Experts say you should be thinking about how you'll retire from the moment you open your doors; at the very least, you should begin formulating your plan 10 to 15 years in advance of your expected retirement date. If you're one of the 48% of laboratory owners who are more than 55 years old and don't yet have a strategy in place, the time to start planning is now.
"You should have been thinking about this yesterday!" says Richard Harrell, CDT, president of Americus-Clearwater, Florida, a Dental Services Group (DSG) laboratory. "You can't stick your head in a hole in the ground and ignore where the industry's headed. Instead, start thinking about where you fit in the new world order."
An exit plan is not just about the day you'll leave the laboratory; it's about setting long-term goals for your business and yourself so the future doesn't sneak up on you. When you manage your business with the end in mind, it gives you a strategic plan and the impetus to operate more effectively along the way.
Exit plans aren't set in stone; they'll evolve as your goals change or as outside factors affect your business, so you need to be flexible and plan for contingencies. There are a number of exit routes you can take--including merging with another laboratory or selling to employees, family members, a partner or competitor--and your choice depends on your goals and personal circumstances as well as market conditions.
In part II of our Mergers and Acquisitions series, (click here for part I) laboratory owners who have been through the buying and selling process offer advice to those of you who may be considering selling your business as a valid exit plan.
Have a plan in place
As lab owners age, they should be looking at their options and, as we have always said, they should plan to do something before they want to ride off into the sunset to be sure the buyer can successfully integrate the lab into its organization. National Dentex expects owners of the labs it acquires to stay on for at least three years, but hopefully--forever. Former owners also need to have management in place to oversee operations when they decide to retire.
--David Brown, president and CEO of National Dentex Corporation, headquartered in Wayland, Massachusetts. The company has acquired 20 labs during Brown's tenure, including large acquisitions such as Green Dental Laboratory, Arkansas, in 2005 and the Keller Group, Missouri and Kentucky, in 2006.
Take advantage of the window of opportunity
Be absolutely convinced that you want to sell and determine the right time to sell. Don't wait too long, or you'll miss that window of opportunity. Give yourself two or three years to continue working at the lab after the sale, and be willing to give it your all, just as you did when you owned it. Be realistic about what your lab is worth. A history of growth and its size, both in revenue and earnings, are important variables behind the value of a lab.
--Robert Ditta, CDT, president, CEO and one of the founders of Dental Services Group (DSG), a consortium of 30 laboratories in the U.S., Mexico and Canada.
Know the motivation
As a buyer or a seller, it is important to know the motivation for a consolidation, because there are different roll-up strategies at play in the market. Some are buying capacity and customers, some are buying technology and brand; others are buying cash flow for purposes of servicing debt. I have been on both the buy and sell sides; without good advisors--professionals such as lawyers and accountants specializing in transactions--the process can be overwhelming. Not all professionals are experienced in deals. Your everyday accountant and lawyer may not be the right advisors in this situation.
--Fred Walke, president, MicroDental Laboratories in Dublin, California, which was most recently acquired by DTI, a portfolio company of HealthpointCapital, LLC. MicroDental was first acquired by a private equity firm, Riverside Partners, in 2001. Since then, it has acquired Sunrise Dental Ceramics, Las Vegas, in 2002 and BecDen Dental Laboratory, Draper, Utah, in 2006.
Successful integration is key to a merger
Successful integration of two labs is directly related to the degree of similarity between the two sets of customers as well as the culture of the labs. In terms of the team members, compare their levels of skill and training. Will they fit into your pay scales? What benefits will they gain or lose? Team member retention is a key to successful integration, so we focused on making it happen. For example, before Twin City Dental Lab moved into our facility, we hosted a team welcome and orientation night for Twin City employees and their spouses and each employee was assigned a Lord's "buddy."
On the customer side, you need to ask yourself: Are the quality and service expectations of each lab's customers similar? Is the pricing structure similar? Customer retention is crucial. In preparation for the acquisition, we spent a lot of time setting expectations and collecting feedback; we've let our customers know that they will be taken care of. It's only been four months since the close, but so far we have retained every customer.
--Don Warden, president of Lord's Dental Studio, Inc., with locations in De Pere and New Berlin, Wisconsin, which acquired Twin City Dental Laboratory in Neenah, Wisconsin, in 2006.
Join a lab you know
I have a couple of very successful friends from different industries who advised me to take a good, hard look at any reasonable offer for my business after I turned 50, especially given that three of my four technicians were over 55 and the sizable capital investment that would be required to significantly increase revenue streams. Having had a positive working relationship with Lord's for 10-plus years, I knew that it approached the lab business and dental customers the same way I did. Our fees were very similar so it seemed a very natural, logical and relatively easy decision to join them.
--Pat Smith, former owner, Twin City Dental Laboratory, Neenah, Wisconsin, which was acquired by Lord's Dental Studio in 2006.