In my situation, things would be a bit different than the typical merger. I am mostly ortho with some general dentistry. I would like to do ortho only and refer the general dentistry to my partner. I get a lot of general work from people coming in for ortho so that would help feed that and the partner would have his general practice that is merging into my higher visibility more modern location.
Aany feedback or suggestions?
I am in the middle of a transition though where the seller has been doing some of what you’re doing and TMJ stuff. So my client, the buyer, who has been associating for 5 years and only does general dentistry is buying the general dentistry portion of the practice. The seller will remain and promise to do ONLY ortho and TMJ while the buyer promises not (and has no interest in) to do ortho and TMJ and they will enter into a space sharing arrangement.
Seller originally wanted my client to purchase a 50% interest into the entire practice I asked the buyer “so what happens if the seller retires or becomes injured, who’s doing the orhto and tmj stuff?” He said “don’t know, never thought about that, I just thought it was time to become a partner”.
Needless to say I talked him out of that real fast, no need to buy what you don’t want and the seller may as well sell what he doesn’t want….win win for both. They each have their own practices, they’ll refer to each other, and seller cashes out on the general dentistry portion of the practice and will see what happens 5 years down the road with his practice. Who knows, by that time my client might gain an interest in that stuff and purchase his practice at that time, OR have the gumption to hire someone to do it and buy it, he’s under no obligation to do either….
So would it be better to sell to him and then associate or work out some type of space sharing deal? How would you handle compensation on the cross referrals if it is just space sharing?
Can’t say it would be better in your case. In my case, the seller is only looking to work another 5, maybe 10 years max at maybe 2 days per week doing only those specialty procedures and the buyer has no interest in those specialty procedures.
I don’t think it is kosher to receive compensation for referrals, maybe that’s a state to state thing. In terms of compensation, what you produce, you keep. In my case buyer has no interest in doing certain procedures so why not refer them to seller? Seller has no interest in doing general dentistry, so why not refer them to buyer? The attorney did include some sort of referral agreement in the legal documents along with language that says as long as these two doctors are sharing space they agree to refer those procedures to each other unless specific treatment planning medical-dental guidelines dictate otherwise and they agree NOT to perform the types of procedures the other does.
How did they value the GP portion?
In terms of value, I chose to carve out the specialty work as though it didn’t exist, so we were left with only the general dentistry revenue and direct expenses. Ran the numbers for the past 3 years and developed what I believe to be a reasonable range of value for the general dentistry portion only.