15 November 2021

Now Available 

My website of information for dentists and veterinarians is now live. Go to grahammiddleton.com. This space will continue to grow in coming weeks, making available an archive of articles I have written over the past several years. 

Understand why most dentists and vets who own their own practices are vastly more financially successful than those who choose to work for corporate owners. Read below.

Interest Rates are House Price Canaries in the Mine

When interest rates rise, home prices fall. Australia has been experiencing the lowest home loan interest rates in the life of most of us and housing prices across major locations have experienced huge increases over the past couple of years despite Covid-19. However, long- term fixed rates offered by all the major banks have increased in the past couple of weeks and the Reserve Bank has cautiously begun moving away from its projection of no increase in the base variable rate before 2024. The US Federal Reserve has begun its tapering of money supply and with unemployment quite low all the pieces are moving toward banks increasing their base home lending rates by about next July or earlier. The bond market has already picked up the trend and with buyers demanding higher yields, assets such as long-term Australian Government Treasury notes have suffered a reduction in their resale prices. 

For houses this means a near certainty of a reduction in prices, probably beginning about July next year, if not before, albeit that all parts of Australia will not experience the reduction at exactly the same time due to differing local conditions. Because interest rates have been so low, home buyers could afford to borrow more, but recently the bank regulator, APRA, has forced banks to apply an increased stress test meaning that loans are becoming harder to get for some. 

Those thinking about major house upgrades need to consider carefully how much they need to borrow and factor in the strong probability of a significant increase in monthly loan payments.

The most exposed part of the housing market will be high rise rental apartments bought off the plan which typically are worth less on completion than the contracted purchase price. At the best of times these represent poor investments compared to personal freestanding homes or professional premises.

Now is not yet the best time for a major home trade up.

Private Equity Vendors of Greencross Highlighting Benefits of Private Practice Ownership! 

The Australian Financial Review of 19 October had a further article on TPG Capital, the private equity owners of Greencross, hawking it around the market trying to find trade buyers in a vastly inflated price range of 4 to 5 billion dollars. Recently several groups have been reported as displaying interest. Morgan Stanley are reported as set to ‘’blast out” confidential documents for what is described as a pets and vets business aimed at securing a huge profit for TPG Capital which bought the business for about $1 Billion. The price suggests that they are dreaming but we can never underestimate the credibility of some large corporate boards. 

I spent over 33 years trawling through the financials of veterinary practices including many large successful groups and even allowing for very low interest rates propelling practice valuations upwards cannot come up with a range of practice performance assumptions that could come close to justifying the asking price for Greencross.

Explosion In The Number Of Canine Pets Likely To Be At Its Zenith 

Covid-19 has led to an explosion in the ownership of pet dogs. As we come out of the pandemic and a host of people go back to work, the take up of pets is likely to slow and the early spends on new pets at the vet is likely to tail off. The attempt to sell for a vast sum is being tried on the market at the very zenith of demand for small animal veterinary services and at the bottom of the interest rate cycle.

The Major Greencross Business Weaknesses 

There is a huge elephant in the room. Small animal veterinary practice in major urban locations is a labor-intensive business in which privately owned and operated practices have a huge natural advantage over corporate practices! Unlike businesses where human beings are replaced by technology including a variety of automation, veterinary practice is conducted by vets and vet nurses personally treating the animals including hospital care as necessary. A corporate cannot program a machine to perform surgery on an animal, nor to prepare it for surgery, or provide appropriate after care.

The Nationwide Veterinary Staffing Problem 

There is a huge nationwide shortage of available full-time vets. At first glance this appears to contradict the increase in the number of veterinary schools over the past quarter of a century. From about 28 years ago, veterinary school enrolments swung from being male-dominated to being heavily female-dominated. This has had the flow on consequence of a large proportion of the vet workforce now insisting on working part time during family friendly hours. In approximate terms, an average female vet may have 40 percent of available clinical hours on a long-term basis as an average male vet! Ideally a privately owned practice with two active veterinary partners working full time augmented by employed veterinary staff, albeit many of them part time, has a huge natural advantage over nearby corporately conducted practices. Since it is impossible for the corporate to replace the need for vets with technology many corporate practices experience staffing difficulties. It is the full-time practice owning vets who are prepared to work hard who win clients from the corporates unlike other industries where large businesses swamp small existing ones. This is the opposite effect to the impact of a new (for example) Bunnings on a range of small hardware, garden suppliers, specialist paint shops etc.

Large corporate veterinary practices face the difficulty of maintaining veterinary staffing and hence veterinary services. I have had examples quoted to me on far too many occasions for the corporate difficulties not to be spread through all major Australian cities.

Privately owned veterinary practices with owners prepared to work hard have a huge natural advantage over competing corporate practices as they create the three-way bonds between animals, their owners, and vets.  

The Owner, Pet and Vet Bond

This bond which is proven to be enormously strong has been repeatedly broken by veterinary corporates who must find new lead vets when former owners depart and within a year or two there are no long-term fulltime vets left in a practice. On many occasions veterinary practices located near to corporately acquired practices have experienced an influx of new clients dissatisfied with the revolving veterinary staffing of the corporate. Under these circumstances the privately owned and conducted practice with its stable senior vet staffing easily wins clients from the corporate.

