Are Off-Market or Publicly Listed Practice Sales Better?

Are Off-Market or Publicly Listed Practice Sales Better?
Practitioners often ask me, ‘what’s the market like for practice sales at the moment’? My recurring response is generally along the lines ‘I would be a very happy woman if I had a practice to sell for everyone who wanted to buy one’. In essence, it still remains very much a vendor’s market with far more practices seeking acquisitions than those publicly for sale in the open marketplace. Subsequently this is having a corresponding impact upon price. However, we know that not all practices go to the open market or utilise a practice broker to secure the sale of their practice.

Therefore, for those practitioners contemplating a sale in the coming months, which no doubt some will be evaluating, I thought it may be helpful to explain the broad options as well as consider their pros and cons.

So, broadly the options are this:

1. Off market sale – where the vendor or purchaser becomes aware that another colleague is considering a transaction, perhaps introduced by a mutual contact. For example, Bob up the road may become aware that George down the road is thinking of getting out of his practice and makes contact to discuss the opportunity further. Perhaps this may be through an introduction from Tom who is a mutual friend of both. For the introducing party, be careful if you try to charge a fee for this introduction because you could be in breach of State business sale laws and may actually cruel the deal for the vendor!

2. On market sale – this is where the practitioner selling the practice does take it to market, endeavouring to market, promote, manage and complete the transaction through their own efforts.

3. Lists the practice for sale through a broker – in my opinion, this is probably the less common option utilised by firms.

Now naturally there are some minor variations within these options, but it covers the bulk of the general transactions.

“What are the perceived pros and cons to each option?” These are by no means intended to be all encompassing.

In terms of the first option, the benefits may include little to no external expense except perhaps advertising cost, although these costs can be significant depending on the approaches utilised. Plus the pending transaction remains confidential and out of market correspondence (hopefully, presuming the purchaser and referring party keep quiet).

In terms of the potential disadvantages, unless the vendor is familiar with selling a practice, they may lack significant knowledge about the process, market trends and common market practice. This has the significant potential to impact upon the final deal, generally to the seller’s detriment. In addition, the vendor may not obtain the best deal possible due to the limited interest in the opportunity. While you may think this type of transaction also results in a quicker outcome, our experience suggests this is far from true. Therefore, in short, this option is perhaps cost effective and hassle free but maybe without the best reward.

The second option is essentially where the vendor performs all of the tasks that would ‘typically’ be performed by a broker. I say ‘typically’ because some brokers are involved in the process to a lesser extent than others, so this is always a good point to check. That said, the vendor becomes the chief appraiser, price setter, marketer, enquiry recipient, qualifier, negotiator and closer. The benefit, you won’t have to pay agent’s fees. However, you will have to determine how you propose to get the message out there and market the practice. This option adds complexity, time and hassle with medium cost but perhaps a better outcome.

The final option enables the vendor to pass over responsibility for the majority of the transaction process (hopefully). As mentioned, just confirm exactly what the broker will do on your behalf and what your involvement will be in the overall process and then hold them to this.

Please understand, not all brokers are the same and just as there are good accountants, there are better brokers. Not all brokers remind you of the sleazy real estate agent or car salesman. So researching a broker is essential! The obvious downside to using a broker is cost.

Most agents will charge an upfront or engagement fee, some will charge for advertising and the like, but all will charge commission upon a successful sale. You must be very clear just what the broker charges are, and under what circumstances they fall due. Depending on the size of your practice, the fee may be $20K, $30K, $50K or more. However, if the broker is worthy of their credentials they would be expected to also achieve a better outcome for you. Remember, successfully selling a practice is more than just popping an ad on a website.

So, in short, this option offers less time and hassle on your part, applies greater skill and knowledge, with most likely a better result, but at a cost.

It’s all about weighing up the benefits versus the cost.

Some tips irrespective of which option you choose:

Before starting, make sure you are dedicated to a transaction. There is no point proceeding if you don’t really have the intention to sell.
​Always ensure the purchaser or any other party to the deal has signed a confidentiality agreement prior to providing any information. If you are using a broker, hopefully they will take care of this for you. If you are going it alone, such agreements should be available through your solicitor.
Make sure you have your key practice data ready to go. We sell templates to assist with this where needed.
Engage a solicitor who has had significant practical experience in drafting sale agreements for professional practices. Just because they are a solicitor doesn’t mean they necessarily appreciate every thing that should be included in such agreements to your benefit. This can make or break a deal.
If you wish to engage a practice broker, work with some who is licensed in your State and specialises in these types of sales. To me this is indicative of their professionalism which will also probably result in better representation.
So, yes I am a broker and therefore have a conflict, however more often than not I believe I can achieve a better outcome for a vendor than would be achieved via an off market sale.

Finally, whether utilising the services of a broker or working towards a transaction under your own steam, we wish you the very best in obtaining a successful transaction. Please remember, we offer full brokerage services as well as one-off or periodic advice for those going it alone and would be keen to help you achieve a great outcome.

If you have an offer on the table but want to know if you can achieve something better, just call for an obligation fee discussion.

Simply contact us on (02) 9233 4333 with any and all practice sales enquiries.