Vet Corporate Confidential

In May 2000, a relatively unknown chef called Anthony Bourdain decided that he was going to change careers and not run kitchens in New York City anymore. As a final goodbye to his previous career, he wrote a book revealing some things that he felt restaurant patrons should know. The book was called “Kitchen Confidential”; it would become a worldwide best seller and launch his second career as a famous food and travel journalist.

Having recently said goodbye to almost a decade working in acquisitions for one of the larger dental corporates in Australia, I am at a similar juncture in my career, and there are some things that I think practice vendors should know about corporate acquisition.

Over my eight years, I would have spoken to and visited close to a thousand practices wanting to sell, and had my hand in the actual purchase of close to a hundred. Being involved with that many practices and transactions, I saw many put their best foot forward in terms of presentation and negotiation, and get the best possible offer that we could have given them… Unfortunately, I also saw many practices that could have done better for themselves, if only they had known what to look for and how best to deal with us.

Now that I have left the world of corporate acquisitions and jumped over to selling practices, I can share with you my top 5 secrets about how corporate acquisition works and how vendors can get a better result for themselves.

1. Competition gets better results

If you’re thinking about selling your practice and you find a corporate interested in buying it (or they find you) … get another opinion. Vendors who only spoke to the corporate I worked for, who didn’t speak to other buyers, were less knowledgeable about what they could ask for and had less leverage in negotiations than those who did.

2. Don’t just listen and talk to the loudest voice in the room

Corporates change over time. Aggregators come into and exit the marketplace.

Vets may know the larger aggregators; they are lucky in that they are high profile and spend a significant amount of money getting their name out there. However, there are some aggregators that the general public don’t know about because they are newer, more localised to a specific area and/or don’t spend the same on advertising. These other corporates put great deals forward and can compete with any of the bigger corporates on price and terms. Many vendors let themselves down by only talking to “the usual suspects” or “the loudest voice in the room” in aggregation, rather than finding the less known, but better-fit, suitor. Seek out the best possible suitor, not just the one with the biggest profile.

3. Most vets don’t know what Corporates want or offer

If you know what your best potential buyer is looking for, and what they are willing to pay, you can ensure that you take steps to make yourself more attractive and can present yourself in the best possible way.

There are a lot of preconceived ideas about what corporates are looking for and what they will pay for a practice. Many have heard half stories from friends or colleagues and think they know what a corporate will pay for a practice when, in reality, there has never been a one-size-fits-all offer from all corporates at all times:

• An offer from one corporate will look very different to an offer from another.
• Each corporate would give a better price and terms for practices they found more attractive or strategically important.
• What each corporate finds attractive or strategically important has changed and evolved over time. Different corporates have placed different strategic importance on different locations over the years.
• What corporates consider too risky changes over time as well. For example, the appetite for specialised practices and key-man dependence (% of practice turnover coming from the vendor) changed significantly in the time that I was involved in buying.

Knowledge of the corporates, their appetites for acquisition and what is important to them can help you position your practice. Do some investigation or talk to the team at Practice Sale Search and find out what they are looking for and what they can offer. Don’t lump them all into the same basket and assume that they are all looking for the same thing and will pay the same amount. This assumption could mean that you miss out on getting a better offer.

4. It is not as hard as you think for an owner-operator buyer to compete with a corporate

Many vendors think that it’s impossible for an owner-operator to compete with a corporate for good practices, because the corporates have deeper pockets and can afford to pay more. Often, vendors don’t seek out owner-operator buyers and just stick to seeking interest from corporates, which is how the corporates like it. In reality, owner operator-buyers can absolutely compete with corporates for some practices:

a. They can compete on terms

Corporates generally don’t buy practices that allow vendors to exit inside a 2-year time frame or pay 100% upfront or without future targets. What is the opportunity cost to the vendors of the time and stress that come along with these terms? Some vendors will accept less money to get fewer post-sale terms.

b. You can compete on compatibility

Many vendors prefer the idea of selling to a person, rather than a company. They prefer knowing the ethics and clinical ability of the clinician who will take over from them when they leave. If they are going to stay in the practice, they like the idea of having an owner onsite who they can talk to about clients, staff and problems, rather than needing to call a “head office” in another state.

5. Understand your targets

If you are thinking about selling to a corporate, like the price they are giving you, but don’t COMPLETELY understand how they calculated your post-sale profit target, STOP! Make sure you get clarity before proceeding.

Don’t let a big, shiny headline purchase price woo you into signing on to an offer that has a post-sale target calculated in a way that you don’t understand.

You will need to be able to reach this target to get the full sale price that they are offering. You need to understand not just how they calculated it, but also, as importantly, feel confident that you will be able to replicate it!

In my experience, missing targets due to a vendor’s poor understanding of them is way too common, and the #1 reason for disharmony in practices that have been sold to corporates.

Conclusion

It is not uncommon for a practice owner to feel overwhelmed or unprepared when negotiating the sale of their practice with a corporate.  After all, it isn’t a level playing field with you on one side (often selling a business for the first time) negotiating against someone who has done this a hundred times before. How do you ensure that you don’t short change yourself in the biggest deal of your life? If only you had someone on your side who had also done the transaction a hundred times before and knew the moving parts as well as the corporates did…