Buying or Selling a Dental Practice? Here’s What You Need to Know

First in a three-part series on the changing landscape of dental practices.

In Canada, it’s generally a seller’s market for dental practices, primarily in the larger cities in B.C. and Alberta and throughout much of Ontario. Prices have been climbing over the last decade, typically doubling in comparison to a decade ago. This is because there simply is not enough supply in terms of dental practices available for sale, for the number of people who want to buy.

There are a number of reasons behind this, including dentists working longer and retiring later than was typical in the past; more foreign dentists immigrating to Canada, who can write their licensing exams very quickly and then buy a practice; and finally, the emergence of investor dentists, who own multiple practices.

Consolidation More Common

Investor dentists run the gamut from dentists who own two practices, to practice consolidators (typically corporate groups that use external financing, such as a venture capital group or pension funds). Currently, the largest consolidator in Canada is dentalcorp, with more than 200 practices across the country. With the success of dentalcorp and other consolidators, more entrepreneurs are also trying to enter the market.

Owning a dental practice is an attractive alternative to the stock market, or putting money into term deposits. On average, a well-run dental practice can make an approximately 20 per cent profit margin; and banks will lend money to dentists at prime, which is currently below three per cent.

Looking ahead, it’s expected consolidators will continue to drive up prices, making it more challenging for new dentists seeking to open an individual practice. Historically, purchasing a dental practice was 100 per cent financed. Today, it’s more likely someone planning to buy a dental practice will need to put down a deposit. As prices for dental practices continue to climb, profitability due to cost of debt would decrease, thus impacting cash flow. As a result, banks may become more conservative and tighten their lending practices.

Options for Practitioners

First-time buyers may need to consider finding a practice they think they can turn around and improve on, further away from large urban centres. Or, a start-up is always an option, likely outside of a major city centre in an area where there is a higher ratio of patients to dentists.

While the rise of corporate dentistry has meant challenges for the market, there are positives as well. Selling to a consolidator - an option that did not exist in the past - would be a strong option for an owner with a very large practice, or one who wants to ‘cash out now’ but continue as a long-term associate. Another positive is that consolidators may end up as a significant source of employment for newly minted dentists unable to buy a practice of their own.

In general, when preparing to buy or sell a dental practice, it’s a good idea to consider a variety of factors, such as location; an existing lease of a minimum of 10 years and no demolition clause; associate contracts and employment contracts for employees, including a strong non-compete clause for associates and all key staff, such as receptionists and hygienists. When contracts are in place for everyone, it strengthens the value of your dental practice.

In the second article, MNP gets to the root of the consolidation trend, gleaning insights from an investor dentist and a consolidator.

To learn more, contact Gary Marcus, CPA, CA, Partner, Professionals at 416.260.3507, toll-free 1.877.251.2922, or [email protected]

To read MNP’s new blogs on how consolidation and investor dentists are changing the industry, click here.

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