Around 2005 we had a visit from a family friend we have assisted get into dental school years back and she indicated that she is planning to emigrate. We inquired as to what she was going to do with her dental practice which was then based in Bulawayo and she indicated that she was just walking away. Jokingly then I had then said to her in future if you ever decide to leave the country why not sell the business to us.
Strangely in early February 2007 I got a call from the doctor’s husband stating that they were selling the business as they were leaving the country for Asia, and so they were extending an offer to us. On discussion with my wife and my staff we thought why not go and check it out. Personally I was not convinced that we should purchase this practice since it was about 500km away from our other practice. We asked for the detailed inventory and asking price which was sent through. I thought it was too expensive. I was persuaded to take a team of our staff to check it out. We went down to Bulawayo on a Friday and had put an appointment to view the business the following morning. On arrival the Saturday we were taken through the business. I then asked the staff to comb through the list of items and the patient list to see whether this was viable. The equipment was fairly old but the business had a good patient base. The Practice had been operational since 1972 but was slightly neglected by this time since the seller had been busy working on her emigration.
My staff felt there was scope in purchasing this business and so gave the nod. When we sat to discuss the seller had brought in his accountant to justify their pricing. We flatly told them the price was not justified. I stated that we were interested but would need to go back to Harare and do the numbers before committing to a price. At this stage we were then told that they were actually holding an offer from a corporate and they had delayed responding to this aggressive purchase of medical practices. We therefore had to come up with a price on the spot since they needed to respond to the other offer within two days. That was kind of tight but we then made an offer that discounted their initial price by about 40%. Our offer was accepted – and we later realized that our offer was exactly the same amount that had been offered by the other guys. I this case the thing that tilted the purchase in our favour was the existing relationship. Once we agreed on the purchase price and the terms of paying the full amount by end of the month, we were then unexpectedly informed that we needed to take over the running of the business by the 1st of March 2007.
WE approached our bank for bank financing and were turned down and yet we had only ten days to perform. While pondering how to fund this acquisition, I suddenly remembered that over the year DentalCare Services had invested on the stock exchange and we could partially dispose some investments that would cover the full purchase price. We therefore instructed our stock broker to dispose some equity from our portfolio and settle. He based on our relationship agreed to settle the amounts even before full disposure of our shares.
Since we had a number of clinicians in the Harare office, we worked out a roster in which we took turns to work form the Bulawayo office. Eventually once the practice had stabilized, we handed it over to newly recruited Bulawayo based clinicians. Unfortunately we had inherited the nursing staff. On agreement we had placed them on probation and made sure that their terminal benefits were paid by the sellers, so that we would start afresh. My wife and I agreed to bring in a family member who would ensure that our investment is safeguarded. After probation one of the staff members failed probation and was released. This did not go down well with the senior nurse who then resigned in protest. However both were replaced and the business continued.
The Practice has been running since. It worked well as long as we worked with medical aid societies but at the height of the hyperinflation when people where paying cash, it suffered significantly as the people of Bulawayo are generally price sensitive. This has resulted in the Practice being subsidized by the Harare office. Currently the business is able to fund itself but is not yet profitable. This highlights the fact that we made a hurried decision without appreciating the price –sensitive nature of the market. However by patiently nursing the business it has now started turning around. A learning point is that when one buys a business, they should understand the market and secondly they should be prepared to support the business and nurse it back to health. It is therefore critical to be ready to pour in significant capital and managerial input to restructure the business.
Another powerful plus was that by being investors we managed to acquire the business by disposing shares. The interesting thing was that two weeks after the partial disposal of the shares the share price of the counter we sold rebounded and rose to such an extent that after the disposal of the bundle of shares our net value of the investment in that share was higher than before the purchase. This is one reason I love investing on the stock exchange.
This business has not generated good enough cashflows but definitely has appreciated in value. It was purchased during the Z$ days and now its value in USD has significantly appreciated to such an extent that if it was to be sold there is a great capital appreciation. However since medical aids are coming back to the fold this is expected to begin to generate meaningful cashflows.