The difference between success and failure
It can sometimes be a fine line between success and failure in dental practice sales and acquisitions. All it takes is one wrong move and a vendor or buyer’s well-laid plans can come unstuck. With the right approach, preparation and organisation, however, a failed transaction can usually be avoided – you simply need to stay mindful of potential problems that can occur. To help with this, Dental Elite explores five common causes that can be the difference between failure and success.
- Practice Performance
From a buyer’s perspective proceeding with a purchase in which the practice is underperforming can be very risky, as it makes banks nervous about lending. If there is enough time for the practice to catch up and the bank is happy for the deal to be put on hold while they do so then it’s not an issue, but just be aware that banks can retract their offer to lend if they feel the business presents a risk even if it has passed credit. To ensure a smooth transaction that completes successfully, a vendor should ensure that the practice continues to perform at the same turnover level as the last set of accounts on which the business was valued. It is not unusual for a bank to request management data no older than three months before drawdown and if there is a dip in turnover all hell can break loose!
- Leasehold Term
Where leaseholds are involved, a failed deal is almost always because of lease length. The reason for this is that purchasers require a lease of at least ten years in order to pay maximum value, so unless an agreeable deal can be reached there would be no way a buyer could continue with the transaction – not least because the lending bank will always require a sufficient lease length. As such, success relies on communication, negotiation and willing landlords!
With a freehold, there are a number of potential pitfalls from deeds to building regulations, planning permission and survey results. The latter can be particularly troublesome, because if there’s a problem with the practice that neither party knows about and it shows up during the survey, it can only end one of two ways: the vendor resolves the issue or the sale falls through. Sometimes surveyors can make issues of items that actually aren’t that critical and this will often require a second professional opinion or a good mediator to get rid of the issue.
- Bank Valuations
As part of the sale process, if a buyer is borrowing money then their bank will almost certainly instruct a valuer to cast an opinion on the value of the practice. This result will dictate how much money they will lend your chosen purchaser. Without the valuer being provided a marketing history, relevant comparable data and details of all bidding parties it is not uncommon for the valuation to come in different by as much as 20 per cent.
This can often lead to a purchaser seeking to re-negotiate the original offer price at the eleventh hour of the transaction. For the best results, it’s always better to arrange a formal valuation with an experienced specialist dental broker who can advise on the better bank valuers and provide them with the data they need to ensure a successful end result. This firm should also protect a vendor’s position by means of collecting a deposit to ensure no legal fees are wasted and that the client cannot be bullied.
- Specialist help
Unless you’ve bought or sold a dental practice before you could be forgiven for underestimating the amount of work that goes into practice sales and acquisitions. So unless you do your homework before you embark on the journey, you run the risk of ending up in deep water very quickly. For that reason both vendors and buyers should always seek professional help rather than choosing to tackle the task alone.
These are five of the main culprits behind success and failure, but it’s also important to remember that luck can play a hand in practice sales and acquisitions. Indeed, it doesn’t always have to be a big drama that’s caused a sale to fall through; sometimes it’s a simple case of a buyer changing their mind. Unfortunately, not all eventualities will be within your control. All you can do is take the right steps beforehand, taking care to choose a dental specialist team that can support you through your sale or acquisition.