentions, design rights, product information, customer lists or details, employees’ details, trade secrets, computer systems and software, and other matters connected with the products or services manufactured, marketed, provided or obtained by the Vendor, and information concerning the Vendor’s relationships with actual or potential clients or customers and the needs and requirements of such clients’ or customers’ operations.
  2. Obligation of Confidentiality
    The Prospective Purchaser agrees to treat as confidential, information supplied by or on behalf of the Vendor in connection with the sale of the Business.
  3. Exclusions
    The obligation of confidentiality set out in clause 2 does not apply to:
    1. any information received from a third party who was legally free at the time of disclosure to disclose it;
    2. any information which was already lawfully in the Prospective Purchaser’s possession prior to receiving it from MediEstates Ltd on behalf of the Vendor; and
    3. any information which is in its entirety already in the public domain.
  4. Duties of Prospective Purchaser
    1. The Prospective Purchaser shall take such a reasonable security measures to protect the Confidential Information and trade secrets.
    2. The Prospective Purchaser shall not, without the prior written consent of the Vendor, permit any of the Confidential Information:
      1. to be disclosed, other than in confidence to its legal or professional advisors;
      2. to be copied or reproduced;
      3. to be commercially exploited in any way;
      4. to be used for any purpose other than in connection with the prospective purchase of the Business;
      5. MediEstates is registered under the Data Protection Act 1998. Upon Signing this agreement you agree to follow the legal obligations of this act to protect the details of the information supplied to you, with it no to be passed outside of the control of you the prospective purchaser.
    3. The Prospective Purchaser agrees to keep a record of Confidential Information received.
    4. The Prospective Purchaser will return to MediEstates or the Vendor all documents containing Confidential Information and all copies of those documents on demand at any time which are in its possession or under its control, and for this purpose the term “documents” includes computer discs and all other materials capable of storing data and information. The Prospective Purchaser agrees that such documents remain the property of the MediEstates on behalf of the Vendor.
    5. The Prospective Purchaser must not jeopardise or re-direct the sale under any circumstances.
    6. The Prospective Purchaser must not contact the Local Area Team or CCG regarding any practice sale, by any means of media unless written permission is granted from the Vendor.
    7. To carry out own due diligence on practice purchases and accepts that any information MediEstates has supplied is information provided by the vendor and is not responsible for its accuracy or completeness.
  5. This Agreement
    The existence of this Agreement and its terms are confidential and neither MediEstates nor the Purchaser may disclose anything about this Agreement or its subject matter or implementation to any person other than in confidence to their legal or professional advisers.
  6. Duties of Prospective Purchaser
    When buying Dental practices, finance is normally needed. Our organisation operated over more than one of the MediHoldings brand, by completing this from you agree that the information can be shared to our other organisations to avoid the need to register independently and provide the best possible service.

    MediEstates will refer you to the specialist dental lending team and MediFinancial who will contact the necessary banks, whom have preferential healthcare lending rates in some cases, to ascertain which funding is available to you.
    By signing this agreement you do not have to use any of the banks MediFinancial contact, it is just another service which we provide.
  7. Deposit for Dental Practice
    If you are interested in putting forward a formal offer in for a practice, once the offer is accepted there will be a deposit required to secure the practice sale which is dependant of the practice size. This deposit is held in a client account and will be returned to the buyer on completion of the practice sale. You the buyer, will be required to sign a deposit schedule which will cover the buyer and the seller in the event that the practice sale does not proceed.
  8. Changes to this Agreement
    Any changes made to this agreement must be authorised and signed by one of MediEstates Ltd Directors.
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