Market Trends and Observations

Category: Brokerage, Dental, Economics

The first quarter of 2004 has revealed some interesting new developments in dental practice sales.  For several years, many industry experts have been predicting an increase in practice listings and a subsequent decline in prices.  Dentists often ask me when they will see this change and even more importantly, some of today’s buyers are beginning to ask; “Will this ever happen?”

The sale prices of the practices sold by our company in the first quarter of this year are at the highest levels that I have witnessed during our 30 years of running a business. When compared with sale prices from the past ten years, we are definitely at an all-time market high.  The demand for dental practices, as expressed by the ever-increasing number of new purchasers who enter the market each month, typically results in multiple offers for the most desirable practices.  Accordingly, the sale price of these practices often exceeds the appraised value.

One of the key market factors that influences price is the quantity of serious and immediately available buyers within the marketplace.  Our customary practice is to request that each new purchaser register with us via a confidentiality agreement (in full compliance with PIPEDA legislation).  We ask the purchaser to indicate his or her preferred geographic location. On average, 20 to 25 of these agreements are registered with us each month.  At present, we do not have the inventory to meet this constant volume of new, registered buyers.  Accordingly the backlog of purchasers-in-waiting continues to increase. When all of the currently available opportunities in the market are combined — including broker listings, private sales, associate buy-ins, and partnership offerings — we find that there is still an excess of buyers. Thus we continue to have increased demand, which is outstripping supply by a large margin.  Therefore, prices should remain high for the foreseeable future, and may escalate even higher if the present log-jam does not ease.

Questions brokers ask in order to predict our business volumes now concern the baby boomer dentist group, which is growing daily. When will they sell? Will they ever sell?  I wish that I could unequivocally predict the number of listings to come on the market over the next year.  In conversations with owner dentists, they tell me that they are thinking of selling their practices, yet many individuals fail to proceed, due to financial concerns unrelated to the sale prices of their practices.  In short, most dentists need to work, and dental practice ownership remains the best guaranteed income source for them. If you own a thriving practice, ask yourself if you really need or want to sell.

Another new trend is the tendency of the buyer to request specific locations.  In the past, most said that they would prefer a good practice versus a specific location.  A review of the stated geographic preferences of the newest buyers in our system shows that the area west of the GTA (Mississauga, Oakville and Burlington) is presently the  No. 1 area currently in demand. Therefore, those who own established practices in this region could now realize the highest possible selling prices should they choose to sell.

The trend towards solo practice remains steady, with the large majority of buyers preferring to seek out the one-operator practices versus the group practice model.

Recent sale prices have ranged from a low of $120,000 to a high of $690,000.  Some recent appraised values, for practices not yet listed for sale, even exceed $1 million.

Many practices are now being sold as Professional Corporations, and when we factor in the customary reduction for the lost tax shield, it reveals that prices are actually somewhat higher, on an adjusted basis. Our records indicate that the average selling price in Ontario, for the first quarter of 2004, was $464,000.

I predict that the present pattern of higher selling prices will continue and that a shortage of the most preferred solo practices, in the most desirable locations will continue. For purchasers this is not a favourable situation, but for potential vendors, the timing now is ideal.

Ontario Dentist – June 2004