Now Is The Time…
M&A is a largely cyclical business… Deals get brought to the table, and a vast percentage of them end up closing either in Q4, or even the week between Christmas and New Year’s celebrations. Everyone is incentivized to get things done before the change of the calendar! However, what further incentivization may exist as we look at spots that don’t traditionally fall in line with the natural cycle of the market?
Sidenote and shameless plug, I am biased. As a firm that represents clients in this segment of the industry, we get paid to find and justify every ounce of EBITDA within a practice/group, create a competitive market environment and navigate the legal and financial pitfalls of the closing process in an effort to provide the highest enterprise value to the clients we serve. End of commercial.
There is no better time to sell than now. It has been a robust M&A market for many years, however the multiples we are seeing currently, continue to creep higher and higher, dwarfing the unsolicited offers made merely months ago. Acquiring entities are seeking and receiving approvals from their funding sources for higher valuations based upon the market demand and are moving forward to closing with those approvals in place.
A few points on the rationale for these changes…
COVID
As we’ve continued crossing monthly and annual timelines, we further distance ourselves from the worst of the pandemic. P&L’s are beginning to reset and many of the doctors that were looking at a possible sales process have now recovered to the point where that conversation is again applicable. In addition, the relative uneasiness that many acquirers viewed 2020 financials with has subsided and we now fully understand how to view trailing financials for valuation purposes.
Recovery of Specialties
There is no doubt that specialty practices recovered faster than most general dental practices over the 2020/2021 timeline. As such, we saw a glut of specialty practices come to market in 2021. New DSO’s were formed around them. Existing GP platforms began incorporating them into their existing footprint. The demand for those practices was incredibly high and many specialists cashed in on record exits with favorable back-end terms. This feeding frenzy is definitively not satiated, and specialty continues to be an incredibly hot vertical within dental M&A, often selling at a full turn and a half+ higher than many of the unsolicited offers circulating the market.
Demand
Due in large part to the lag in recovery by general dental practices, along with the market pivot towards specialty practices, GP M&A fell down the list of priorities for many acquiring entities in 2021. That trend has absolutely reverted in the last few months. We are seeing more general dental buyers in the space and fewer general dental practices for sale than at any time in the last several years. For nearly every GP practice, there are a line of buyers ready to pay top dollar for appropriately positioned large practices and groups, and there are remarkably few options available for them to pursue. As an organization, we do not see this trend slowing down in the near future and believe there will be an ongoing shortage of general dental practices to satisfy the buyers available.
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Cycle
Private equity driven organizations, which include most of the larger DSO’s in the space and an increasing number of small to mid-size DSO’s in the buying pool, traditionally undergo a recapitalization of funding every 5-7 years. This provides an opportunity for the existing investors to receive the yield they have been seeking while allowing a new pool of investors into the fray. This timeline often has a lead up period prior to the recapitalization that includes a very aggressive growth/acquisition phase for the corresponding DSO and more competitive offers being submitted. There are a significant number of these buying entities that are heading into this phase in their funding cycle and will be coming to the table with increasingly competitive offers.
In Closing
Few options available + an increasing number of competitive buyers + improved financials over 2020/21 = a perfect timeframe to receive maximum enterprise value AND favorable exit parameters. Give us a call. With a reasonably simple analysis we can have an open discussion about how your business would be positioned in the market for sale and what your expectations could be moving through this process. There has never been a better time to throw out your unsolicited offer and truly test what the broader market may offer you!
About TUSK Partners: TUSK Partners (“TUSK”) provides M&A Advisory services in the dental industry. TUSK has completed over $650M of transactions across all specialties. With an in-depth understanding of the marketplace and access to 100’s of buyers nationwide, we help our clients confidently pursue M&A transactions that maximize their long-term value. With our significant collective experience of over 40+ years of dental practice transactions, we offer our clients solutions that help them achieve their strategic and financial objectives. For more information, visit https://tusk-partners.com
About The Author: Josh Swearingen has over 15 years of leadership experience in the dental and healthcare industry, most recently serving as the CEO for Vesper Alliance, a DSO located in Cincinnati and Columbus, OH. Prior to that Josh was Director of Corporate Development for American Dental Partners and quarterbacked several of their largest transactions during his tenure there. Josh received his B.S. from THE Ohio State University.
