THINKING BUSINESS
a blog by Chris Barrow

The CMBO

I’m spotting a new trend in UK dentistry. A Management Buy-Out created as a joint-venture between associates and managers in independent practice. The Clinical & Management Buy Out (CMBO). My first experience of this was some years ago, when a far-sighted dental principal changed his sole tradership to a limited company and then sold 25% each to his practice manager and his lead associate. He enjoyed a partial equity release, they were able to re-mortgage their homes to buy in and all three have since worked together to grow the business. Skin in the game all round. Perhaps in a few more years he will sell the final tranche of shares (and the property) then sail into the sunset. Nowadays, I’m starting to get involved in a few more of these conversations because:

  1. few, if any, corporates are interested in private purchases

  2. the ‘valuation gap’ I have written about before creates a situation where larger private practices are tough to sell to individual purchasers

  3. principals care about their teams and their patients and they don’t want the discontinuity and disruption that a corporate sale can create

So why not offer shares to your best existing players? It makes absolute sense – and it means you can sell at ‘lifestyle valuation’ and not ‘corporate valuation’. I also hear more and more principals telling me that the idea of a phased exit, starting early, is attractive – compared to waiting until a significant age or date and hoping that market conditions are suitable. As MD of the BKH Group, I’m reflecting on what this means to us – perhaps we become a source of mezzanine finance and management services to those CMBO teams. I’m changing my thinking on acquisitions – and want to talk to the buyers and not the sellers.

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