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a blog by Chris Barrow

Practice valuations

To answer the concerned emails this afternoon – I’m over yesterday’s encounter with too many Falmouth Bay Oysters (never again) and I’ve been working on practice valuations for 12 hours now. Chris Barrow, the “former” business coach, hunched over an Excel template and with desk covered in P&L’s – experiencing that vertical learning curve at first hand. We have recruited an ambitious young accountant who will be joining the IDH Private team in the very near future as acquisitions manager – and part of his job will be the initial number crunching BUT, for now, I want to be a bit of a control freak and learn the hard way what a dental practice is really worth. Of course, you could say that “it’s worth what somebody else is prepared to pay for it” – and that would undoubtedly be true of the market in recent years. I can recall a time, not so long ago, when the valuation mantra was “35% of gross revenues plus £10,000 a surgery” – remember that? I wish…. Contrast that with the dentist who recently sent me his latest accounts with the covering phrase:

we are looking at a goodwill valuation of 100% along with a transfer or buy out of the leases on the equipment/ fixture and fittings at valuation.

You don’t say? He clearly believes it’s still a seller’s market. What interests me is that the actual valuation of practices in recent years, plus the efforts of sales agents to achieve the maximum value for their clients (who can blame them) and the bragging rights of some erstwhile principals who have sold out and seem to lord it around dental conferences waving their cheques for all to see – all of this has created a kind of hysteria in the market place that I think is a little out of date. Expectations of goodwill valuations are very high but are predicated on the willingness and ability of a purchaser to pay. I’m pleased to say that funding at IDH is secure and in place. We have the willingness and the ability to acquire NHS, private and specialist practices and in IDH Private we have a unique proposition for future income and wealth. The recent news regarding ADP’s withdrawal from acquisitions has sent a ripple of uncertainty into the market – and I’m wondering whether there is more news of liquidity problems to come? I’m busy valuing practices on sound economic principles – on the basis that an accountant would value any business – a calculation of real earnings after the owners have been fairly remunerated. The results are very revealing, not only about the individual practices but also about how accurate or otherwise values have been in recent months. The next three months will, in my view, be interesting to observe and participate in.

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