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Considering Selling to a Dental Service Organization? 6 Bad Moves To Avoid

Many of our clients have sold their dental practices to a dental service organization like 123 Dental, Altima, Dental Corp, and others.  And they talk to us FIRST before approaching them.  Why?  Because we have extensive experience negotiating deals with these organizations and can see 3 steps ahead.  Here are 6 really dumb things you don’t want to be doing:

1. I’ll Invite a Dental Service Organization to My Office

Really Bad Move.  Do you have a written confidentiality agreement with them?  Why are you giving them early and exclusive access to your dental practice?  Where’s the leverage?  What’s your strategy – give them all the time in the world to review your practice and then submit a low-ball offer with one-sided terms (favourable to them)?  Do you have a comprehensive appraisal in hand from a reputable company like Dental Strategy?  Do you know what the rest of the market will offer?

Bottom line: dumb move to invite them in before preparing your office for sale with DMC LLP and Dental Strategy.

2. I’ll Find My Own Buyer

Anyone can put a tiny ad in the back of Oral Health or Ontario Dentist Magazine. But what’s that going to get you?  Tire kickers… lots of them.  And you could also attract a few serious buyers, but it will be limited, because not everyone is looking at the back of a magazine that comes out once a month to buy a practice.  They may not KNOW because the reach is low.  Your ad space is small and is only in print.  If you want to maximize exposure to a group of buyers (including serious ones and dental service organizations), then you need to advertise on our website where our clients advertise:  We are growing that website like crazy every day (1200+ registered dentist users after only 3 years!) and we vet every single user who registers to make sure they are dentists.

And if you really want to lose tens or hundreds of thousands of dollars, you can use a real estate person to advertise the sale of your practice (keeping in mind they charge 10% of your sale price).  But why would you do that when you can go with DMC LLP to sell your practice?

I’m also fairly confident that you don’t know much about buyers out there.  Who is serious?  What other practices do they have? Are they fresh out of dental school?  Do they have a reputable banker, lawyer and accountant?  Guess what?  We do!  We know a lot about who’s looking for practices because we deal with buyers EVERY SINGLE DAY.  We know who can get the deal done, what their personalities are like, whether they are tire kickers, etc.

Finally, since you don’t know much about marketing or selling, you won’t have a proper strategy like ours that includes online and offline marketing (which we do for at least 2 weeks), followed by an open house, followed by having all buyers submit the same Letter of Intent (that contains key terms that you are comfortable moving forward with) only a few days after the open house, and then possibly conduct interviews with serious / prospective buyers – all within a defined timeframe.  All of this creates LEVERAGE and PRESSURE on buyers to outbid other buyers.  Do you have the infrastructure and know-how to do all of this?  I didn’t think so.

3. I’ll Negotiate My Own Deal

Really?  And how many dental deals have you negotiated in your life?  Let me guess… none or maybe one or two.  This ‘aint like buying real estate.  There are a lot of NUANCES and MOVING PARTS which could derail your deal or flip it on its head at any time… including:

  1. What about your staff who aren’t on contract?  What if they find out you’re selling?
  2. What about staff termination costs?  Who’s paying that?
  3. What about your associate who isn’t on contract?  If they’re long term, know the patients and staff, you’re going to be paying a lot of money to them to sign anything if they find out you’re selling!
  4. What about your associate who is on contract BUT IT’S A BAD CONTRACT because now you need their permission to transfer their contract!  Do you really want to your deal to be held hostage to your associate?
  5. What happens during due diligence when something bad is discovered (which invariably happens because buyers want the best deal FOR THEMSELVES)?
  6. What about your accounts receivables?  If you have a lot of these, what’s your explanation?
  7. What about your co-pay that you may not be collecting 100% of the time in full?
  8. What about your associateship and the terms that you want?
  9. What about your lease and landlord?
  10. What about that patient complaint (if you have one)?
  11. What about that key staff member who wants to leave?
  12. Will you be selling assets or shares?  Do you know the difference?  Did you know that they’ll likely require you to sell assets AND shares?  How will that impact you from a tax perspective?