The Huge Opportunity for Vets Setting up New Practices Near Large Corporately Acquired Practices

Veterinary practices are labor intensive as well as heavily relationship based. Privately owned practices, preferably with two fulltime veterinary partners, have an enormous advantage over the corporate practices. Unlike capital intensive businesses such as the Bunnings hardware chain, which overwhelms small hardware shops, in veterinary practice it is the established privately owned veterinary practices which exhibit a huge natural advantage over corporates. Corporates can do little about it.

Rather than waste their careers working as veterinary employees of corporates capable vets with good interpersonal skills will generally make vastly greater rewards over a career by starting practices. The best locations are as near to large corporate practices as possible. They also build up substantial practice goodwill value.

I know many veterinarians who created significant personal wealth as practice owners which was far beyond what was conceivable as a veterinary employee in a corporate practice.

Financial Success for Dentists

Financial Success for Dentists: Rules for How to Approach Your Dental Career sets out the key strategies which make dentists successful. It is specifically written for those dentists and dental specialists owning their own practices and for those aspiring to own practices. Among the topics included:

·      Understand key practice valuation criteria.

·      Learn how some dentists inadvertently reduce the value of their practice by $500,000

·      Avoid long term errors when purchasing your practice.

There are many accountants, financial advisers, marketing consultants, web site designers and practice advisers who give advice from their particular disciplinary experience, but very few have the wider breadth of experience to define for their clients the key rules to follow to optimize their practice and their long-term financial outcomes. An otherwise competent financial adviser may have little understanding of what makes one practice much more successful than another. Many accountants have detailed knowledge of the taxation rules but cannot identify if a dental client has broached invisible barriers to practice growth or a threat to practice goodwill value. 

I spent 33 years examining dental practice financial outcomes and reviewing the key strategies and decisions which separated successful Australian dental practices and practice owners from the less successful and this led to relevant conclusions and advice to dental practice owners. 

A complete and comprehensive career guide for mature and aspiring dentists.

Based on real life situations and a lifetime of dealing with dental practice ownership outcomes this book is worthy of Text Book status for every dental teaching school.

—Merv Saultry, Founder Dental Innovations Network

To Obtain a Copy: 

·      Go to the Delany Foundation website at http://www.delanyfoundation.org.au

·      Click on the Donations tab and make a donation of minimum $60. This is easiest by Mastercard or Visa.

·      Email financialsuccessfordentists@gmail.com confirming that your donation has been made, as well as your name and mail address

·      A copy of the book will be mailed directly to you

All production costs and mail costs are met by me personally, so all money donated goes to the Delany Foundation which contributes toward the running of schools in Ghana, Kenya and Papua New Guinea. Naturally donations above $60 are welcome.

The donation to obtain this publication will be the most cost-effective practice advice most dentists will ever receive.

Will National Dental Care be Swallowed up by Maven?

Little has been heard of NDC’s plans since its aborted IPO of a couple of years ago. Recent speculation is that it all got too hard, particularly with negative market attitudes to dental floats following the Smiles Inclusive disaster.

One thing it established is that dental corporates don’t break practice performance records. The best performed of the corporates was 1300 Smiles Ltd, which was recently taken over by Maven. The secret of its relative success was its small size and very disciplined approach toward acquiring practices enabling tighter management. There is little chance of Maven achieving profit margins as good out of its much larger portfolio of practices. The previous owner of Maven, New Zealand’s Abano, faced an attack from shareholders because its Australian dental practice acquisitions were no longer being income accretive for the group. The average dental performance of corporate practices listed on the ASX is a long way below the best performed privately owned practices, the financial performances of which, I have examined over a period of 33 years.

Why Privately Owned Dental Practices Outperform Corporate Practices

Dental corporate owned practices are at a significant disadvantage when competing with established privately owned practices which are well presented and whose owners have good chairside communication skills. Since the equipment is similar and dental practices are labor intensive the corporates suffer the disadvantage of far more dental staff turnover. Any slight advantage that they may have in purchasing materials is far outweighed by their natural disadvantage.

Dentists with effective chairside communication and sound clinical skills, who acquire practices, have long careers in them and build up a massive personal following long term which creates substantial additional goodwill value. Many of them own their own premises and achieve good capital growth as well. They cannot achieve the level of income, or the capital growth benefits, as a contractor to a corporate, nor can they share ownership in a multi-chair practice with their spouse.

Key Lesson for Dental Undergraduates

Seek advice from dental tutors about the best privately owned dental practices and seek employment in one rather than working for a corporate. Learn by experience how a good practice operates and have a medium-term objective of owning your own practice. But several years clinical experience and clinical skills development should occur before undertaking practice ownership. Overwhelmingly practice owners are vastly better off over the long term.

General Advice

I sold my interest in a financial services and accounting group on 30 June 2020 and have no intention of starting another financial services business. My website is now available at grahammiddleton.com.

Those who find my newsletters of value to them are asked to consider making a donation to the Delany Foundation, a registered charity which assists schools in Papua New Guinea, Ghana and Kenya. Delany Foundation c/- Holy Cross College, 517 Victoria Road Ryde NSW 2112.

Best wishes to all 

Graham Middleton