Buying in to Consolidation - Insights from Investors

Second in a three-part series on the changing landscape of dental practices.

Dentist Jay Fogerty sees plenty of opportunities for purchasing dental practices in Canada.

Fogerty, who practised as a full-time dentist for 20 years before becoming an investor dentist nearly a decade ago, owns and operates a network of eight practices in southern Ontario together with his business partner, Elio Filice, who is also a dentist. Within the next five to seven years they plan to approximately double the number of practices they own, to anywhere from 15 – 20 in total. Their primary focus is outside the city of Toronto.

“There are good practices outside of Toronto if one wants to be an owner-operator,” Fogerty says

They are also looking to buy in the Maritimes, which “doesn’t have the same imbalance between supply and demand as there is in some areas in Ontario.”

For clinic owners in the Greater Toronto Area and Highway 401 corridor, Fogerty thinks this could be a good time to sell. “There could be a little bit of a bubble with practice values,” he notes.

To Buy or To Sell?

Coupled with high prices is financial institutions’ willingness to lend money to dentists. Owner-operator dentists will often find banks are accommodating to dentists; it’s not unusual for dentists to receive 100 per cent financing to purchase a practice.

“On the other hand, when you get a little bit larger, they start to become a little more cautious. They want owners to put some equity into the business. That being said, I still think that financial institutions are quite flexible in their lending requirements to dentists, compared to the rest of the business world.”

However, with high practice values in certain locations, it may not always make sense to buy, he adds.

“For non-financial reasons and personal satisfaction, you might be better off with a good associateship to work in. In a lot of situations, people end up doing as well, if not better, being a long term associate, as opposed to buying an overpriced practice.”

For younger practitioners without strong ties to Toronto, Fogerty thinks it would be worthwhile to consider practising in a smaller centre. “From a professional standpoint, it would be far more rewarding, and it allows for a much better lifestyle. The hours are better; patients are more plentiful; and patient expectations may be a little different, in the sense that in Toronto, many practices are open extended hours, and some, even seven days a week,” he says.

Finally, if a clinic owner plans to sell, and wants to continue practising as a dentist for some time after selling, fit is very important - fit of both personality and of objectives between buyer and seller, Fogerty says. “It’s not just about the numbers and who has the best offer – it’s also who you want to work with.”

Dentalcorp Weighs In

Graham Rosenberg, CEO of dentalcorp, the largest network of dental clinics in Canada, with more than 220 locations across the country, has observed dental practice valuations almost doubling in the last five years, driven by a low interest rate environment and an imbalance in the demand for, and supply of, dental practice. “The number of available practices to purchase has decreased over time as lifestyle and working habits have changed and dentists are retiring later,” he says. “With an influx of new associates and foreign trained dentists in Canada, there is an increase in the demand for practices, without the availability, continuing to drive valuations higher and higher.”

“While it appears to be a good time to sell,” Rosenberg adds, he cautions purchasers about other factors to consider when looking at a practice and its perceived value. “What needs to be contemplated in these valuations is any kind of deterioration in the performance of the practice, tax outcomes, increases in interest rates, the cost of technology, ongoing investment into a practice, both unforeseen and planned, and the rarely appreciated operating complexities.”

In the short to medium term, Rosenberg expects a number of purchasers who bought practices at inflated values to begin experiencing difficulties in satisfying their obligations. These purchasers, whether recent grads, associates and / or investor dentists, will face increasing pressure to justify the unprecedented price paid (and the accompanying debt burden), and will have to make tougher operational choices and may even be forced to revaluate their priorities.

Keep reading: in the third and final article of this series, MNP gets to the root of the matter of buying and selling dental practices, gleaning insights from financial organizations.

For more information on planning your dental practice future, contact Calvin Carpenter, CPA, CA, Vice President, Professional Services, at 780.451.4406 or [email protected]

To read MNP’s new blogs on how consolidation and investor dentists are changing the industry, click here.

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