QUESTION: Where will the transition market be in 2017? Will the buyers or the sellers have the advantage?
TIMOTHY G. GIROUX, DDS
Supply and demand will always be the largest factors in the marketplace.
The year that the largest number of dentists graduated was the year I graduated from dental school-1983. Now we're beginning to see baby boomer graduates from the '70s and early '80s planning for retirement in the near future. This phenomenon will increase the supply side of the equation.
The demand for dental practices by young dentists is less than normal. The gigantic debt of recent graduates puts additional stress on young dentists, which causes this group to be less aggressive when it comes to entering private practice. Many of these dentists may go the corporate route or associate longer than previous graduates.
Demand is also decreased as the male-to-female ratio of dental graduates has gone from about 90% male in 1983 to 50% male in 2016. As more dental graduates prefer reduced hours when starting their families, corporate dentistry can be an attractive environment for those who prefer part-time hours with possible benefits.
Most lenders believe that interest rates will remain around their current historic lows for the next few years. While this bodes well for both buyers and sellers of dental practices, low interest rates are always a positive factor for buyers.
Therefore, the next several years should be a great time for young dentists to buy a dental practice. For dentists who can commit to a full-time schedule, owning their own dental practice is absolutely the best way to retire their school debt in the shortest time possible. Interest rates and the increased supply of dental practices expected to hit the market in 2017 should give those interested buyers a great opportunity.
TOM SNYDER, DMD, MBA
It appears that sellers will have the advantage again in 2017 since practice values will remain high in most areas of the country. The factors that have contributed to high practice values over the last several years have not changed substantially. The annual number of dental graduates still far outpaces the number of dentists retiring each year. Although the number of dentist retirees has been gradually increasing since the Great Recession, their numbers are still significantly less than those of current graduates.
The imbalance from a supply and demand viewpoint will continue to sustain high practice values in many markets. Also contributing to high values are the acquisition activities of corporate dentistry and small group networks. With their access to private equity, these businesses continue to expand and often do so by paying premiums for highly desirable practices. These entities also compete with recent graduates for the limited seller pool, thus making it more difficult for young practitioners to purchase practices in a conventional manner at prices they can afford.
Another key factor is that the retirement age of dentists keeps increasing as more dentists practice longer, even if just on a part-time basis. There has also been an increase in the number of partnerships being formed, as older doctors want to lock in a good candidate now and continue to practice as a partner for several years and eventually sell their remaining interest to that candidate.
There is, however, one ray of hope for frustrated buyers-purchasing a practice in a rural area or small town. Because of the lack of demand for these areas, there are exceptional practices available that are state-of-the-art, have all the necessary technology, and often come with high profit margins. These practices can be purchased for considerably less than those in urban areas. Rural and small practices are typically located in areas with a lower cost of living, so purchasers can practice and live quite well. Young doctors who buy rural practices may be able retire their education debt sooner and accumulate wealth faster than their classmates who choose an urban setting.
However, there will come a time when corporate growth will slow down and more doctors will be retiring than those graduating. At that point, the pendulum will begin to swing and purchasers will eventually have the advantage.
TIMOTHY G. GIROUX, DDS, graduated from Creighton University in 1983. He established a highly successful dental practice in Scottsdale, Arizona, where he and his wife, Mona Chang, DDS, practiced. Dr. Giroux, a member of ADS, is now the owner/broker of Western Practice Sales, a dental practice brokerage firm in the western United States. Contact Dr. Giroux at (800) 641-4179, (888) 419-5590, ext. 530, or [email protected]
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].