Selling a dental practice represents not only a significant financial transaction but the culmination of years, often decades, of dedication, growth, and professional fulfillment. In an era where the market is ripe with potential buyers, including dental service organizations (DSOs) flush with capital from various sources, understanding the nuances of such a sale is more crucial than ever.
While the prospect of exiting might seem straightforward, the landscape is fraught with complexities that, if navigated poorly, can significantly undermine the value and terms of a deal. Below are five pivotal mistakes that sellers must avoid to ensure they achieve the most advantageous exit possible based on Tusk Partners' experience in executing more than 300 dental merger and acquisition (M&A) transactions.
1. Fixating on the sale price alone
Ironically, the sale price, while critical, is not the be-all and end-all of a transaction. The structure of a deal often carries more weight, influencing the ultimate financial and professional outcomes for the seller.
Complex deals come with a variety of components, such as cash at close, equity stakes, and employment terms postsale, each affecting the seller's future financial landscape. An overemphasis on the price tag can lead to overlooking these crucial aspects, potentially sacrificing long-term benefits for immediate financial gain.
2. Accepting unsolicited offers without counsel
Unsolicited offers, while flattering, often do not reflect the practice's true market value. Buyers, especially professional DSOs, excel at acquiring practices at the lowest price possible, leveraging their negotiation expertise and the seller's lack of competitive bids.
Without the leverage provided by a knowledgeable M&A adviser, sellers risk undervaluing their practice significantly. A professional adviser can not only help ensure a fair valuation, but they may also bring a competitive edge to the negotiation, often improving the offer substantially.
3. Misinterpreting cash and equity distribution
Deciding between immediate cash and equity in the acquiring entity is a nuanced decision that requires deep understanding and strategic foresight. The allure of instant cash can be strong, but equity offers, depending on their nature, may present substantial long-term growth and profit opportunities. It is imperative that sellers fully grasp the implications of each option, assessing them against their financial goals and risk tolerance.
4. Not accounting for growth potential
Many sellers fail to negotiate value for the potential growth of their practice. Buyers typically focus on past and present financial performance, which can lead to an undervaluation of practices poised for significant growth. Articulating and negotiating based on this future potential can ensure sellers receive fair compensation that reflects not just where their practice has been, but where it is headed.
5. Partnering with inexperienced advisers
The complex nature of dental practice sales demands expertise that only seasoned M&A advisers possess. Inexperienced advisers lack the market knowledge, negotiation skills, and strategic insight required to secure optimal deal terms. Sellers should diligently vet potential advisers, seeking those with a proven track record of successful, high-value transactions in the dental market.
Conclusion
Navigating the sale of a dental practice in today's dynamic market requires more than a passive approach. It demands active, informed participation by the seller, guided by seasoned professionals.
By sidestepping the pitfalls described above, sellers can significantly enhance their exit outcomes, securing not only a fair price but a deal structure that supports their financial and professional goals postsale. In essence, the right preparation and partnership can transform a complex transaction into a rewarding conclusion to one chapter and the promising start of another.
Ryan Mingus is managing director of Tusk Partners and has more than 12 years of sales and leadership experience in the dental and healthcare industry, most recently as the business development director for strategy and optimization at Align Technology Inc. Mingus earned his bachelor's degree in economics and business from the Virginia Military Institute and his Master of Business Administration from the University of San Diego. He also held the rank of captain in the U.S. Army National Guard.
The comments and observations expressed herein do not necessarily reflect the opinions of DrBicuspid.com, nor should they be construed as an endorsement or admonishment of any particular idea, vendor, or organization.
