The recent National Association of Specialist Dental Accountants and Lawyers (NASDAL) survey showed the goodwill percentage on the sale of NHS practices to be around 118 per cent of annual fee income. Commenting on this, Andy Acton of Frank Taylor & Associates noted, “At Frank Taylor we also like to look at goodwill as a multiple of profit, as we feel using both measurements can give our clients a better indication of the true value of their practice”.
“Even using the calculation of goodwill as a percentage of fee income, we saw deals average around 178 per cent. I suspect the NASDAL figures include private sales, such or deals that didn’t involve a broker, and historically these result in depressed sales prices. The pattern is similar with goodwill on the sale of private and mixed practices; 139 per cent and 149 per cent respectively. It’s worth noting also that banks tend to prefer to lend to practices with an element of regular income, such as those with NHS or plan based revenue.”
It’s when you look closer at this disparity, and what this tells us for future market activity, that another interesting pattern emerges in Andy’s opinion, “Corporates have been growing in the market in the last few years, largely to reach income targets. In retrospect, some purchases haven’t fitted their models and/or simply been uneconomical. It’s quite likely a number of tied in vendors will leave over the next year or so, creating a fee income gap for the corporates. At Frank Taylor we have helped several corporates rebalance their portfolio of practices. As on obvious first step I’d urge any prospective seller to get an independent valuation of their practice.”