As an opener it is worth noting that the valuation of dental practices has evolved to a point where goodwill values are routinely quoted as a multiple of profit and not a percentage of fee income as is the case in the NASDAL survey. At Frank Taylor & Associates (FTA) we still use both measurements as focussing on just one can lead to a flawed valuation. However, most specialist dental valuers, the banks and bank panel valuers all focus on the profit multiple today.
The average NHS goodwill value of 118% is very low compared to the experience of FTA – for the last quarter NHS deals transacted through FTA was 178% (for the sake of consistency quoting values as a percentage of fee income). My hunch here is that the NASDAL survey would include several deals which did not involve a broker (private sales) and these routinely result in the seller getting below the true value.
There is a similar pattern for private practices (FTA quarterly figure 139%) and mixed practices (FTA quarterly figure 149%). Interestingly there is another difference from the NASDAL figures with buyers and lending banks tending to favour practices with an element of regular income (e.g. NHS or plan based income).
On the disparity point – there must be a wider story behind these numbers, as based on my experience, there is something that doesn’t make sense here.
The ‘Corporate Dumping’ piece could well be the start of something bigger. The corporates (of all sizes with the support of private equity) have been growing over the past few years to hit their growth targets. This has led to some acquisitions in areas that have been hard to staff, don’t fit the corporate model or are just uneconomical. There is now a plethora of corporates in the market who could well see their tied in vendors leaving over a 9-12 month period creating a ‘fee income gap’. Depending on the timeline being worked on by the investors this could well impact on the expected exit multiple. Over the years I have worked with several corporates to help re-balance their portfolio and sell the practices that don’t fit a corporate model or don’t sufficiently add to the bottom line.
Any practice owner planning to sell should seek an independent valuation to ensure they are receiving a fair price for their prized asset.