Volume 66: Irrational Exuberance or The New Normal?
The dental practice sales market, particularly in the large urban centres has experienced a prolonged period of growth in practice values. When compared with even a few years ago, practices now sell for between 20 and 40 per cent more on a relative basis. It is common to receive multiple offers for good practices, which leaves both vendors and purchasers struggling with how to deal with it. We are constantly queried by both sides of this unbalanced market with, “when is it going to change”?
When we hear that from Vendors, they are probably really asking, “should I sell my practice now because the market has peaked?” My standard answer is quite bluntly, no! The decision to sell a dental practice should be driven by the dentist’s personal circumstance not because they may or may not catch the top of a market. It is not like a stock where you can get in and out multiple times and generate profit if you get the timing right. Frankly, from a financial point of view, the best strategy is to work until the day you stop working. You will make far more working a few more years than you will selling. Dentists sell for various reasons; freedom, health, time, stress, and other interests. When the time comes, you will know and it won’t be based on money.
When the question comes from purchasers, they are probably really asking, “If I wait a while longer will practices become more affordable” or “when will the bidding wars subside.” To answer this I will turn to a quote from Warren Buffet, “It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price”. In other words if you find a practice that is suitable for you and it is run like “a wonderful company” than you should buy it and never look back. This is a life decision that will have impact on your life for 20 years or more. Therefore, getting the timing exactly right is somewhat irrelevant. Find the right one and go for it!
So will the market change? Of course that is asking me to predict the future which I do not have the clairvoyance to do. However there are some compelling reasons to believe the market is going to stabilize.
• The aging population of dentists has been written about over and over again. According to the CDA, the average age of a dentist in Canada increased from 46.8 to 47.9 over the five year period from 2007 to 2012. This modest aging is not going to have a dramatic effect on the number of dentists who want to sell. As Imentioned earlier, it is not age that motivates a dentist to sell, it is other things. So while I expect the choices buyers have will grow over the next few years, I do not expect a glut of practices to come onto the market that would increase supply enough to cause prices to drop.
The oversupply of dentists in Canada has been the single biggest factor that has contributed to the heated market. CDA stats show that from 1997 to 2013 the population to dentist ratio shrunk from approximately 1,900:1 to 1,700:1. Fewer dentists are retiring, more dentists are graduating from Canadian dental schools and more foreign trained dentists are choosing to immigrate to Canada. All of these factors contribute to this statistic continuing to shrink.
The purchaser population continues to be strong. Recently, several purchasers have given up finding a practice to set up instead. If a fantastic location can be found with a reasonable lease negotiated, this can be a successful path over the long term. Otherwise it can be very challenging to find enough patients to cover the overhead, let alone provide a reasonable income for the dentist.
There are several Canadian banks that are very active and very talented at lending into the market. They are pleased with their portfolios of loans to dentists. These banks are historically well capitalized and are earning record profits quarter after quarter. There is no reason to think their appetite for these loans will wane.
Corporate dentistry continues to put high values on the cash flow dentistry provides. This has also had a stabilizing impact on the market.
Overall, I believe there has been a slow steady paradigm shift in how both vendors and purchasers assess the market. We as dental practice brokers are living and breathing that shift every day and I believe what we have now is The New Normaland not Irrational Exuberance.
David Lind is a Principal and Broker of Record in Professional Practice Sales Ltd. (www.ppsales.com), which specializes in the valuation and sale of dental practices. He can be reached at (905) 472-6000 or 1-888-777-8825 or e-mail at:email@example.com
The Professional Advisory
- One Year Later
- Dealing with Unsolicited Offers
- Covid-19 Practice Sales Update
- When is the Right Time to Sell Your Practice and Why?
- Partnership Pitfalls
- The Real Cost of a Dental Practice Set-up
- Smaller Practice Realities
- Dental Market Update - 2019
- Creating Your Own Most Valuable Practice (MVP)
- Small Practice Economics
- The Market is Very Efficient
- How Can Dental Practice Values be Rising and Declining?
- Hygiene as a Value Driver
- The Value of a Good Team
- Is it Time to Move?
- Staging A Dental Practice
- The High Cost of Dying
- Patients - Attract and Retain
- Should I Stay or Should I Go?
- Is There a Buyer for Every Practice?
- Good, Better, Best - The Market has Spoken
- Buying Time
- Patients, Patience, Patients
- A Real Patient
- Why Do a Practice Valuation? I'm not Selling
- Irrational Exuberance or The New Normal?
- Do dental equipment and dental technology affect a practice value?
- Finding and Being a Mentor
- Bigger is Better
- Dave's Top Ten List for Buyers (Vendors should read this too!)
- How Well Do You Know Your Practice?
- Dave's Top Ten List for Vendors
- What will happen to dental practice Values in the next 10 years?
- Your Premises Lease is an Important Asset
- What are Associates Thinking?
- There is Life Outside the GTA
- When Is the Right Time to Sell My Dental Practice?
- Mergers are a Viable Option
- Is Your Associate an Asset or a Liability?
- Has your Practice Facility Kept Up With Your Billings?
- The 100 per cent of Gross Myth
- The Past, The Present and The Future
- Caveat Emptor
- Overpaid Long Term Staff
- Selling your Practice in Stages
- A Potential Pitfall of Selling Shares
- Value in Your Practice Through Balance
- Only Trusted Staff Can Defraud You
- To Own or Not to Own Practice Real Estate? That is the Question.
- Coping With A Large Patient Base
- Successful Dental Practice Transitions
- Taking Care of Business
- The Investing Dentist Phenomenon
- Two areas to focus upon that could negatively impact the value of your practice
- Organize your Debt in Order to Sell your Practice
- Having a Better Team
- How Do I Prepare My Practice For Sale
- How Do I Prepare My Practice For Sale? Part 3
- How Do I Prepare My Practice For Sale? Part 2
- How Do I Prepare My Practice For Sale? Part 1
- Advice to My Son or Daughter Graduating from Dental School
- Transition - What to Expect
- Discussion on Digital X-Rays
- Partnerships and Shotguns
- Strategic Planning - How to Get Started
- Calling All Vendors - Practices have Gone Up in Value
- Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates
- Matrimonial Practice Valuations
- Purchaser's Guide to Affording a Practice
- Location Improvements Throughout Your Career
- Small Practice Valuations
- Partnerships – The Best and The Worst
- Changing Location When the Opportunity Comes Along
- Visual Presentation of Your Practice
- Presentation of Charts
- Your Premises Lease Can Be Your Worst Enemy
- How to Select an Appraiser for Your Practice
- How Are Your Billing Ratios?
- It Pays to Invest in Your Tangible Assets
- The Importance of Separate Financial Statements
- Five Time Frame Levels to Sell a Practice
- 12 Suggestions to Safeguard Computer Data
- How to Buy a Visible Practice
- Why is there a shortage of good practices today?
- The Importance of Equipment in the Purchase of a Practice
- The Balanced Practice
- Will My Practice Be Saleable in The Future?
- Buyer Be Aware
- Excess Profit - The Second Key
- Patients and Profits are the Keys
- Plan Ahead