Practice Orbit The 2022 Dental Practice Sale Outlook
The year 2021 will go down in the books as our “rebound” year—the year the dental industry clawed its way back to the new normal after COVID. Most dental practices experienced a robust rebound as patients came back after long absences from treatment. This led to increased collections, full schedules and, oddly, a challenging labor market. We expect 2022 to continue this trend and remain a strong seller’s market for those selling their dental practice. However, several risk factors could derail the trend. These include COVID resurgence, adverse tax changes, the growing labor challenge/shortage and global economic and political shifts.
While we don’t expect another full dental shutdown like we experienced in early 2020, a COVID resurgence may cause patients to push pause on dental treatment. This will differ from 2020 when patients “couldn’t” get treatment to a situation where patients “wouldn’t” get treatment. Should this happen, we expect downturns to follow the weather, viruses historically being more active in the colder months of Q1 and Q4. Dental practices can attempt to insulate themselves from patient cautiousness by promoting safety procedures and protocols, being diligent about staying in contact and even upping penalties for cancelations. On the flip side, dental practices may also experience further staffing strain due to COVID flare ups, whether staff become infected or fear exposure by being chairside all day. Offices should have clear COVID policies and double ensure that staff remain safe and comfortable. Retaining staff in your dental practice will be as important as unlocking the front door in the morning.
On the subject of staffing, office values can be adversely affected by loss of staff and even newness of staff. Dental buyers know that hiring new staff members is extremely challenging in the market with many staff members tempted to move for higher pay and/or locations more proximate to their homes. This is especially true with hygienists whose payrates have seen double digit increases in 2021. These payrates may continue to increase as finding skilled hygienists remains challenging and doctors are reluctant to sit at the hygiene chair themselves. For buyers, considering a practice without a hygienist is almost a nonstarter. Other staff members are equally important. Doctors who are selling to relocate and attempt to take staff members with them will likely experience considerable downward pressure on pricing.
Although staffing will remain a challenge, possibly the greatest risk facing the dental transition market is capital, i.e., banking. While most do not consider a dental office as being global, most would agree that banking is. The recession of 2008 started in the capital markets when large pools of securitized loans (CMBS) could no longer be sold. This caused an immediate banking shutdown, which lasted for months. The world has since cautiously restarted the CMBS engine, but other events can and will affect banking, and banking could be considered the most important reason the sales market is currently so strong. Buyers of dental practices can borrow below 3% right now—historic lows in most of our lifetimes. While we expect this to last for 2022, we are anxious about unrelated events that could cause banks to pump the brakes—events like China’s faltering commercial real estate market or continued lag in the supply chain…among a long list of others. If banks pull back, practice sales will slow considerably, and lending may only be available to A+ credit borrowers. In these cases, we anticipate loan dollars receding from highs near 90% of collections to a more conservative range of 70%-80%.
We continue to encourage dentists considering a sale of their practice in the next 2-3 years to consider a sale sooner. With current market dynamics, many sellers of dental practices are being spoiled by multiple offers from eager buyers looking to leverage historically low lending rates. Plus, increasing collections, which was commonplace in 2021, have further fueled the confidence of buyers and aggressive valuations by banks. However, be on the lookout for events which won’t necessarily seem to directly impact the dental industry. These global ripples can have adverse effects on patients, staff, banks and values. While we still feel confident that we can “hope for the best” in 2022, it is prudent to consider a “plan for the worst” strategy as a cyclical swing could be on the horizon.