There are many different factors at play that predict whether a sale to a corporate will suit you, including the nature and location of your business, your profitability and your scale. If you’re a business with a high-revenue, selling to a corporate may help you maximise value, and may indeed be your most viable option.
Although though there may be terms and targets to meet during a three to five year deferred consideration, depending on your needs and preferences, selling to a corporate can be a great decision that comes with a number of benefits.
What is a corporate?
While a corporate used to be defined by the activity of two or three well-known groups, corporates are now considered to be anybody backed by private-equity, or debt-funded, owning over 50 practices. The large groups and corporates grow either through acquiring more sites, benefitting from the arbitrage, or by developing EBITDA on their existing estate, at no additional cost to themselves.
Micro-consolidators (owning five to 10 sites) have taken over the medium-revenue transaction, as they are able to offer much more competitive terms. However, these buyers are dependent on bank loans for funding. The higher level transactions on practices turning over an average of £1.9m are still available to corporates for this reason, as they manage acquisitions through private equity or debt funders rather than conventional lenders.
Some potential benefits of selling to a corporate
Corporate groups tend to want you to stay as long as possible. If you're planning on still being a dentist for the next five to 10 years and you are simply selling to reduce responsibility, pay off debts, or focus more time on family, the corporate life may be for you.
Control
Remaining the king or queen of the castle is a commonly-used expression by dentists wanting to maintain a stake in their sold business. They may have built up a practice over several decades, or started it off as a squat. With a corporate you often have the option to stay on as the lead clinician, working with the same team you built up over a long time, maintaining decision-making privileges across the practice.
The team
Any good corporate understands the value of the team, so – contrary to common misconceptions – they are unlikely to make slash and burn changes to contracts. The EBITDA purchased by corporates depends on dental nurses, receptionists, practice managers – and crucially – associates. TUPE is in place to protect employed members of staff.
Earnings potential
To maximise sales proceeds and net earnings post-sale, staying on as an associate within your existing practice can be preferable long-term to moving on. Chances are you know your patient-base very well, which will enable you to maintain a consistent level of income after the sale.
Time
The average transaction duration with a corporate is currently around four to five months. Their business valuation is put together by your dental agent rather than a bank, based on a multiple of your EBITDA. As long as the profit is verified through financial due diligence, and legal due diligence is managed effectively, the sale will go through more quickly than a sale backed by a high-street lender.
Risk mitigation
A typical corporate deal requires you to drive profitability over a deferred consideration period. If you do not earn that 20 per cent or 30 per cent of the complete deal over the course of your tie-in, you can lose out.
Dental Elite works month by month with sellers to ensure the numbers projected on EBITDA are sustained throughout the whole sale period, so we get to the end of the sale and effectively maximise the value – and there isn’t a renegotiation later on down the line because revenue and profits have slipped. Whether your practice would benefit from selling to a corporate or to another tier, strategic insights offered by Dental Elite ensure you are fully informed, and able to make the best decision to suit your goals.
If you are confident in your practice’s profitability, there can be a number of benefits for a vendor selling to a corporate. Regardless of the buyer, however, it is important to seek the advice of a specialist broker who can ensure your valuation and deal terms meet your current and future needs, and that you are protected from any potential risks.
For more information visit www.dentalelite.co.uk