As of late spring 2005, the dental practice market has proven to be the most active I have ever witnessed. Based on the volume of appraisals our company performs, I can usually predict the number of practices that will be put on the market within the next one or two years. Similar predictions have been made before, and some did not come about for various reasons. This time I am going out on a limb again, and barring any unforeseen market forces, such as the events and aftermath of September 11, 2001, I think I am on the right track with these five predictions:
1. The number of baby boomer dentists wanting to sell their dental practices in the next one to five years is growing rapidly. These are the “Freedom 55” dentists who have been planning and preparing for this for almost a generation. While many in today’s more mature dental market (those who are 65 or older) do not understand this generation’s mindset, I can assure you there are hundreds, if not thousands, of dentists in Canada who want to exit ownership soon. The same trend has emerged with medical doctors, but they do not enjoy the luxury of a saleable practice.
2. The number of willing, ready and bank approved buyers is likely to grow in the major centres. Unfortunately, the number of buyers will continue to decline for practices in the outlying, rural and more remote regions in Ontario. The profile of today’s buyers dictates that the large majority will want to practise within a one-hour drive of the Greater Toronto Area and a few other cities such as Ottawa. For the purpose of this prediction, the GTA is considered the area within a 60-minute commute from Yonge St. and Highway 401.
3. Prices for dental practices will peak in one or two years. With the continuing demand in the GTA, prices may increase another five to 10 percent, but the trend is likely to come to a head soon. There comes a point when the sale price does not justify the risks, and dentists may revert to setting up a new practice or continuing to associate while waiting for the market to decline. Although the purchase of an established practice remains the No.1 choice for most young dentists, the short supply of the last five years has forced some into setting up new offices, sometimes against their better judgment.
4. Financial institutions will begin to tighten their credit systems. We have witnessed a low interest rate environment for an extended term and when rates begin to climb – even slightly – banks may begin to withdraw from the market. It is inevitable that a few loans will go into default, some losses will be realized, (mostly new set-ups) and banks will tighten their policies. This is a long-standing trend in the financial industry: enter the market, compete with low rates and fast credit decisions and then, once market share has increased, draw back.
5. More dentists will want to exit ownership immediately, avoiding the many costly and unknown factors of the transition. This will free up more practices for today’s long list of buyers-in-waiting. The associate buy-in models of the past are not as viable due to the dramatic variances in philosophy of the two generations of dentists who contemplate such plans. Most of the baby boomers I speak with are seeking freedom from ownership, without the burden of working with or training their replacements.
As in any predictions, there can be unknowns. All things being equal, I submit that these five are highly probable. What’s your time line? Will you be ready if these predictions materialize?
Ontario Dentist – June 2005