Practice Transitions in Today’s Environment

By Tiffany Stewart, President of BridgeWay Practice Transitions

As dental practices work to get back to some level of normalcy, many people are wondering what the market is like for dental practice sales in the current COVID-19 world we are living in. I’d like to share my thoughts on what we are seeing: who is selling, what buyers are comfortable doing, and what lenders are offering.

I certainly didn’t expect the response we saw from dentists as we began to emerge from the lockdowns. We had many older dentists tell us that closing their practice for weeks gave them a glimpse into retirement. These dentists found that they really enjoyed it and didn’t miss practicing dentistry like they thought they would and were now ready to sell. Others have voiced their frustrations around the extra PPE they have to wear and sanitation measures they have to take. They feel it has made dentistry intolerable and they just want out. Others are scared to go back for fear of contracting COVID-19 themselves. All of these dentists are looking to get out of their practices and are wondering what their options are. To understand their options, we need to look at what buyers feel comfortable doing in this environment, because without buyers, practices don’t sell.

In March and April, we had an unprecedented surge of young dentists contact us because they had been furloughed or laid off, most by DSOs who, with the thinnest margins, were hurt the worst when practices were forced to close their doors. Many of these associates felt like they had no control over their situation and wanted to change that. They contacted us with the desire to own their own practice, therefore owning their own destiny. Although we have more buyers than ever, it doesn’t mean they are rushing to purchase the first practice they see. As we watched several states move backward in their progress against the virus, many buyers are wanting to wait and see what happens over the next several months before making any commitments. Others are still moving forward with their plan to buy now, but are not comfortable taking as much risk as we saw before COVID-19. One of the main reasons for this is that they are taking their lead from the banks.

Many of the banks we rely on to lend money to dentists spent the second quarter of 2020 bogged down with processing PPP loans, deferrals, and other non-lending activities. Most of these banks stopped lending on practice acquisitions entirely throughout most of that time period. In an effort to start lending again, they are now trying to figure out what their new guidelines should be in an unprecedented and unpredictable environment. They have no data on this, nothing to study that could give them some insight into what the risk might be in this situation. But there are some positive signs that they are figuring it out. We are seeing some lending activity, it just looks very different than it did just 6 months ago and each bank seems to have different requirements. So, what can you expect? For the foreseeable future, don’t plan on banks lending more than 80% of revenue to a buyer for a practice. More banks are going to ask that the seller carry a note, therefore sharing some of the risk. And if you are a buyer, you need to make sure you have enough liquidity in order to weather a future storm – plan on 10% of the purchase price. The banks are going to require it.

Practices are selling and values haven’t really changed. If you want out, there are options. If you want to find out how the market for your practice has been impacted, we would be happy to talk you through what we are seeing in your area. Things are changing very quickly, but we are optimistic that things are slowly moving in the right direction again.