No Images? Click here DENTAL NEWSLETTER November 2018 National Dental Care LtdAccording to The Australian’s Bridget Carter 29th October 2018, National Dental Care Ltd was conducting a book build for its Initial Public Offering (IPO) with a price announcement and float imminent with a listing date of 22 November 2018, ie, in a bit over three weeks’ time. NDC has 60 dental practices and is said to be rolling out “sophisticated technology.” Until a dental corporate finds a way for a dental employee to deal with two patients simultaneously the human element will remain its biggest challenge. Collectively the dental corporates appear to have about 10% of the private practice market and it’s been that way for several years due to new practices opening up or existing ones becoming more active. With the current stockmarket whose recent correction has thrown up a number of proven business performers on lower prices the reportedly hopeful PE ratio of 22 seemed fanciful. We were looking forward to seeing a set of pro-forma financials. Does your accountant understand your dental practice? Many dentists practice in isolation with no idea as to how their practice compares with other dentists. Many accountants have only one or two dental clients and give inappropriate guidance. Many accountants unknowingly cost dental clients $1 million or lots more over time through failure to give good advice. If you’re in the dark speak to Graham Middleton. We will analyse your issues and guide you to a Synstrat accountant suitable to your needs. For appointments with Graham, speak to Jenny O’Brien 03 9843 7777. Charges apply. Why Key Dental Employees Don’t rollover to Corporate Demands When private equity buyers examine a substantial business that they want to buy, they take care to determine who the key staff are that they must retain in order to run the business properly and offer them substantial inducements to sign long term contracts. Where a dental corporate determines that there is a key dentist in a practice, their offer to buy is subject to that dentist signing a contract. If the dentist concerned is critical to the deal, but has to give up their rights to take up other practice options, why would they agree to sign on and give up those rights unless they are offered a substantial fee? Sometimes a practice owner has the choice of selling to a long term employed dentist, or to a corporate at a higher price. The corporate offer is conditional on the employed dentist, who also wishes to buy the practice, giving up their right to work elsewhere and start up their own practice, if the practice is sold to somebody else. It then begs the question as to why would any employed dentist in that situation agree to that corporate demand? It is a reason why valuations for dentist to dentist sales are less than sales to corporates where the dental drawcards are required to be contracted to work for the corporate as part of the deal. Smiles Inclusive Ltd - First quarter cash flows It had $2,009,000 cash at the beginning of the September quarter and $353,000 at the end. Net cash flow from operating activities was -$3.857 million – ouch. It covered its deficiency by drawing down on loan facilities. In its statutory statement to the Stock Exchange, Smiles Inclusive’s cash flow suggested that it was burning capital at a fast rate. Its share price has plummeted on thin trades. Any dentist contemplating selling part of their practice to this company are advised to wait until it produces its first full year financial results expected around early October 2019. Selling part of practice to a corporate Remember if selling part of a practice and retaining part, the eventual price you get for the retained element may be captive of the company which is the controlling shareholder, and of that company’s financial position. Synstrat Dental Newsletters and Articles Dentists who belong to chatline forums are welcome to pass on Synstrat news items to their email list – dentists receiving information by secondary means should add their names to Synstrat’s dental email list. To do this visit our website or email cheryl@synstrat.com.au with your request, so you can start receiving information directly. Don’t practice in the dark – Practice performance benchmarking Following the production of dental practice accounts by our team of accountants we benchmark our clients’ performance against the continually updating database of dental practice performance from an Australia wide clientele of dentists. Synstrat services to dentists buying practices The most critical time to get expert advice on dentistry is at the precise point at which you are considering buying a practice, whether you are buying it from your employer or from another dentist, or are engaging with a practice broker. Don’t risk being taken in by incomplete or inaccurate financials or paying a completely unrealistic price. You must be in a position to make an informed decision and if necessary, seek assistance with negotiation. Synstrat has long offered this service to dentists – contact Graham Middleton or David Collins (03) 9843 7777. National Dental Care Update - Performance Sluggish - Postpones float NDC which has around 60 practices has put a late November stockmarket float on hold. Its financial reports for 2017/2018 showed revenue of $90.9 million which was down from $94.1 million a year earlier with a net profit after tax of $2.13 million for the 12 months ending 30th June 2018. That’s a long way short of blowing the roof off. According to the Australian Financial Review 5th November NDC, which is owned by private equity firm Crescent Capital, had been seeking to raise about $40 million in an IPO in a market which was risk averse. Earlier reports of a hopeful PE of 22 were stretching the imagination and the more recent report was that it had been seeking to raise the additional $40 million at nine to ten times forecast EBITDA which in this context can be somewhat different to actual profit. The company reported that no additional practices had been acquired during the year and no new clinics were established. It had bought only one business in 2016/2017. This suggests that the going was getting pretty tough. Its 2017 figures had included a reversal of $5.75 million deferred consideration that was accrued for the potential payment to the vendors of its DB Dental acquisition in 2016. The accounts stated that at June 30th 2017 the earnings required to trigger the payment had not been met and accordingly the liability had been reversed through other income in the 2017 financial year. The acquisition had come about with its 2016 acquisition of DB Dental in Western Australia which included 17 surgeries. This suggests that the value of its acquisition has fallen substantially and it needs to do a lot of remedial work. Corporate dentistry isn’t easy. It’s becoming obvious that the corporatisation of dental practices is running into problems. Synstrat Dental Stories is a 335 page book which is a must read for dentists. It details a series of good and bad practice experiences but names and some details have been changed to preserve identities. It contains valuable insights for practice owners and intending buyers as to what works best and what doesn’t. To obtain a copy of this publication, make a tax deductible donation of at least $30 to the Delany Foundation, a charity which brings hope and opportunity into the lives of young people deprived of education in Australia, Papua New Guinea, Kenya and Ghana. Once you have made your donation, please email confirmation of your donation along with your postal address to cheryl@synstrat.com.au and a copy will be sent to you. Donations can be made by mail to: Delany Foundation PO Box 429 CASULA MALL NSW 2170 Or via direct debit to the Delany Foundation Ancillary Trust, BSB 062 784 CBA account number 4050 5402. Should you have any difficulties, contact Matthew Mahoney on 0419 202 787 or 02 9600 8184. Financial Planning and Life Insurance for Dentists Synstrat is experienced at providing financial plans for dentists. These take into account dental practice profitability and benchmarks, as well as ownership of premises and other family assets and other financial issues. Telephone Graham Middleton, Cameron Darnley or Roger Armitage, each of whom are experienced financial planners, on 03 9843 7777. Cameron can also assist with life insurance. Synstrat Management Pty Ltd holds its own licence. It is not obliged to recommend the products of a particular bank or insurance company. Practice Accounting & Valuation Services Synstrat is the only accounting group in Australia which maintains an active, continuously updating database of dental practice benchmarking performance. This is essential in assessing and advising performance of a practice and in valuing practices. Telephone David Collins or Graham Middleton on 03 9843 7777. Feedback If any dentist has further information on the above events, or wishes to comment on what we have said, please email cheryl@synstrat.com.au Best wishes to all dentists, Graham Middleton and the Synstrat team The Synstrat Group are Australia's most experienced Dental practice business advisers, accountants, practice valuers and licensed financial advisers. The information contained herein is of a general nature and no specific action should be taken without individual advice. Synstrat Management Pty Ltd P. 03 9843 7777 ABN 57 006 295 325 If you are not the intended recipient of this communication please delete and destroy all copies of this message and telephone Synstrat on +61 3 9843 7777 immediately. If you are the intended recipient of this communication you should not copy, disclose or distribute this communication without the authority of Synstrat. 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