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Volume 93: One Year Later

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One year later. Where are practice values and why? 

It was like a bad dream. One year ago, our world changed forever. The pandemic raged throughout the world, and resulted in the immediate shutdown of the traditional dental market. The pandemic had more significance for the dental industry as one of the first outbreaks and tragedies was related to the popular Pacific Dental Conference. 

When this shutdown occurred, not only did dentists close their doors, but practice sales stopped dead. Banks stopped lending, and purchasers stopped purchasing. At the time, the dental market was in a precarious position. In fact, with one wrong move (i.e. evidence of virus transmissions related to dental office visits), there was a distinct possibility that the public could have changed their perception of dental offices being safe and over the long-term, would refrain or reduce the frequency of visiting the dentist and dental offices except, for emergency procedures. In addition, there was also the possibility that because of additional ownership risks and costs, the concept of ownership may be less appealing.

Thankfully, because of a strong response from dentists, who made big sacrifices, and significant investments into safety measures, dental offices have retained the confidence of patients as being safe and an important healthcare service.  

While we are nowhere near normal, here is what happened. During the initial few months of recovery, because of pent up demand for services, many practices experienced a surge in revenues as they caught up with delayed treatments. Later in the recovery, as the initial surge subsided, practices somewhat returned to normal revenues, but still had issues with consistency with the important hygiene and recall programs. The good news is that if you have kept in touch with your patients, those patients should still be loyal, so as we get closer to overcoming this pandemic, patients will start to return to their normal dental cycles. 

What has happened to the dental sales market and dental office pricing during this recovery, and what will happened in the future? 

The good news is that as practices opened up so did the banks. In fact, all of the practices that we had conditionally sold prior to the shutdown were successfully closed, with few adjustments related to the new potential future risks.

What is not surprising is that this new reality changed the timeline related to the sale of many dental practices. It seems that the added stress of all the changes, the extra costs, and staff issues are leading dentists to decide to sell immediately or in the near future. 

In addition, although we haven’t seen the exact results yet, we expect there to be a significant increase in operating overhead for most practices due to the extra safety measures. The extra costs are associated with:

  • the actual preparation of the practices, (air cleaners, room dividers, compliance reports, etc.) 
  • the increase in supply costs from price increases, and extra PPE costs, and
  • a decrease in workplace efficiencies related to a reduced number of patients in the clinic due to increased fallow times, and sanitizing regimens. 

From an economic perspective, the factors mentioned above combined with the fact that the return of hygiene is sporadic, should have resulted in a significant reduction of dental practice values. However, despite the supply side indicating that practice values should have fallen, what actually happened is a huge surprise! The dental practice market has more or less recovered to pre-pandemic pricing levels. As a matter of fact, since reopening, PPS has actually achieved sales at near record price levels. 

Why did this happen, and what will the future look like? 

We all know that there is an oversupply of dentists in Canada. This had led to an oversupply of buyers which has fueled competition for the purchase of excellent dental practices. In addition, there are also buyers who are investors with a long-term outlook. They are always looking to acquire good practices to build their portfolios and to generate returns-on-investment. 

As a result of the pandemic and despite banks being more cautious, many buyers became more aggressive in looking for distressed practices to take advantage of opportunities where owners wanted out or simply wanted to eliminate their ownership obligations. Further, demand was enhanced by a flood of new buyers into the marketplace. The latter were buyers who had not been actively searching for a practice and were happy associating. In many cases, these associates were more heavily impacted by the shutdown as they were the first ones to be let go if a practice suffered any type of slowdown. It would have made sense that these associates would have been happy not to have any risk by owning a practice that could be shut down, but there was an opposite response. The risk of being an associate became significantly apparent as they had no control over their employment conditions. Now, the concept of ownership control is more enticing. 

The increased market supply of dentists and reduced practice performance has generally been offset with an increased demand for ownership resulting in pricing equilibrium, where with some exceptions, prices have recovered to pre-pandemic levels. 

While the future is uncertain, we do think there could be a slight reset due to the earning drag on practices. The extra costs, PPE costs, and reduced patient visits will all eventually be seen on an income statement and result in reduced profitability.    

Despite this reset, continued demand may negate these factors. Dental practices have proven to be excellent investments and should continue to stay this way in the future.

