The ultimate waiting game
If you’re interested in buying or selling a dental practice, you’re likely to have come across the phrase ‘deferred consideration’ at some point – but what does it actually mean? Well, deferred consideration is the term used to describe a common process in practice sales and acquisitions whereby a percentage of the purchase price owed by the buyer is retained until after the transaction is complete. The amount is then only released if the performance of the business is maintained to the agreed level, or whatever other metric has been agreed prior to completion has been achieved. Usually, the funds are held in the buyer’s account.
In recent years this has become a popular part of dental practice deals – especially when independent practices sell to corporates – with buyers seeking to mitigate some of the risk by ensuring that the vendor bears some responsibility for the output of the practice post-sale. For the seller, striking a deferred consideration deal can be a means of securing a sale or negotiating the purchase price at a higher overall consideration, in spite of there being a big unknown risk post-completion such as the continuity of an NHS contract. What’s key to remember is that the structure of the deal can be just as, if not more important than the ultimate sale price.