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a blog by Chris Barrow

Are we seeing the first signs of disruption in the practice acquisitions market?

Before I start:

  • Don't shoot the messenger - I'm only commenting on what I'm hearing and seeing;

  • I may be wrong - and if so, I'm happy to be put right by those who know more/better.

So here are my observations:

  • Clients who have agreed their Heads of Terms, are in due diligence, and report that the process seems to have frozen to a halt;

  • Clients who have had offers, only to have those offers withdrawn, with a request for a recalculation of the numbers;

  • Earn out terms are getting tougher - one deal presented to me this week was for a 5-year lock in with a 7% annual uplift in sales to qualify for the payout - would you be prepared to predict 7% annual compound growth in sales over the next five years (that's 40% growth overall), especially when the corporate have dismantled all the internal marketing systems that I helped to build?

  • Clients who have been in negotiation to sell to individual buyers who have developed cold feet and either withdrawn or reduced their original offer.

I'm beginning to think that:

  • in the world of corporate acquisitions, bigger may mean more cumbersome - perhaps some of the mergers and rapid expansions that are taking place are creating a workload challenge?

  • in the world of independent buyers, the increased (and variable) cost of borrowing is putting the fear of God into those less experienced in ownership?

  • that maybe, this is an opportunity for some of the smaller and more agile micro-corporates to step in and secure some good deals?

I'm also thinking that, as the economy darkens, some of those already in corporate ownership may be in for a tough time.

Last night I spoke to an old friend who now works overseas for a dental corporate, acquired by a larger international financial institution.

She was bemoaning the fact that "healthcare" considerations have been overruled by "finance" and that every pip in her organisation is being squeezed by managers with spreadsheets.

I'm the first to agree that no business can run effectively without stringent financial controls but when the focus is on cost-cutting, the atmosphere can get very tense in healthcare.

We live in interesting times.

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