The 8 Essential Rules When Buying A Practice

 How to Compete and Win Against 75 Other Buyers

DMY has analysed 20 of its recent practice sales to reveal there are an average of 76 interested buyers for every practice for sale in a  metro location. Obviously, this means there are 75 buyers who are missing out every time. Here are our 8 Essential Rules for successfully navigating the buying process and setting yourself up for a successful outcome:

Rule 1: Understand current market values

Educate yourselves on current market values, and key terms such as retention percentages and duration. With metro practices selling for an average of 110 cents in the dollar and a 12 month retention in an open market sale process, there is little point offering less than 100 cents with a two year retention (even if you were fortunate to have secured that through a direct acquisition in the past). It's unlikely you will even get to meet the seller.  Most sellers are not desperate to sell and will be patient to receive a fair reward for what they have built.  Buyers should know where the market sits and if they aren't prepared to meet it, don't waste everyone's time, including their own.

Rule 2: Move quickly

Typically when we list an opportunity, 80% of the interested buyers register during the first week or two. It's not about first in best dressed, but to give yourself a good shot you ideally want to be in that all important first round of Vendor meetings.  Don't sit on the Information Memorandum for weeks then wonder why you are at the back of the queue. Additionally, many sellers pride themselves on their "small-company" feel - entrepreneurial, agile and close to their clients. The perception is that larger multi-partner firms lack this and won't be right for the Vendor's clients. It may not always be the case, but we regularly see larger, mid-tier firms shoot themselves in the foot with slow responses and protracted decision making.

Rule 3: Make first impressions count

 You only get once chance to make a first impression! At that all important first meeting make sure: you are prepared, you've done your research on the seller and their firm; and you are familiar with the Information Memorandum. Be relaxed but professional.

Rule 4: Assess cultural fit early

If the cultural fit isn't strong then it doesn't matter about the commercials and other aspects of the deal. Don't try and force it, it won't work. Our litmus test for cultural fit is always:

1. Can I see us working well with the Vendor?
2. Does the Vendor's team feel like a good fit with our people and culture?
3. Do the Vendor's clients feel like a good fit with our client base?

If the cultural fit does feel strong, then put your best foot forward to secure the deal. This is the one you have been waiting for!

Rule 5: Have a high degree of empathy 

We have seen some terrible examples of buyers showing no regard for the feelings of the seller by highlighting all the things they see wrong about their practice and treating the sale in a wholly transactional manner. For 99% of sellers it is so much more. Buyers should walk in the shoes of the seller (and vice versa) to build trust and show that they are the right party to take over the seller's clients and people.

Rule 6: Follow the process 

Buyers who try and conduct due diligence before they've even met the Vendor are always going to struggle. It screams "hard work" to the Vendor and you're likely to get pushed to the back of the line. Resist the temptation and recognise that if you follow the process there is always plenty of time for due diligence at the right time.

Rule 7: Have you financing in order

We regularly hear frustration from buyers around the speed that banks operate. This is a tricky one, but the onus is on buyers to ensure they have their financing in place for when they need it. We have unfortunately seen one deal fall over even post Contract of Sale because of the buyers' difficulty in obtaining financing. Manage it closely.

Rule 8: Avoid moving the goalposts 

We always encourage our clients, the seller, to execute a non-binding Heads of Agreement covering the key commercial terms. This ensures the seller and buyer are aligned, and saves time and money when it comes to lawyers drafting the binding sale documents. While the Heads of Agreement is non-binding it's never a good look when the buyer tries to change the commercial terms in the Contract of Sale without reason. It damages the trust that has been established and can be a significant red flag to the seller, even resulting in deals falling over at the 11th hour as a result. The introduction of lawyers into the sale process at this point can also increase the risk of this happening and it's important that lawyers on both sides are fully briefed on what has been already agreed and is not up for further negotiation.

In summary, if you are looking to buy practice,  these 8 Essential Rules When Buying A Practice will help you navigate through the process and set yourself up for a successful outcome. Compete hard and be patient. Good luck!

We also encourage buyers to read the accompanying blog: 8 Essential Rules When Selling Your Practice This will really enable you to walk in the seller's shoes. You won't be surprised to see that a number of the Rules are the same. We are firm believers that the best practice sales / purchases are those where there is a genuine win-win between the two parties.

To discuss these findings in more detail and what they mean specifically for your situation, contact DMY’s Directors below:

Mark Emney

Mobile: 0434 079 530
Email: mark@dmyassoc.com.au

Daniel Jones

Mobile: 0401 493 773
Email: Daniel@dmyassoc.com.au