Although a dental practice is essentially a regular business, there are some unique aspects that come into play, especially in valuation compared to a SMB business.
First, all fees a dentist may charge for treatments are regulated and capped. As a result, a dentist's ability to influence the practice's operating profit is limited. Increasing production revenue by performing more operations at the set rate is an option, but this option has limits due to the scarcity of available staff and the number of treatment chairs available in the practice.
Cost savings is another approach, but this is also difficult to achieve because of various quality guidelines that must be met. In summary, a targeted pricing strategy is not feasible.
Risk factors
The risks and valuedrivers may be specific, such as the quality of the patient base. Are the patients even active? What is the average revenue per patient? What is the insurance density? What is the age distribution?
One of the most important risk factors and therefore value influencers is uncertainty about the effect of the selling dentist-practice owner's departure on the relationship with patients. If the bond between dentist and patient is very strong or if the dentist was a dental specialist, this can lead to patient reconsideration when the dentist leaves the practice.
If negatively impacted, the occupancy rate of treatment chairs can drop rapidly. In this regard, a dental chair can be well compared to an airplane seat: an unoccupied seat results in uncovered costs.
Multliples
Location, and more specifically expected growth in the district, plays a role. The region determines the extent to which succession (dentists, dental hygienists and assistants) can be achieved after acquisition. In general, dental succession can be well realized in and around the university cities Amsterdam, Nijmegen and Groningen. For regions such as South Limburg, Zeeland and Friesland, however, the opposite is true.
In general, a dental practice is highly marketable. Multiples depend heavily on the risks and size of the practice. Larger practices tend to have higher multiples, while higher risks result in lower multiples. After the valuation, the final price can range from 4x to 8x EBITDA. This is then followed by offsetting excess cash and interest-bearing debt to arrive at the share purchase price.
Practices with more than four treatment chairs are almost always sold to chains, which are often owned by private equity. These chains have professional M&A teams. When selling a dental practice, it is essential that the selling dentist engage a specialized adviser.
