How COVID-19 Has Affected Dental Practice Sales
Before COVID-19, the dental industry was strong with steady revenues. Dental practices were not very difficult to sell, and buyers were not hard to find. However, the pandemic has changed that reality in the short term, affecting how dental practices are sold.
The Pandemic Has Brought Tough Times for Dentists
We will be completely honest when we say that the pandemic has not been good for the dental business. People have been staying home due to fear of the pandemic, and business has dropped. Right now, estimates are that dental revenues declined 38% in 2020 and will be down 20% in 2021. However, this is a short-term issue because people will always need dentists.
Nonetheless, COVID-19 has caused some dentists to reevaluate their future in the business. Notwithstanding the fact that business will improve in the very near future, some dentists have made the difficult decision to sell their practices. For now, it is a buyer’s market because of the way that business conditions are. However, some buyers are “fishing” for practice values.
The economics of the dental business have changed during the pandemic. Buyers are looking for value, eager to take advantage of opportunities to buy practices for less than they would have paid before the pandemic. However, some dentists have experienced an urge to get out of the business during a sharp near-term lull when business is artificially depressed. There are many dentists who are at a crossroads after the pandemic caused major disruptions in their business.
Nobody Quite Knows How and When Things Will Return to Normal
One of the major factors that dentists are considering is how the future will look after COVID-19. First, they are wondering when their business might return to normal, if it ever will. Second, they are thinking about how long it will take for their patients to have confidence once again in going to the dentist. This may not happen for years into the future.
Nobody really knows how the pandemic will change people’s psychology going forward. Some forecasts do not have the dental business returning in its entirety until sometime in 2022. For dentists who have been thinking of selling their practices anyway, this could move up their timetable.
For example, some dentists may sell their practices as they near retirement. Knowing that the next couple of years could be leaner than usual, some dentists may move toward an earlier retirement and just try to take their money off the table now.
Cost Uncertainty Could Affect Asking Prices
The pandemic has led to some changes that may become permanent, thereby affecting the economics of dental practices. There may always be fear of the next possible pandemic, and dental practices have had to step up their spending on safety measures that they take to protect patients.
Right now, the ADA estimates that dentists are spending an extra $15-20 for each patient because of COVID-19 safety measures. If any of these costs become permanent, dentists may be forced to permanently raise prices, causing some people to either put off procedures or avoid the dentist entirely.
Even after vaccinations, patients may still demand that these precautions be taken long into the future. However, these are expensive for dentists, and it may even cut the number of patients they are able to see or lead to them needing more dentists to serve the same number of patients.
In any event, there is cost uncertainty about life after the pandemic. This affects what people may be willing to pay for dental practices now. It is forcing some sellers to cut the asking price for their practices. There’s an entire range of outcomes for the post-COVID landscape, and buyers believe that they need to protect themselves from the worst.
The Environment May Reward Steady Practices
Those looking to buy dental practices are looking at how these practices have performed in the past and their future prospects. Even though it has been a depressed time for business, potential buyers will certainly be looking at how the practice performed during the COVID-19 pandemic since they usually pay a percentage of receivables or a multiple of billings as the sale price.
This means that practices that are able to keep going as strong as they can during the pandemic will be rewarded if the dentist chooses to sell. Potential buyers will look at steady billings during the pandemic as a sign of the practice’s strength and may choose to pay a higher multiple of sales for the practice.
Financing the Deal Could Be Tougher
The lack of visibility in the dental field could also hurt potential buyers by making it more difficult for them to get financing to close the deal. Buyers will borrow money from a lending institution to buy a practice. They are usually viewed as a sound credit risk because dental practices have always made money in the past.
However, the uncertainty that we described above could change that calculus, at least for the short term. Banks may want to see how the industry will react to coming changes before they lend for new practice purchases. Without the necessary credit to finance the purchase, those selling may have fewer options to make a deal. However, this lending lull may be temporary as the dental industry would be too profitable for banks to ignore over the long term.
If you are looking to buy or sell a dental practice, you should definitely understand how the landscape has changed due to COVID-19. We help match dental practice buyers and sellers, giving our insight every step of the way. Contact us today to learn more.