Current State of Transitions Market
So, where are we now? In an article I wrote for the Washington State Academy of General Dentists called The Perfect Transition Storm, I explain that we’re experiencing an anomaly in the practice transition market. I have been working with dentists since 2004 helping them transition into or out of a practice. There have been times when interest rates are good, but there are not many buyers. There have been times when the economy was doing well, but not many sellers selling their practices. But, in the past almost 15 years, I have never seen a time when everything aligned so well. Here’s how this adds up:
- The transition market is still a sellers’ market. There are not many “good” practices on the market. Good practices are producing over $600,000 per year with 65% or less overhead and at least 10 to 20 new patients per month.
- Banks love dentists. The default rate is below .0125% for dental practices. More and more, banks have been seeking to lend to dentists to buy practices. Recent offers from some banks include 1.78% interest rate for the first two years adjusting to 4.9% for 10 years after that. The average rate currently is 5.125% on a 10-year term loan.
- The economy is strong. Many dentists I talk to tell me that they are busy. Patients are employed and either has the funds or have insurance to get theirs and their family’s dentistry done.
- Competition for the good practices is up. We are starting to see corporate practices such as Heartland come into the Northwest and other markets seeking out practices grossing over $800,000 in collections. Small group practices are also out there looking for good practices. We also have solo buyers looking to acquire their first practice.
- Practices values are up due to demand for good practices. A typical practice may sell for 70% to 75% of collections in an average market. We’re now selling practices for 5% to 10% higher, mainly due to demand.
Mesh this all together and you get a formula for a good transition market. There’s high demand for good practices. Interest rates are low. Practice values are above normal ranges. If you are thinking about selling within the next 3 to 5 years, it would be prudent to sit down with your financial advisor, broker, or other advisor to take a look at your situation. Timing can be everything and good markets don’t last forever. We would be happy to buy you a cup of coffee and discuss your situation and help put a plan in place to make sure you are in the best position for when it’s time to transition. Contact us today! 877-866-6053.