> Acquisitions
Practice Acquisitions Expert guidance and outlook for 2021 : By Maria G. Melone and Craig Castelli
M&A activity in 2020 largely followed other business cycles – a white hot start that came to a screeching halt in late-March followed by a resurgence that varied by sector, geography, and company.
In dentistry, the forced closure of practices gave buyers and lenders no choice but to pause everything, even deals that were weeks away from closing. In the early days of the shutdown, some surveys reported an overwhelming majority of practice owners feeling they would not survive an extended shutdown, leading some to believe practices would come to market in great numbers at bargain values. As practices reopened and returned to pre-pandemic performance levels, M&A activity resumed. While there were some bargains, most deals involved healthy sellers receiving fair, COVID-adjusted prices. By the fourth quarter, despite the surges throughout the country, deals were happening as if there was nothing wrong. We expect 2021 to build on this momentum.
business development departments solely focused on identifying acquisition candidates – they have mastered telling their story and understanding what is attractive to sellers. Many firms also use an outside thirdparty to supplement sourcing of acquisition targets. To compete, emerging groups need to craft their message and develop formal and informal communications focused on recruiting providers, team members, and acquisition candidates.
If you’re in a position to consider acquisitions in 2021, here are some things to consider: Model: Understand your current position and your model. Define the practice size, clinical philosophy, provider type, payor mix, location, and culture that best fits your group. Business Development: Most established groups have internal
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JANUARY/FEBRUARY 2021 • EFFICIENCY IN GROUP PRACTICE
Due Diligence: Once your offer is accepted, you need to perform due diligence to confirm the information on which you based your offer is true and accurate. Basic diligence should include a review of tax returns, bank statements, legal documents, legal entity status, chart audits, and regulatory & compliance issues. Given the shutdown in 2020, it is also important to review monthly figures for at least 2019 and 2020 to provide perspective on current practice trends. Seller Adjustments: Sellers make adjustments to the financial statements presented to prospective buyers and it is important to review these with scrutiny. We see three general categories of these adjustments: 1. Discretionary – Expenses a business owner runs through the business to reduce taxable income that do not relate to the business. A common example is Meals & Entertainment, which most sellers attempt to adjust out of their P&L. A general dentist may expense dinner with their spouse as a business expense, which likely meets the criteria of discretionary; however, an orthodontist who entertains referring doctors cannot honestly expect that expense to go away under new ownership as it would jeopardize future referrals.
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