“To sell or not to sell,” is that the question?
During my time at helping to build a lab group via acquisition, these questions were on the minds of many lab owners I spoke with. They may help you decide where you are in the process of selling or not selling.
What is my lab worth? This question is the most frequently asked and one of the most difficult to answer. The best answer is, is it worth what someone is willing to pay? I know this is vague, but many factors go into the valuation of a laboratory. One of them is the normalization of EBITDA, with a multiple applied, when buying a dental lab. There are many ways to value a lab, but the best way is to find out how the buyers are valuing it. This will help you in finding the current value for your lab, and not be disappointed, and save you some money when you find out the valuation methods are not the same. Knowing who’s buying and what valuation method they are using are key to making the right decision.
Am I ready to sell? This is a question only you can answer. We all get frustrated at times, with different aspects of our business. If you feel 100% that you could walk away tomorrow and just golf, travel or let go of some of the day-to-day operations, then you are a good candidate. If you don’t want to feel like you’re alone on an island and see value in a group of labs where you can share ideas and talk with when needed, then again, you may be a good candidate.
What do I need to do to sell? This is a very good question but not asked as often as it should be. There are many things that need to be in order, mainly housekeeping things that need to be ready and up to date that help make a sale easier. Make sure you know what buyers are looking for. Do the buyers have a vision you can align with? Have you discussed a sale with your tax advisor, accountant, and lawyer? Do you know how the deal will work post sale?
How long does it take to sell a lab? This question varies for many reasons. First, do you have a buyer, or do you need to find one? Selling a business is a lot like selling real estate, you need to market your business to find buyers. Once a buyer has been found and your house is in order, then the negotiations take place. A motivated buyer and seller help speed this process along. Remember, the healthier your business is the more attractive it is to buyers. Closing times do vary, depending on the professional team you have in place to close a deal.
Do I have to leave after the sale, or can I stay? This is all part of the negotiations. Most lab-buying-companies like to have the owner stay on for a period of time. Ask this question in the initial discussions.
When should I get my lab ready to sell? In a perfect world, your lab should be ready for sale the day you open it, but this is not the case 99% of the time. You should prepare, at minimum, a full year or longer, depending on your structure and if anything needs to be changed for tax reasons, ahead of marketing your lab for sale. This also allows you to clean up your documents, your A/R and A/P, and review your lease. As well as review your client list and other agreements that will have bearing on the value of your business. Know how the sale of your lab fits in to your overall financial plan.
Fortune favours the prepared, so the more prepared you are for a future sale, the smoother the process will be.
Who should I sell my lab to?
With several players in the acquisition market right now, it’s best to do your research on each of them. Ask them what their long game is?
What are their company’s plans for the future?
Where do they see the market going and how do they plan to be positioned in it?
What is their brand message to the industry?
What are their HR policies?
There are quite a few questions that should be asked… these are just a few. Also, meet and talk with the principals of the company to see if you get a good feeling for them. Your gut feeling will be a guide as you look into the possibility of selling your lab, whether to retire in the next few years or to continue as a part of group. Do as much research as you can. Even if you get approached by one group, contact another group, and see how their message compares. Do your due diligence.
Selling your lab can be beneficial in many ways, from helping to fund your retirement to being part of a team and getting a quality of life back.
Don’t be afraid to speak with companies, but make sure you feel it’s the right move and time to do it.