What Practice Buyers Need to Know in the Covid Era

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Covid sent shock waves through dental practice buyers throughout the country. Many private practice buyers slammed the brakes on their purchases in progress until the smoke cleared. DSOs held up their purchases too.  According to George Radigan of North America Dental Partners, as of mid-August 2020, NADP had 84 practices in the queue that they hoped to close before the end of the year, many of which had been delayed in closing due to Covid.

Covid sent shock waves through dental practice buyers throughout the country.

Practice acquisition lenders all responded to Covid but in different ways. While Bank of America Practice Solutions appears to be back on track at the time of this writing in September 2020, BOA-PS initially paused from funding acquisition loans that they would have ordinarily funded.  National lenders like Wells Fargo and Lendeavor cautiously continued lending albeit with new criteria.  Bill Murray of Lendeavor said that his company slightly raised the liquidity retirements of borrowers. 

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Regional lender Huntington continued lending throughout the Covid period.  However, according to a representative of another regional lender, their company stopped funding loans to buyers purchasing practices that received PPP money.  In this writer’s opinion, this response was an overreaction to Covid since the PPP loan is between the seller and the SBA and has absolutely nothing to do with the buyer for 99.9% of all practice sales.

Buyers and their advisors need to review monthly reports of what selling practices have been doing since the re-opening of offices after the shutdown.  Each month’s P & L reports should be compared to similar months in previous years.  According to Roger Hill of McGill and Hill, as written in the August 24, 2020 issue of Dental Economics, “many banks are adopting a hybrid approach, closing and funding a majority of the sales price once monthly production levels reach 75% to 80% of pre-COVID levels.”

Many leaders in the dental industry look at Covid as a one-time aberration and will not include Covid impacted months in their analysis for evaluation purposes nor for cash flow analysis for loans.  Buyers might find a few fire sales but it is unlikely. Evaluations and sale prices for many practices will be similar to what they were pre-Covid.

 

Be looking for Bob Brooks’ article in the October issue of Dentaltown

The Future of PPP.
How could practice sales be affected by sellers who received paycheck protection loans?


Kaylan Thompson