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COVID-19 and Dental Practice Sales —One Year Later: What Happened and What Didn’t

A year has passed since the COVID-19 pandemic first impacted Dental Practices here in The Grand Canyon State and nationwide. Businesses and practitioners/owners have grappled with how to incorporate the impact of this pandemic on the timing of buying or selling, valuation expectations, as well as both growth and exit plans/strategies.

(Karl Frye is the Principal Founder and Owner of Frye Practice Sales and Healthcare Real Estate, an Office Transition/Practice/Commercial Real Estate Brokerage Firm in Scottsdale. Karl prior to starting his brokerage in 2015 used to oversee Dental Lending for multiple banking institutions and therefore Frye Practice Sales uses a different, more financial valuation technique with their clients, then most dental brokers who aren’t equipped with a credit trained background.)

When COVID-19 first came to light for most of us was late January to mid-February, 2020. The first cases it seems were reported in January and over the following 45 days some news agencies were on it, some companies were already mentioning the impact it could have, but no one saw that come early March practices would ultimately be shut down or only open for emergency related/deemed procedures. At this time many states were declaring states of emergency, travel was not occurring, and we were all coming to grips with this pandemic which was causing a nationwide and worldwide scare, frenzy at the supermarket, and wondering what’s next and where we go from here.

Also, at this time some dental offices had shut down, specialist offices had been closed, while the offices that were open were only seeing emergency cases per the state, ADA, etc. guidance and guidelines. These requirements caused buyers that were using banks/lenders to have their purchases put on hold in most cases and caused those thinking about selling to take a step back and reassess where they were at on things. It also caused some dentists who were concerned for health reasons to decide and sell sooner than originally planned. This scenario of a seller selling earlier than planned was the most prevalent situation where we saw values take the largest hit. The “hits” typically were a reduction in 10-20% of value for these practices that made the decision during the shutdown, to sell ASAP. Practice sales that were already in process during the shutdown did not see this hit, now some were forced to carry a small piece of the loan for a short amount of time, other than that there was no large scale adjustments to values.

The biggest impact we saw as a company was on the buyer side. Some got scared of what was coming, for some the unknown of not when, but if patients would come back, was too much to navigate. Some had their lenders stop lending for a time period so the deal died on the vine, some thought they smelled blood in the water and pulled out of deals thinking that practices would be selling at steep discounts than usual a few months later, (which most didn’t here in AZ), but for most that stuck through the process and saw it through to fruition, they were pleasantly surprised upon reopening that the patients were ready to come back, and their main concern now wasn’t who to do dentistry on, but staff and PPE concerns. The largest gripe we heard from dentists was that their staff were not coming back due to concern about COVID, or that they were earning pretty much the same by not coming back into work.

As we look back today on the past twelve months as a company and as an industry those that pushed through on transitions are ultimately happy they did. Some of those that didn’t are still looking for practices in what we see as a market with less supply now than there was, so that presents an even greater demand, which is positive for current and future sellers. Many practices have been consolidated by large DSO groups who have a pent up demand and have been charged to place capital so they are attacking the market with a force. Multiples for practices that can command it are up, demand for specialty practices (namely Pedo/Ortho/OS) are a hot commodity to these groups as they expand their business model.

We at Frye Practice Sales believe that while COVID did have an impact on things, it wasn’t the industry destroyer it was made out to be. Practices are back and some are performing at all time highs, a one-time occurrence isn’t enough to derail an industry as strong and imperative to the overall health of the population as dentistry is. Dentists have been using universal precautions for 30+ years and most are not scared away. Like anything there are always going to be outliers, but we expect the AZ Dental Market to continue its strong trends for many years to come. We are excited as our clients enlist us to help them navigate the many exit strategies and options that sellers have, and we are invigorated to help them achieve their goals and work as a fiduciary for them to put them in the best situation as they transition, consolidate, grow, and/ or ultimately retire. We’d love to help you too!

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