Colin Ross is a Partner 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: colin.ross@ppsales.com

The Professional Advisory

  1. One Year Later

  2. Dealing with Unsolicited Offers

  3. Covid-19 Practice Sales Update

  4. When is the Right Time to Sell Your Practice and Why?

  5. Partnership Pitfalls

  6. The Real Cost of a Dental Practice Set-up

  7. Smaller Practice Realities

  8. Dental Market Update - 2019

  9. Creating Your Own Most Valuable Practice (MVP)

  10. Small Practice Economics

  11. The Market is Very Efficient

  12. How Can Dental Practice Values be Rising and Declining?

  13. Hygiene as a Value Driver

  14. The Value of a Good Team

  15. Is it Time to Move?

  16. Staging A Dental Practice

  17. The High Cost of Dying

  18. Deal-Busters

  19. Patients - Attract and Retain

  20. Should I Stay or Should I Go?

  21. Is There a Buyer for Every Practice?

  22. Good, Better, Best - The Market has Spoken

  23. Smooth-Sale-ing

  24. Buying Time

  25. Patients, Patience, Patients

  26. A Real Patient

  27. Why Do a Practice Valuation? I'm not Selling

  28. Irrational Exuberance or The New Normal?

  29. Do dental equipment and dental technology affect a practice value?

  30. Finding and Being a Mentor

  31. Bigger is Better

  32. Dave's Top Ten List for Buyers (Vendors should read this too!)

  33. How Well Do You Know Your Practice?

  34. Dave's Top Ten List for Vendors

  35. What will happen to dental practice Values in the next 10 years?

  36. Your Premises Lease is an Important Asset

  37. What are Associates Thinking?

  38. There is Life Outside the GTA

  39. When Is the Right Time to Sell My Dental Practice?

  40. Mergers are a Viable Option

  41. Is Your Associate an Asset or a Liability?

  42. Has your Practice Facility Kept Up With Your Billings?

  43. The 100 per cent of Gross Myth

  44. The Past, The Present and The Future

  45. Caveat Emptor

  46. Overpaid Long Term Staff

  47. Selling your Practice in Stages

  48. A Potential Pitfall of Selling Shares

  49. Value in Your Practice Through Balance

  50. Only Trusted Staff Can Defraud You

  51. To Own or Not to Own Practice Real Estate? That is the Question.

  52. Coping With A Large Patient Base

  53. Successful Dental Practice Transitions

  54. Taking Care of Business

  55. The Investing Dentist Phenomenon

  56. Two areas to focus upon that could negatively impact the value of your practice

  57. Organize your Debt in Order to Sell your Practice

  58. Having a Better Team

  59. How Do I Prepare My Practice For Sale

  60. How Do I Prepare My Practice For Sale? Part 3

  61. How Do I Prepare My Practice For Sale? Part 2

  62. How Do I Prepare My Practice For Sale? Part 1

  63. Advice to My Son or Daughter Graduating from Dental School

  64. Transition - What to Expect

  65. Discussion on Digital X-Rays

  66. Partnerships and Shotguns

  67. Strategic Planning - How to Get Started

  68. Calling All Vendors - Practices have Gone Up in Value

  69. Purchasers: Expect to Pay More for a Practice because of Lower Professional Corporation Tax Rates

  70. Matrimonial Practice Valuations

  71. Purchaser's Guide to Affording a Practice

  72. Location Improvements Throughout Your Career

  73. Small Practice Valuations

  74. Partnerships – The Best and The Worst

  75. Changing Location When the Opportunity Comes Along

  76. Visual Presentation of Your Practice

  77. Presentation of Charts

  78. Your Premises Lease Can Be Your Worst Enemy

  79. How to Select an Appraiser for Your Practice

  80. How Are Your Billing Ratios?

  81. It Pays to Invest in Your Tangible Assets

  82. The Importance of Separate Financial Statements

  83. Five Time Frame Levels to Sell a Practice

  84. 12 Suggestions to Safeguard Computer Data

  85. How to Buy a Visible Practice

  86. Why is there a shortage of good practices today?

  87. The Importance of Equipment in the Purchase of a Practice

  88. The Balanced Practice

  89. Will My Practice Be Saleable in The Future?

  90. Buyer Be Aware

  91. Excess Profit - The Second Key

  92. Patients and Profits are the Keys

  93. Plan Ahead

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