Broadly speaking, there are two reasons for a significant increase in the number of dental practices for sale as a result of the coronavirus pandemic: one, because dentists who are themselves high risk due either to age or potential complications stemming from compromised health do not want to risk direct exposure to the coronavirus by treating patients. Two, many dentists simply don’t want to practice under what they see as onerous guidelines put in place because of the virus.
I have tried, sometimes in vain, to get certain dentists to keep working so they’ll then be able to sell their practice as opposed to simply closing it. It’s a shame that many dentists never reopened this year after a number of states lifted their initial early pandemic restrictions on practicing dentistry.
Economics 101 would tell us that practice valuations have been affected by the malign impact the virus has had on revenue and expenses, and so they have. Lower valuations are the result of weeks of closures, with little to no revenue coming in the door. High-volume practices that follow federal and state guidelines will by definition not be able to see as many patients as they did previously, due largely to the time it now takes to turn over treatment rooms. The only way to make up this lost treatment revenue is to work more hours during the week. This will—ahem—not be a popular solution for dentists or their staff.
Increased overhead and, in turn, lower Ebitda (earnings before interest, taxes, depreciation and amortization, an important tool when determining an appraisal of a given dental practice) will lead to reduced practice valuations as well. The personal protective equipment (PPE) and other necessary purchases and upgrades needed to protect staff and patients alike cost money, thereby increasing expenses.
Happily, lending institutions still view dental-practice loans as among the safest, most reliable they ever make. Loans for practice acquisitions are still available—but know that in the current economic environment, they’re scrutinized more closely and evaluated case by case. Quality profitable practices will maintain their value, of course, and lending institutions will still make loans to enable doctors to buy them. (In general, lenders these days want to see two to three months of pre-pandemic revenue before greenlighting the financing of a practice sale.)
Covid-19 has created an opportunity for buyers to pick up many practices at a lower cost. (Consider this a silver lining in a year mostly lacking reasons for cheer.) Again, top-tier practices that are still making a profit are retaining their value, and their owners are quite reasonably standing their ground on a sale price unless they need to sell quickly for some reason.
Practices that are selling explicitly because of the pandemic favor buyers who are independent practitioners, as these practices don’t fit the typical dental service organization model, in which the dentist signs a post-sale provider agreement. These doctors generally want to quit practicing dentistry.
In short, it’s a buyers’ market out there—and while the fear and uncertainty that ruled the pandemic’s earliest days have abated somewhat, overall insecurity will naturally prompt a buyer to hesitate to make sure a given acquisition is the right thing to do. Caveat emptor, as always, is the order of the day, and that has perhaps never been wiser counsel than in the unprecedented year 2020.
JAMES M. CLARK, DMD has filled many roles in clinical dentistry for more than 30 years. Now the head of Practice Transitions at Benco Dental, he can be reached at jclark@benco.com.
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