We often have prospective clients come to us and ask if it’s time to sell. We’ve written exhaustively on the subject and do all we can to keep up with trends to ensure we’re keeping both our clients and the broader community as informed as possible. There are some very basic ways to ease into a broader discussion that will likely inform your decision.
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Plan ahead to maximize value
If your goal is to exit your business in the next five years, you need to sell now. For maximum value, every buyer is looking for a five-year postclose employment agreement from the previous owner. That provides a level of risk mitigation for the business and helps the buyer justify higher valuations in a transaction. If three or four years is the max time you’re interested in remaining on, then you’ll see a lower valuation for your business, as the buyer must commit to finding your replacement (not always easy) within a couple of years postclose.
Prepare yourself to be an associate/employee
Selling your life’s work is an emotional process that requires a level of humility, pride, determination, and cooperative drive. Your buyer will likely look at things differently than you, and you need to be able to support any new directives given while positively influencing the team. Being in a position emotionally to handle change is critical, and buyers will pick up on your motivations quickly. The good news is that there are an increasing number of buyers whose management style will impact very little postclose. We can cater your process around these types of buyers, or, if you hope to hand off all responsibility postclose, focus on those that will be able to step in and provide more guidance.
Financial readiness
Ultimately, you’re deciding on a significant phase of your retirement strategy. Understanding what your number is and how well you’ve planned for your exit is a critical component of the transaction. We can provide you with a five- or 10-year cash-flow analysis for offers, a reasonable estimate of rollover equity value, what your exit timeline from the business will look like, and how to plan around a private equity (PE) schedule. However, tying in your personal financial analysis and understanding the net impact of your transaction are equally critical. We regularly work with financial planners throughout the process of the deals we represent, and clients who fully understand their current and future financial plans are far more educated on which deals they’re interested in and whether the market can support their future financial needs.
Goals
Are you looking at an exit strategy from your business? Are you looking to free up time for your family? Do you enjoy the prestige of ownership but would rather not handle some of the more mundane responsibilities? Do you want to monetize your investment but see ongoing growth in your business? Hopefully, you have answers to some of the questions above. If not, understanding your motivations will go a long way toward finding the right buyer for your business. In the transaction process, the valuation is obviously important. However, just as important is the structure of the proposed deal, the DSO’s founding principles, the DSO’s leadership, and the investment thesis of the PE sponsor writing the checks. Understanding who you’re considering partnering with for the next five-plus years is vital and slight fluctuations in any of the above can create significant reverberations across your tenure with the new owners.
The ideal sale
Hopefully this has given you a few things to think about as you contemplate selling your life’s work. The economic drivers in the market have a definitive impact on M&A valuations. All of that is navigable, provided you have a clear idea of where your business is, where you are as a leader, and where you’re hoping to be in the next five years. Take a few minutes to sit down and map out your goals for the transaction economically, personally, and professionally, and we’ll find a buyer that can serve as many of those goals as possible.
Editor's note: This article appeared in the October 2023 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.
