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Latest Trends In Buying & Selling Dental Practices

By March 5, 2024March 14th, 2024Selling A Practice

A typical dentist buys and sells one practice in their lifetime. So they can be forgiven for not understanding current trends when it comes to the process and what to expect. At DMC help prepare, market and sell dental practices on a daily basis.  So, I want to shed some light on what’s happening in the marketplace at the moment.

Practice Values Aren’t What They Used To Be

We’re seeing OK practices sell for less than production or appraised.

That’s historically very rarely been the case.  Why?  There are micro factors at play – basically, the metrics aren’t there (cash flow, active patients, hygiene production, etc.), the opportunities for a buyer aren’t there (e.g. it’s open all the time and nothing is referred out and there’s no space to add ops), the team members aren’t on proper contracts, and the landlord/lease is tough.  And there are macro factors at play too: high interest rates, inflation, labour shortages and higher wages.

When it comes to appraised values, keep in mind that it’s just as much as art as science.

The appraised value is supposed to support the bank’s risk department and make the buyer and seller more  comfortable in the deal …  BUT the purchase price will actually always come down to: what would a willing buyer pay and what would a willing seller accept?  That’s the market system we operate in.

Banks Are Taking Longer

Ever since interest rates shot up and stayed up, banks have been taking a LONG time to get financing in order.  When interest rates were at historical lows, banks were throwing money at dentists left, right and centre.  Back then, banks needed anywhere from 2-3 business days (in the quickest of examples) to 10 business days (in the slowest of examples) once their term sheets were signed in order to release funds.  Nowadays, it’s WAYYYYY longer – like at 20 business days for the deals that we’re seeing.  So if you’re looking to sell your practice, please manage your expectations and be prepared for banking delays.  It just IS.  We like seeing RBC, Scotia and TD on files because they have experience getting deals done properly and efficiently.

Landlords Are Taking Whatever They Can

Landlords everywhere in Ontario want flexibility when it comes to what they can do with their properties.  So they’re insisting on demolition clauses and relocation clauses in their leases at every stop along the way.  A demolition clause allows them to terminate the dentist’s lease – for example, with 12 months’ notice – if they ever want to redevelop the plaza into a condo, etc.  These clauses are problematic for selling dentists because buyers want guarantees that they won’t be spending their hard-earned money on a dental practice only to see it torn down or have a discounted resale value down the road.

Landlords are also pushing for higher rents, shorter terms, and more guarantees.  Higher rents because they took a financial beating – like everyone else – during COVID and inflation also hits everyone collectively hard.  Shorter terms – like 5-year terms or 1 x 5-year renewal option after the initial term – so that they can keep their options open and continue to apply maximum pressure on their tenants to line their pockets.  And when it comes to guarantees, they want the dentist to personally guarantee the lease and they don’t care how long they’ve been a loyal tenant there.  They want protection.  They want to satisfy their own risk departments.  If they need to refinance or sell, having demo clauses, relocation clauses, and guarantors all add value to the properties.

How do you as a selling or buying dentist get around these issues?  Talk to us dental lawyers, of course!

Employees Are Not On Proper Contract

After the 2020 Ontario Waksdale case, many, many employment agreements have since been found to be unenforceable when it comes to employee terminations.  In other words: the whole point of having a contract in place – to minimize the buyer’s liability when it comes to terminating staff – may have all been for nothing.  Because a single court case said: if you have a “for cause” termination provision that contravenes the Employment Standards Act, 2000 – and irrespective of whether you rely on that termination provision or let someone go “without cause” (meaning you give them notice because they haven’t done anything wrong) – well then: ALL OF YOUR TERMINATION CLAUSES ARE INVALID!  And there’s no way around it either.  So you need to get dental lawyers like DMC to fix your agreements if you’re thinking about selling.

Bottom Line

It’s a lot tougher for dentists to buy and sell dental practices, so if you’re thinking about it, you should speak with DMC first.  If you’re thinking about selling, you also need to tax plan, and it could take a few years to get everything ready so you don’t give a big chunk of your proceeds to the government.

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.