Associate buy-in & Corporate offers
This is an interesting and somewhat controversial topic. The scenario typically unfolds in the following manner. A dentist owner nearing retirement starts to think about selling their practice. They ideally want their associate dentist to buy-in for a share of the practice or to purchase it outright. However, the owner is uncertain about the value of their practice. The owner decides to approach several Corporates and receives very favourable offers for their practice. The problem arises when the owner then takes these offers to the associate dentist and anticipates the associate will then match the offers. We see this scenario play itself out across the country numerous times every year.
Firstly, and most importantly, it is essential to understand that most corporate offers come with conditions attached. One of these conditions may include a 3 to 5 year legally binding commitment from the owner to stay-on. Further, other conditions imposed in the offer may include maintaining the profit or EBITDA (earnings before interest, tax, depreciation and amortization) of the practice and a strict claw back clause meaning the corporate can legally take back a portion of the sale price if the targets are not met. This is the reason corporates are able to offer higher prices to owners. These offers are often in the seven figures more than what the owner would achieve from a private sale.
However, it is not appropriate nor is it wise for an associate to be expected to match the corporate offer as the associates offer will usually not come with the corporate conditions attached. Each party is obviously attempting to get the best possible outcome for themselves and this is where conflict arises. To mitigate this conflict, it is essential that associates fully understand the conditions attached with any other offer the owner presents. Further, it is essential that owners do not expect associates to match corporate offers if the offer conditions are not the same.