Selling Your Business to a Laboratory Group
Posted Apr 28, 2011 in Management
Are you the owner of a successful laboratory who's not quite ready to retire, but looking to relinquish some of your management responsibilities and put your succession plan into action? If so--and you and your laboratory meet certain criteria--you may be a candidate for selling to a laboratory group.
When you sell to a laboratory group--such as Dental Services Group, Dental Technologies, Inc. and National Dentex Corp.--the typical scenario is that you manage the laboratory and retain your laboratory's name, location and existing personnel. As the owner-turned-manager, you are still responsible for the daily operations, supervising staff and overseeing production. Marketing, financial and other administrative functions are centralized at the groups' corporate offices. "Basically, Dental Technologies now owns my lab, but the changes were mostly behind the scenes," says Gail Birnie, president of Aesthetic Dental Studio in St. Catharines, Ontario, who sold her laboratory in November 2000.
In order to sell to a laboratory group, your laboratory must meet specific parameters. These organizations generally look for stable businesses with a good reputation in the marketplace, a quality product and a solid infrastructure. Your lab must also meet a certain annual sales revenue. In general, a laboratory that is going to be a stand-alone operation must generate a minimum of $1 million a year in sales. A laboratory that's going to be "folded in" or merged with an existing member lab--especially common if two labs are close in proximity--generally takes in about $500,000 in revenues annually. However, successful laboratories with lower revenues but that have strong technicians are also candidates.
If you're not looking to retire immediately, this may be a good option for you: laboratory groups usually require the owner to stay on for a minimum of two years after the sale to ensure local management and a smooth transition. "Actually, we hope the owners stay forever. They're the ones who made the business successful and attractive to us in the first place," says David Brown, president and CEO of National Dentex. He also notes that it would be impossible for the company to run the daily operations of all 33 of its labs from its corporate headquarters outside of Boston.
Some laboratory owners appreciate the transition time because it allows them to position themselves financially for retirement with the money made from the sale and work until they're ready to retire. "I wasn't ready to leave the business, but I was 50 years old and wanted a better, more secure future," says Champ Butler, former president and CEO Butler Dental Laboratory in Charleston, West Virginia. "The laboratory was doing well, but in the long run, I knew joining Tincher Dental--a Dental Services Group laboratory--would offer a much improved benefits package for me and our employees."
Other owners feel that selling to a laboratory group also solidifies the futures of their employees as well as the business itself. "I'm loyal to my employees and feel a responsibility for their futures," says Gary Lemmel, president of National Dentex's Ideal New Mexico Dental Laboratory in Albuquerque. "As a part of National Dentex, my employees have more security and, since everything doesn't hinge on me, the business has a backup."
An enticing package: Though succession planning is a key motivation to sell to a laboratory group, many owners are simply enticed by the wide variety of resources and benefits that the group can offer them. For example:
Buying power. As a larger organization, a laboratory group has more buying power than a smaller, independent business, and can therefore get better prices on products and even offer enhanced healthcare and retirement benefits. An added plus: in a tight labor market, a better benefits package can attract new employees.
Access to new technology and systems. This aspect was especially appealing to Butler, who found that outsourcing his all-ceramic work was becoming a high labor expense. Now, Butler bypasses the expense by working with a member of the same group that already has a system in place.
Assistance with human resources and labor issues. In addition to recruiting technicians and conducting continuing education programs, lab groups provide a network of backup technicians during heavy production periods.
Marketing support. For example, the corporate office can meet with the former owner to discuss marketing programs, then put the plan into action by handling time-consuming tasks such as arranging speakers, advertising, reserving hotels, etc.
The selling process: When selling to a laboratory group, the process begins with both parties trying to determine if they're a good match. "Initially, we get to know the laboratory and its personality," says Darren Lemke, president of Dental Technologies. "We want to be sure the acquisition will be a win for the seller, buyer and employees." This information-seeking stage usually includes interviews with the owner, an evaluation of the laboratory's culture and an attempt to get a feel for the lab's reputation in the industry. The laboratory owner generally meets with the group's executives and gets feedback from current laboratory group members.
Though some owners are inclined to keep the sale of the business confidential until after an offer has been made or the deal is closed, ideally, this is the time to inform key management of your plans and be sure they'll be on board after the sale. "If we can't get a commitment from managers, in addition to owners, it's a deal buster," says Bob Ditta, president and COO of Dental Services Group. "We want the owners we approach to be upfront and honest with their staff members."
Once you decide to proceed, as with any sale, the buyer and seller undergo due diligence and negotiations. Since laboratory groups are experienced in the process of buying businesses, some laboratory owners prefer to let them do much of the legal and financial legwork for them. "Because of their experience, they made the process easy for me," says Butler. For example, since Butler's sale involved merging with a nearby Dental Services Group lab, the company even sent in a team of outside consultants to help them through the transition.
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