P.S. these are JUST SOME of the things that come up during due diligence after you’ve inked an INITIAL Letter of Intent (outlining the key terms that you are comfortable moving forward with).  If you thought having a Letter of Intent is good enough to get the deal done… think again!

DMC LLP has negotiated HUNDREDS of purchase and sale transactions since starting in 2010 and many deals with dental service organizations since they started entering the industry.  We have the knowledge, skills and experience to get you the best deal in terms of purchase price and terms.

4. I Don’t Need an Appraisal.  They Told Me So

Really?  So you have no idea what your practice is objectively worth? And you’re not shopping it around? And you’re settling on one prospective buyer?  Smart move?  I don’t think so.

Remember this: even if a dental service organization says you don’t need an appraisal, they’re still going to ask you FOR EVERYTHING THAT GOES INTO AN APPRAISAL like:

  • history of the practice
  • lease and renewal documents
  • staff information (names, wages, benefits, start dates, schedule)
  • patient information (demographics, active number, emergency, etc.)
  • financial information (financial statements, adjusted cash flow analysis, etc.)
  • production reports (by provider, by procedure, etc.)
  • comprehensive asset list (I’m talking model and serial numbers, photos, values, etc.)

So unless you enjoy putting all of these things together AND THEN SOME (because a comprehensive appraisal from Dental Strategy includes ALL of this), then you’d better get an appraisal.

5. I Don’t Need To Speak With Anyone Else Who’s Sold

Really?  So you’re going to make one of the biggest decisions of your life based on a conversation you had with a dental service organization who showed you only the best side of themselves?  Don’t you want to know more about the process of selling with them and MORE IMPORTANTLY what happens after?  You NEED to know the good, the bad and the ugly to make an informed decision.  And we can get you to speak with our past clients who’ve had all of those experiences with all of the dental service organizations.  They have no vested interest; just telling you the truth.  And that could help you make the best decision in terms of what to do with your practice.

6. I’ll Use Joe Shmoe Lawyer To Help Me Out

Some dentists think: I’ll put the deal together myself because I’m really smart and then I’ll just use the lawyer down the street who does real estate and family law to push the paper to get it done.   How many dental deals have they done?  Ummm…  How about zero or perhaps one or two.  What do they know about x-ray floor plans, active patient counts, production reports, EBITDA, tax implications of selling assets vs. shares, etc.?  How are their negotiation skills?  Are they going to fold every time an issue comes up or are they going to come up with creative solutions and fight for the best possible outcome for you?  That’s our reputation on the street and we’re proud of it.

OR perhaps some dentists will come across another dentist at a course who they liked.  And that dentist told them to use Jane Doe lawyer because they’re really really cheap and they got their deal done.  This is the RIGHT STRATEGY if you want to save a buck now and pay MUCH MUCH MORE LATER.  Go Cheap = Pay Twice!  In this business, you get what you pay for.  Even the lawyers who dental deals all the time know which lawyers are just paper-pushers because they run their offices like a factory…

At DMC LLP, we offer exclusive and top-notch service to those dentists who need the right answers right away.  And we have a team of lawyers (transactional and employment) to deal with whatever legal issue could arise.  On top of that, we think 3 steps ahead… If you’re thinking about selling to a dental service organization or anyone in 2-5 years, you need us to start putting your team on contract, cleaning up your lease, and fixing your corporation for sale RIGHT NOW!  Why?  Because it takes at least 2 years to get everything in place before you can actually sell if you don’t want there to be any issues when YOU DO sell.

The Content of this post is provided for informational purposes only. It is not intended to be legal, financial, tax, or other professional advice of any kind. You are advised to contact DMC (or other counsel) to seek specific legal advice concerning your individual situation.