Every year, some great practices that we are representing for sale will come to us asking what we know about a new dental aggregator that is marketing itself or approaching dental practices directly.

New aggregators come and go every year in the dental industry, and generally have the same few things in common:

• They will have a glossy executive summary brochure, showing a group of impressive-looking people on the board who have been successful in business in other industries.
• There will be usually one or two (token) representatives on the board with some dental industry experience.
• In their correspondence and conversations with you, they will come across as very ambitious, talking about how fast they will acquire practices, saying that they are already in advanced negotiations with some great practices.
• They will say there will be an advantage to you getting in early and being among the first to come on board. Their offer to you will be for a “limited time only”.

We have almost always already heard of and spoken to new corporates that are looking to acquire dental practices. When our clients ask us our opinion on these new aggregators, we usually ask the following questions:          

1. Will they buy 1 practice or are they wanting to buy 20?

Most dental corporate wannabes have no interest in owning a single practice – they want to own many. So, when they put down an offer on one practice, they will usually have no intention of following through on that offer unless they meet a critical mass.

To sign up to sell to any aggregator, you would receive a Term Sheet/Heads of Agreement that would lock you in to several months of exclusivity (where you reject any buyer that you are currently in discussions with and cannot talk to another would-be buyer), while they do their legal contracts, financials and other due diligence on your practice. This is reasonable, as there is considerable cost involved in corporate due diligence and it would be unfair for them to outlay this cost, only to find that you were not serious about their offer in the first place.

The difference with a new aggregator is that they don’t just use this exclusivity period to do due diligence. They also use it to keep practices like you in a holding pattern while they try to get other practices to buy, in order to reach the threshold they need to make this interesting for them.

You may find that you enter a Term Sheet with a new corporate with honorable intentions, only for the deal not to go ahead because they couldn’t get enough practices on board. By the time you are released from your exclusivity commitment and reach out to the other suitors that you were considering earlier (before you signed with the new aggregator), you could find that they are gone (either because they spent their money elsewhere or because they are annoyed with the manner in which they were dismissed), or that you are in a significantly worse negotiating position. 

If you are considering whether to sign a term sheet with a new dental aggregator, be confident that either: 

1. They will buy one practice at a time OR
2. They will reach the critical mass of committed practices they need in order for them to buy any, OR
3. That you have time up your sleave and aren’t counting on the sale in any real way financially or lifestyle-wise in the near future.

1. If they do buy your practice… what is waiting for you on the other side? 

When you sell a practice to any dental aggregator, it usually comes with post-sale work commitments that you have to make. These commitments are made easier by promises that they will take the burdens of ownership off your shoulders, allowing you to focus on your clinical dentistry post sale. Generally, there will be offers of IT, HR, marketing support, payroll and corporate discounts on consumables. There will be an expert at head office that you can call for help when there is a staffing issue, or to help get you back up and running when equipment breaks.

Selling a practice to an existing dental aggregator means that:

• There is a track record of acquisitions and there will be a back office that is well versed in dental practice ownership issues and how to resolve them.
• There are some referral sources of practices that they have bought, and you should be able to contact those practices’ principal dentists, so that you can make sure that the promises are well founded and that the aggregator is reasonable to deal with.

Selling to an untested, new aggregator gives you no such assurances. They could be (and sometimes are) building the plane while they are flying it.

If you are thinking of selling to a new aggregator, it is very important to get clarity on what will be waiting for you on the other side. Ask them how they will handle the support that they are offering. When are they going to be hiring and building their support team and do they have any thoughts on the composition and experience their team will have? Who will be your point of contact when issues come up post-sale (the person who has been leading the acquisition process is unlikely to be the one you can call for operational or day-to-day support)? Any serious aggregator will have a straight-forward, well thought-out answer for you and will not leave this as an afterthought with vague placating answers. 

Conclusion

The point of this article is not that you should never consider selling your practice to a new aggregator. Some new aggregators will progress to actually buying and owning practices and these aggregators may present a great option to sell. 

However, this still leaves a significant percentage that will not amount to much. If you are entertaining an offer from a new dental corporate, extra caution needs to be shown and additional questions need to be asked (like those suggested above) in order for you to gauge how seriously to take them. An experienced dental broker by your side, who has seen would-be aggregators come and go, should be able to recognise the hallmarks of a group that are substantial or suspicious, and guide you accordingly.

Without guidance, it is very easy to be attracted to something shiny, only to find out that it was a mirage when you reach out to hold it… 

For more articles on “Selling a Practice: Timing your sale and Retirement”. Click here:

• The Tortoise, The Hare and the Sins of Success
• Drive for show, Putt for dough
• Pace Yourself
• Retirement: Is it better to jump out or fade away?
• Just a few more years... What Muhammad Ali can teach us about exit planning!
• Life begins after dental practice ownership! Post-Retirement Planning
• How can you tell when it's time to sell?
• Dental Practice Ownership : The Final Years