The Journey from Instruction to Completion
With the average transaction now taking seven months from the day of instruction to the day of completion. What exactly takes so long? One of our Practice Consultants Katrina Graham charts a straightforward practice sale for a site with an attractive NHS contract and some private income from the day of valuation to instruction.
3rd April (Day 1)
The day of the valuation and my first contact with the expense sharing partners in South Yorkshire. Whilst the first expense sharer has already decided to sell up the second expense sharer is keen to procure a valuation figure so he can make a decision as to whether to sell on at the same time or hold out for a couple more years. I undertook my valuation during the lunch break unbeknown to the staff who thought I was there under the premise of being a Sales Rep. A tour of the practice and chat with the partners. An hour later I was on my way armed with information to complete my valuation and prepare my healthcheck report.
7th April (Day 5)
I have a meeting in Glasgow so I use the train journey to collate the information I’ve been provided by the partners to complete the valuation for distribution to rest of the practice sales team for sign-off. All of our valuations have to be agreed as a team as we all have different experiences of practice marketing so we feel valuation by panel means we have far greater confidence in the valuation and also removes the inter-consultant differences in valuation multiple application.
8th April (Day 6)
The team have approved the valuation overnight and as such we have now agreed on an initial marketing price of £930,000 based on the EBITDA of £215,894 with a view to achieve c£980,000-£1m on the open market. I feed back to the Expenses Sharers who confirm it was considerably more than expected so elect to place the practice on the Whole Market immediately.
15th April (Day 13)
Formal Marketing Instruction now received from the partners so myself and my business support; Heike set about preparing the file for marketing. Collating and anonymising the practice documentation, prospectus and agreeing the ‘Buyer Blacklist’ with the Vendors.
23rd April (Day 21)
The prospectus is approved and we are ready for launch. As such the practice is launched to market with an Initial Abbreviated Prospectus to procure interest without giving any way any specifics about the practice. We envisage that this practice will be popular so we have already agreed two days for the Vendors complete viewings on mass as opposed to ah-hoc evening viewings.
13th May (Day 41)
The practice was exceptionally popular and multiple offers were received. We find that the ‘open bidding’ process works far more effectively than sealed bids. Open bids can result in a healthy acquisition bidding exercise and often achieves above the initial asking price. In our experience we find that going to market with a slightly lower price than valued tend to push the value of the business which results in offers at or above the asking price. In the case of this practice the price achieved was c28% above the initial price; £1,187,000
16th May (Day 44)
The Heads of Terms have been agreed, the Vendors have returned their copy and solicitors instructed. All we need now is the Buyer’s Copy and Buyer’s Deposit to seal the deal.
20th May (Day 48)
Deposit received from the buyer. In order to transfer the NHS contract; the vendor and buyer need to enter into a short term ‘partnership’ agreement via the CQC. In order to comply with the regulations both parties must have a current DBS check (under 6 months old) countersigned by the CQC. Therefore DBS information, CQC forms DD forms sent to the buyer and vendor.
1st July (Day 91)
SPA (sale purchase agreement) drafted by the vendors solicitor and forwarded to the buyers solicitor.
21st August (Day 110)
DD exercise completed and CQC forms submitted via the CQC website. The CQC application takes approximately 6 weeks to complete, and the CQC will confirm via email that they have received the application. The forms must be completed accurately as the CQC will reject the application for any errors.
22nd August (Day 111)
SPA agreed with both sides. When an application is forwarded to the CQC, they contact the buyer who will be the registered manager and conduct a registered manager’s telephone interview.
22nd September (Day 142)
Comfort letter received. The CQC will forward a comfort letter (however it must be requested), confirming the partnership, in order for the solicitor to forward to the LAT.
29th October (Day 149)
LAT provided with 292 notice of sale.
3rd November (Day 154)
Solicitors confirmed that the practice had exchanged, and 10% deposit received from the buyer.
1st December (Day 182)
Solicitors confirmed that the practice had completed. Three weeks post completion the money is requested from the bank.
With any dental acquisition; the due diligence is a major part of the transaction as with any practice; questionnaires are exchanged between solicitors and can take up a significant amount of energy and time. Once all information was collated, forms were then submitted to the CQC and in turn they issued a comfort letter to forward to the LAT in order to transfer the NHS contract.
This particular transaction took 6 months to complete thanks to all parties promptly providing information required via their appointed dental solicitors. I would say the most important aspect to think of when you are selling your practice is to appoint a credible dental solicitor who will be fully aware of the potential pitfalls associated with buying and selling a dental business.