Thinking of selling your dental practice? – What deal structures are currently available?
With the current acquisitions market being very buoyant and with record offers on practices being received, at the same levels if not higher than before Covid-19 hit the UK, it has made the deal structures for practice owners looking to sell more diverse than ever before, with a variety of different options available.
This stems from the activity of the corporates along with the multi-site practices owners, looking to grow their group and work with outgoing Practice owners.
There are many questions that contribute to how you would like the landscape view after sale, will you actually have sold your practice? Are you still tied to the liabilities, how long till you receive your full sale figure, can you transform from employer to employee if required? These largely depend on who buys your practice below is a summary of some of the most common types.
Here are some examples of deal structures
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Sell all of the practice ownership and receive proportion of the total sale amount up front (usually 50 to 80 %).
The remaining amount (usually the remaining 20 to 50%) is called the earn-out. Earn-out is usually associated with the following tie-ins:
- Requirement to stay working in the practice to be a part of the transition process of moving the practice from your ownership to the ownership of the new buyer. This tie in period is usually 3 - 5 years. The longer you are tied in the more the risk is spread between you and the new owner. This could lead to a higher value being paid by the buyer for the practice.
- Requirement to achieve certain ‘targets. These could be minimal or onerous so need to be considered as part of the overall price paid for the practice. These goals could be in the form of:
- Achieving a turnover target
- Achieving profit targets
- Growing aspects of the practice eg. revenue streams, services etc.
- Occasionally, practices with a high growth potential, the seller may be included in the ‘upside’ of the practice growth. This is most often the case with sellers who are 10+ years away from retirement and who still want to pursue business growth. This upside could be structured as a share of the profits, based on turnover or profit growth.
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Sell all of practice ownership and walk away on day one.
This is usually the case for practices sold to an independent buyer. These tend to be dental practices that have less than 3 surgeries, with turnover less than £750,000 and a selling price below £1M. There are some scenarios though where a Corporate or multisite owner will let the owner walk away on day one with all the proceeds paid up front.
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Sell a proportion of practice ownership (10% up to 80%) and cooperate with the new co-owner in building the business.
The new co-owner will bring skills, experience, knowledge or investment which will help the practice grow and develop further.
- If you are selling a practice with other partners in the business, it is possible to negotiate a different deal for different partners in the business. This is usually the case when partners are of different generations and have differing ambitions and retirement plans.
Intricacies of each deal and each practice sale are different so while these are some of the more common deal structures on the market there are also others. Whenever you decide it is time to think about retirement, and this could be in your 20s, 30s, 40s or 50s it is never too late to ensure that your practice is professionally valued using evidence-based valuations.
MediEstates have been valuing practices for over a decade and the information from each transaction is part of the data used to value future transactions. As the largest dental practice broker in the UK market, we have our finger on the pulse and ensure you benefit from this experience. If you would like to find out more about any aspect of future planning, retirement sale or exiting your practice please get in touch with our experienced team.
