Practice Valuation, Re-Opening, and Timely Messaging
The debate amongst dental and medical professionals in and around the practice transition market is heating up. Many practices continue to be listed for sale using pre-COVID TTM EBITDA valuations. While there are still some buyers comfortable with that level of investment, the overarching theme seems to be that of a waiting game. We can’t ignore the fact that ramp to pre-COVID collections will take time, in conjunction with a spike in supply costs, due to new PPE regulations; current projections state PPE will cost upwards of $10/patient. This does not bode well for the traditional valuations we have seen in the dental/medical space. Despite Phase One Re-Opening across all states, many Americans remain fearful of entering various businesses and establishments at this time. As a result, rather than a rapid spike in revenue, we expect to see a slow ramp as more folks gain confidence in the systems and protocols in place to ensure maximum safety.
So what can buyers and sellers do to prepare to make an acquisition or exit?
1. Be patient.
The amount of time it takes to ramp after re-opening will likely dictate movement in the market. If collections do not return to pre-COVID figures for six or more months, or worse, if we return to shutdown in the fall, the market may very well be flooded with “firesale” practices. I think most buyers would agree that they are happy to pay a traditional valuation price for a healthy practice. In fact, as someone whom has sat on both sides of the closing table, I would be content paying a premium for a practice that has strong roots and an opportunity for further growth. A market saturated with “failing” offices does nothing good for anyone. Only time will tell as to when and how consumer/patient confidence returns.
2. Keep an eye towards other markets.
For the most part, real estate markets remain strong, though some will argue that the effects of COVID won’t be felt until Q4 2020, when foreclosures begin. While some industries have been virtually destroyed (travel and retail) others are emerging well-positioned (courier services, cloud-based software). Telemedicine has seen a tremendous surge in demand, though this is a bit of a double-edged sword, as office visits have plummeted. No one has a crystal ball, but watching how the world attempts to return to “normalcy” across industries may give an indication as to what our sector will do.
As a practitioner, what can you do now?
Re-Opening must be accompanied by frequent and transparent communication to patients regarding the protocols now in place to ensure both compliance with state regs, as well as to instill confidence that safety measures are in place and offices/practices maintain sterile environments. The more positive interactions between providers and patients, the greater sense of confidence will be instilled in them that it is safe to return for routine visits.
2. Be creative.
As stated above, this will all take time. Re-opening is met with both excitement and fear. Above all else, patients must know that you care. If they truly believe this, they will return. Now is the time to be creative in marketing content. With divorces, foreclosures, evictions, and business closings surely to see peaks in the near future, people need to de-stress. We have all endured an unprecedented time in history. Be lighthearted in your messaging, while maintaining the position that you are serious about safety. We recently came across an incredible company that aims to give your company a “digital intervention.” This is the perfect time to reach out to such a group (check them out at Ceros.com).
None of this is easy. But as leaders of your business/practice and in your community, you must know that you have the ability to craft the future. Safety + creativity + awareness = successful re-opening and happy patients = strong valuations. Be well and please reach out if you would like to discuss any of the topics covered above.