The year 2022 has produced a distinct economic landscape. Growing inflation, rising interest rates and a volatile market not only headlined the news, but impacted everyday consumer life.
For some dental professionals, 2022 was an anxiety-driven year that left some second guessing their move forward with a dental transition. Others are acknowledging the circumstances without allowing these factors to stand in the way of their professional and financial goals.
Looking back at this year, our NDP team noticed a few different trends in the dental transition space. Here are the most common themes across the board.
The Path of the Past
After the uncertainty of 2020, 2021 brought prosperity across many dental practices. Now 2022 gives the impression that dental practices are reaching a level of normalcy, perhaps more similar to 2019.
“It looks like we’re back to a more normal year,” NDP Partner Christy Ratcliff said. “We’ve realized that 2021 was a boom, and it wasn’t just business as usual. It looks like that surge flattened a bit throughout 2022, which is what we were expecting.”
Looking at the path of the past, it’s possible any anxiety from 2022 may be amplified by the scars of a not-so-distant past. Whether practice owners are fearful for another year like 2020 or are comparing what seems like an unsatisfactory year to their thriving 2021 metrics, it’s possible these factors could be causing the distress.
Nonetheless, dental professionals need to realize that this may just be the new normal, and those who can adapt while keeping sights on their goals will increase their chances of success.
Buyer Urgency vs. Seller Hesitation
When it comes to buyers and sellers specifically, there appears to be an opposing mindset between the two groups.
Lending is a growing concern for many buyers pursuing a practice opportunity. Given the increases in interest rates, buyers are displaying a sense of urgency and want to move quickly to get their practice locked in before interest rates rise any higher.
On the other side of the equation, market volatility is leading some practice owners to not feel as eager to initiate the transition process. Sellers are showing hesitation and are questioning if the time is right financially.
“If the seller knows it’s the right time, has the appropriate funds and a thorough plan in place,” Christy said, “we’ve seen that most sellers continue to move forward with the transition. Most sellers aren’t willing to give up a firm transition plan simply based on the economy.”
Is Now Still a Good Time to Own a Practice?
For dental professionals who are considering the idea of buying a practice, today’s economic circumstances appear to be a source of significant trepidation, and they’re worried if they should take the leap or hold off on their ownership dreams.
The good news is, now is a great time to own the right practice. Here’s why.
Despite uncertainty across many businesses, the dental industry continues to show its resilience, which has been proven true after the 2008 recession and the 2020 COVID-19 pandemic. These intense historical periods show that while the current economy and interest rates are volatile, the dental industry can prevail through difficult times.
“When there was a true economic downturn in 2008, and we saw hundreds of thousands of people getting laid off and not buying anything, that was an incredibly scary time,” NDP Partner Charles Loretto said. “However, when the stock market dropped 40%, but the collections for dental practices only dropped 7%, that shows that it’s a great profession with a lot less volatility compared to the overall market.”
When it comes to interest rates, Christy assures buyers that the current rates are not absurd and shouldn’t be a reason to hold buyers back.
“Nine or so years ago, people were buying practices at rates similar to where they are now,” Christy said. “The interest rates decreased throughout the years and then increased again. It’s still a low interest rate environment for a smart investment, with smart return. If people back then would have waited to purchase a practice until rates got to the lowest point, they would have missed out on four, six or eight years of cash flow.”
It’s important to remember that owning a practice is both a risk and an opportunity. Dental professionals will always feel nervous when making this decision because it’s a lot of responsibility and a massive investment.
“At the end of the day, you’re investing in a business,” Christy said, “You are taking on the risk of ownership, which is why the opportunity of ownership is so significant. No one can tell you it will not fail, so you have to trust that yourself and the diligence are telling you it’s the right thing to do.”
Corporate dentistry has played a larger role in the last couple of years than it did historically, with more dental service organizations (DSO) and private equity (PE) companies being created every day.
These companies are becoming smarter as they understand what private practices want and don’t want, catering their services and structures to those needs. For instance, some groups are buying practice and aren’t requiring long workback periods. The number of options is certainly growing as these corporate companies understand that practices have always been profitable and will continue to be profitable.
Despite the increase in popularity for DSOs and PE firms, there’s still a need for private buyers. Even with the multitude of available options, sellers have different perspectives and desires of what they want in a practice transition. Sellers may be looking for a specific type of buyer personality, they may want the transition to play out a certain way, or they may have a vision for what they want their legacy to look like after they leave. Because of the specific needs of different sellers, there’s still going to be that market for selling privately.
Ease Your Concerns
The end of the year is always a good time to pause and assess, and there are certainly plenty of positives to take away from this year, despite the current economic landscape and other competing aspects. It’s natural to have concerns about practice ownership or transitioning your practice. Knowledge brings peace of mind. If you have questions regarding your situation and transition goals, reach out to our team at NDP today.