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a blog by Chris Barrow

In the balance

3D Seesaw balance between reward and risk

I’ve participated in two informal (and unpaid) conversations in the last few weeks during which I have advised dental associates NOT to buy the practices that their Principals are thinking of selling.

Equally, I’ve advised other Principals to take the money and sell as the time is right.

A paradox.

We are at an interesting moment in the history of UK dental practice purchase:

  1. Goodwill valuations at a ridiculously high level

  2. larger corporates still attempting to grab land and fuel their own flip, flog or float ambitions

  3. independent valuers still pushing prices higher

  4. family capital still looking for opportunities to get their “little ones” on the ownership ladder (often without detailed due diligence)

  5. predators still looking for distress sales

  6. Confidence (within the profession) at a low

  7. clinical remuneration on the way down

  8. institutional funding still tough to negotiate

  9. a naivety amongst some associates as to the demands of ownership

  10. fear of the GDC and litigation

  11. the continued challenges of HR and recruitment

  12. the great unknown of NHS dental funding in the post-leadership era of politics

Add to that the hiatus created by the Brexit vote, which has already caused uncertainty in some commercial sectors.

An aside……

One of my sons works in legal recruitment and comments as follows:

A healthy economy means people are making deals (transactional work) rather than suing each other (litigious work). Transactional work in London is mostly cross border. All those deals got pulled overnight re: uncertainty/changes in regulation. Less deals for lawyers to work on means less demand for new lawyers i.e freeze on recruitment. On the litigious side, there’ll be an increase in people suing i.e more demand for insolvency lawyers (banks). Though nobody will invest until Autumn when we have a better picture of how things look. Basically the same effect as a recession.

Another of my sons works in Whitehall and reports on the prospect of spending the next 4 years re-writing European legislation whilst nothing gets done.

The news that Standard Life, Aviva and M&G have closed their property funds to those investors who have been stampeding into cash since Brexit Friday does little to improve commercial market sentiment. The investors’ prognosis is that commercial property is a bad place to invest as retail space is vacated by global firms who see a poor future in Britain.

House prices in my ever-inflationary post code (WA15) are reducing for the first time in decades and the local estate agents are floundering.

Eventually, this sentiment can creep down into every citizen’s willingness to spend or invest.

Our illustrious politicians are about to depart to enjoy their Tuscan villas and complimentary Olympic tickets – Parliament will close in just over 2 weeks and the nation’s political systems will slow.

We discussed over dinner last night the chances of a remarkable political manoeuvre. Corbyn seeks a swift general election on the promise that a vote for Labour is a vote to take us back into Europe (or at least ask for a second referendum) – how do you think that would pan out?

Back to dentistry…..

It remains to be seen whether British patients decide to curtail their expenditure as the rudderless ship known as “The Disunited Kingdom”drifts into a winter of not so much discontent as bewilderment (what just happened?), abandonment (where did everyone go?) and a frisson of millennial denial (surely we will be OK?).

“Cut the gloom and doom CB”.

Ok – I get that – and I’ll be the first in the queue to say that you can rarely stop a motivated individual with a quest and a motive (reference yesterday’s sparkling dental nurse).

I’m also seeing innovation in digital dentistry and in the business of dentistry – still listening to people with great new ideas.

My concern is that I’m starting to see the potential for fools and their money being parted:

  1. the existing private equity investors in dentistry chasing the next big flip when there is little evidence to support their valuations

  2. the new private equity investors in dentistry who want to jump on a perceived bandwagon

  3. the families who invest unwisely, as in one example I saw recently of an investment of £1m into a freehold cold squat that is grossing £2k a month after 6 months due to lack of marketing spend or experience

  4. the desperate vendor who has been in due diligence with a predator for 6 months, only to find themselves “chipped” on the deal at the 11th hour

My excellent accountant Doug Murphy is a constant source of wisdom.

I was recently discussing a new business idea of my own with him (raised eyebrows – another idea) when he calmly reminded me:

Chris – you have to consider The Price as well as The Prize – what are you going to have to do in order to make this idea work – and is it worth it?

Which is why I cannot bring myself to advise wide-eyed associates to fork out 8.5 times earnings for a practice, knowing that they will have to take a pay-cut, double their working hours per week and spend the next 10 years working like dogs to clear their debt.

Not unless they are cursed with the entrepreneur’s DNA.

So it is necessary to tread very carefully unless you have investor’s and/or family money to burn or an extremely high risk profile.

Now is the time for innovators to take advantage of uncertainty and disruption, now is not the time for early or late adopters to take risks.

If you do run your own business, more than in recent years, now is the time to end any tolerations:

  1. team members whose performance or behaviour is below brand standards

  2. suppliers who are not fulfilling promises

  3. patients who don’t value what you do

  4. numbers that don’t add up

  5. clinicians who aren’t on the bus

Perhaps also time to hire experience to guide you through the months ahead and make sure that your assets are deployed to best effect.

I’m going to invest a lot of my consultancy time in the next three months meeting with my clients and preparing their post-Brexit battle plans, part defence, part assault, to make sure they are best placed to take advantage of the coming winter.

There will be prizes – for those who know how to pay the price.

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