Question:
I did a start-up practice five years ago, and I want to grow by absorbing practices in my area. What are the first steps to finding these opportunities?
Tom Snyder, DMD, MBA
When considering absorbing another practice, what are your goals? Do you plan to employ the seller and/or key staff for a defined timeframe, or are you only interested in purchasing a patient list? Another important consideration is protecting your identity so that the dental community is not aware of your acquisition plans.
If maintaining your anonymity is important, there are several options you can consider. First, if you have a trusted relationship with your dental supply representative, ask confidentially if the person knows any doctors in your area who are considering retirement in the near future. This situation fits a strategy for your acquiring the seller's patient list. However, if your plan is to employ the selling doctor and/or staff, you can ask your rep to identify any doctors who are reluctant to renew their leases for an extended period of time, since they are considering retirement in a few years.
Another option for consideration is to retain a transition consultant to conduct a marketing campaign to implement your acquisition plan. This person can conduct a direct-mail campaign using a well-written solicitation letter that targets dentists who want to sell their patient lists or relocate and practice at the purchaser's location for a short time. This letter is normally written under the consultant's name to protect your identity. This prevents an embarrassing situation whereby a potential candidate might be an unsuitable choice for you; therefore no one is offended!
Finally, if you prefer to recruit a practice on your own, place an ad in your local or state dental society bulletin or on one of their websites announcing your intentions. If you prefer to remain anonymous, use a PO Box for initial contact. Finally, once a candidate has been identified, you will need to determine a fair value for the patient records and negotiate any potential post sale employment. Since more dentists are practicing in their later years, many are doing so on reduced clinical schedules, thus making their practices less marketable for a traditional sale. The result is an increase in practices becoming available for an absorption strategy.
EDWARD R. ESPOSITO, MBA, CVA
Growth by acquisition, such as buying a small practice and merging it with yours, can be a sound strategy to increase your patient base. However, one must be careful to identify the right practice, analyze all the economics soundly, and execute the integration properly. There can be a lot of pitfalls to this strategy that require an experienced transition consultant to help negotiate.
Identify-Candidates for acquisition should be small enough so the acquiring dentist can comfortably accommodate the patients, but the buying dentist should avoid practices with "highly valued" facilities or new equipment that isn't needed. Patients are the real value here. The practice should be no more than approximately five miles away in a metro area, and the buying dentist should avoid psychological barriers to patient navigation to the practice, such as bridges, railways, major highways, etc. The less stressful it is for patients to migrate to another location, the better!
Analyze the economics-The only overhead the purchaser will incur are the variable expenses. Since fixed expenses are covered by the purchasing practice, overhead should increase only as related to the increase in production expenses. Fixed expenses such as rent, insurance, accounting, telephone, utility, dues, and more will remain the same. Variable expenses such as lab, supplies, repairs, and possibly staff may increase commensurately. Depending on the size of the practice acquired, an assistant or part-time hygienist may be needed to accommodate extra patient flow. A dentist who has been practicing for only five years who is seeking to purchase an additional location will attract scrutiny from the banking world. Existing practices must support additional locations and be mature (two years of strong tax returns, minimum). Normally, banks prefer easily digestible, small acquisitions and are concerned if one provider is pulled in too many directions, which could lead to neglect of the practice he or she already owns.
Avoid the pitfalls-Buyers must do a chart audit to determine where patients call home. Patients far away may not stay if asked to relocate or if another dentist is conveniently located near them. If the new owner does not participate in Preferred Provider Organization (PPO) or capitation plans that the patients subscribe to, the patients often will not migrate. If the selling dentist is staying on board for a while, having the dentists work in each other's location gives patients time to get used to a new face. Patients will likely give the new dentist a chance rather than opt out for a new provider right away.
Tom Snyder, DMD, MBA, is the director of transition services for Henry Schein Professional Practice Transitions. He can be reached at (800) 988-5674 or [email protected]
Edward R. Esposito, MBA, CVA, is a licensed practice broker, certified valuation analyst, past national president of ADS Transitions, and current owner of ADS Precise Consultants. He lectures at the University of Colorado Dental School, as well as at local and state dental associations. Contact him at (303) 759-8425 or [email protected]
