Selling a dental practice – exploring a sale to an existing associate

In recent years, we’ve seen a shift in the UK dental sector, including Scotland, with consolidators acquiring dental practices at a significant rate.

There was a feeling that this trend was driven partly by the pandemic, with practice owners assessing their personal circumstances and taking the decision to exit or retire, and partly down to the increased presence of a small number of private equity-backed consolidators. In Scotland, we’ve seen Clyde Munro, Real Good Dental and Portman Dentex expanding their presence, all of which we have been proud to support.

An increase in interest rates and inflation from the second half of last year means the market for buying and selling dental practices has changed, but there are still opportunities for business owners to exit, or for new associates to enter the world of ownership.

This transition of ownership in local dental practices from current owners to existing associates within the practice is something we’re continuing to see on a regular basis. One the one hand, there is a steady stream of ambitious associates with entrepreneurial ambitions, looking to add to their medical experience with ownership alongside continuing to treat their patients. On the other hand, retiring or exiting owners exploring succession options are keen to ensure that their patients are in good hands with colleagues who understand their needs and the local communities they serve, with continuity for patients being a key factor.

With that in mind, we’ll look at some of the factors that dental practice owners need to think about if they are considering a sale to one of their associates.

Valuation

Whilst owners might have a view on what they think their practice is worth, it’s always worth speaking to a valuer – the market is constantly changing and evolving so you’re better to explore a potential sale with a true understanding of what your practice is worth. On valuations, we have strong relationships with experts in this field in the sector who can assist to ensure that the right price is arrived at.

Property arrangements

The property aspects of any sale will be fundamental – e.g. does the current practice owner also own the property, or is it leased from a third party? If they own it themselves, do they intend to retain it and lease it to the new owner, or are they looking to sell the property as well? If they plan to retain it, or if it’s leased from a third party landlord, and the associate is using bank funding, then the terms and duration of the lease will need to be such that funders will lend against it. With a third party landlord, thought should also be given to what they will require to consent to the assignation of the lease. Having a clear idea of what the owner wants to do with the property arrangements before negotiating with the associate will be key for ensuring a smooth transaction.

Ongoing involvement

The current owner should be clear as to what they are prepared to do in terms of ongoing involvement. For example, if they’re looking to retire and step back immediately on the sale, then how will that impact on the performance of the practice, and ultimately its valuation? Will the associate be able to service the current owner’s patients, failing which, how easy will it be to recruit a new associate? Alternatively, if the owner is willing to continue working for a period of time, this can often assist with the transition to the associate’s ownership, and possibly also give them time to recruit a replacement associate.

If the practice owner is clear on the above aspects at the outset, then negotiations with an associate to buy the practice are likely to be more straightforward, and result in a conclusion one way or another much sooner. Ultimately, selling to an existing associate is often an attractive option for both seller and purchaser as it can enable:

• An owner to achieve an exit and receive value for their practice.
• The associate buying the practice to de-risk the move to business ownership to an extent, as they’re buying a practice they’re already familiar with.
• Continuation of service to existing patients and minimal impact on the day-to-day running of the practice, which is often a key consideration for owners who have established a good reputation over many years in the community they serve.

All of the above means both the owner’s exit and purchaser’s entry can be significantly less arduous and stressful, in contrast to a transaction with an independent third party purchaser.

Members of Harper Macleod’s healthcare team will be attending the Scottish Dental Show 2024 at the Braehead Arena in Glasgow on 31 May and 1 June. If you are considering selling your practice, or looking to buy a practice, come and see us at stand D14.

We’ll also be joined by colleagues who can help with your personal legal requirements such as Wills, trusts, asset protection and succession planning.