THE PRESIDENTIAL ELECTION
The 2024 U.S. Presidential Election may create uncertainty in various industries, but when it comes to dental and medical practice sales, there’s no reason to delay your decision-making process. Waiting on the election could, in fact, leave you behind the competition.
Historically, the outcome of U.S. elections, whether a Democrat or Republican wins, has had only minor effects on the dental and medical practice sales and mergers and acquisitions (M&A) markets. The core value drivers for these practices, such as strong operations, patient demand, and solid financials remain stable regardless of political shifts. Concerns over potential regulatory or tax changes post-election rarely have a substantial microeconomic impact on practice sales.
Current Economic Indicators Favor Sales
Right now is an especially favorable time for transactions. On September 18th, the Federal Reserve cut interest rates by 0.5%, making borrowing more affordable. Lower borrowing costs generally increase buyer activity and can even boost sale prices since buyers have easier access to financing. Additionally, inflation has cooled, with producer price inflation (PPI) at 1.8% and consumer price inflation (CPI) at 2.4%, nearing the Fed’s target of 2%, indicating broader economic stability.
Strategic Timing for Sellers and Buyers
If you’re thinking about selling or buying a practice, the time to act is now. Many are waiting on the election outcome, but this delay creates opportunities for proactive sellers and buyers. By conducting due diligence and preparing for a sale now, you position yourself to hit the market ahead of competitors, many of whom will wait until Q1 of 2025 post-election.
For sellers, preparing now ensures you’re ready to capitalize when the market heats up after the election. Historically, dental and medical practice values have remained resilient through election cycles, and consolidation trends point to ongoing interest from DSOs and Dentist looking to acquire practices.
Presidential Influence on the Economy is Limited Without Congressional Support
While the president is often viewed as having significant economic influence, major economic shifts such as changes to capital gains taxes or regulations that affect practice sales require support from both the House and Senate. Without a substantial majority in both chambers, passing sweeping reforms becomes incredibly difficult.
As of 2024, the Republican Party controls the House, while the Senate remains nearly evenly split. Predictions suggest Republicans have about a 67% chance of winning the Senate, and the House remains a toss-up with a slight edge favoring Republicans. Even if the next president aims for major reforms, bipartisan support would be necessary, making it unlikely that major economic changes such as significant tax reforms would happen immediately, however the Tax Cuts and Jobs Act (TCJA), which we discuss below, is scheduled to expire in January of 2026.
Impact on Practice Sales
In this divided political climate, the chances of drastic legislative changes impacting dental and medical practice values are low. Therefore, waiting for the election out of fear of economic shifts is not a sound strategy. The healthcare practice sales market is resilient, and acting now could give you an edge over those who are hesitant to move before the election.
In conclusion, the market forces currently in play such as lower interest rates and a stable inflation environment make this an ideal time to prepare and position yourself ahead of the competition. Rather than waiting for post-election clarity, both buyers and sellers can capitalize on the current landscape and gain an advantage while others wait on the sidelines.
TAX REFORM
Significant tax changes are on the horizon in 2025 as key provisions from the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire. These changes could impact a wide range of tax categories, potentially increasing tax burdens for individuals, businesses, and investors.
Here are some of the main expected changes:
- Income Tax Rates: The individual income tax rates are scheduled to revert to pre-2017 levels. This change means higher rates for most brackets, with the top rate increasing from 37% back to 39.6% – Kiplinger and RSM US
- Standard Deduction and Personal Exemption: The standard deduction will be significantly reduced, effectively halving its current amount, while the personal exemption—removed under the TCJA—will likely return, affecting overall taxable income calculations. – Tax Policy Center
- Estate Tax Exemption: The current estate tax exemption, set at a historically high level due to the TCJA, is set to drop to roughly half its current value. This change could lead to higher estate taxes for wealthier individuals. – Tax Foundation
- 20% Pass-Through Deduction: The deduction for pass-through businesses, which applies to many dental and medical practices, will expire, potentially raising taxes on small businesses structured as partnerships, S-corporations, or sole proprietorships. – EY US
- State and Local Tax (SALT) Deduction Cap: The TCJA imposed a $10,000 cap on the SALT deduction, but this cap will expire in 2025, potentially allowing for full deduction of these expenses again, depending on legislative decisions. – RSM US
Given these potential changes, taxpayers—including business owners and high-net-worth individuals—are advised to stay informed and consider strategies with tax advisors in preparation for what could be a “tax cliff” in 2025. Whether the expiring TCJA provisions are renewed or adjusted will largely depend on the outcomes of the 2024 election and the balance of power in Congress.
The tax changes associated with the expiration of the Tax Cuts and Jobs Act (TCJA) are set to take effect on January 1, 2026 rather than January 1, 2025. The TCJA provisions were structured to expire at the end of 2025, giving Congress and the administration time to negotiate extensions or adjustments before they revert to pre-2017 levels.
TWO MAJOR DSOs HIT THE MARKET
Impact of DSO Recapitalizations: Potential Downside
A major factor currently shaping the dental market is the rumored recapitalization of two large DSOs. If these deals fail to close or close at valuations lower than expected, it could send negative signals across the market. This might make private equity firms hesitant to enter the space and force other DSOs to be more selective in their acquisitions. Uncertainty in these deals could create a perception of instability, slowing down market activity as DSOs reconsider their acquisition strategies, and potential sellers may face a more cautious buyer pool.
Impact of DSO Recapitalizations: Potential Upside
If the recapitalization deals close at or above expected valuations, it could invigorate the dental M&A market. Strong valuations would indicate investor confidence, which would likely encourage DSOs and private equity groups to pursue acquisitions more aggressively. Lenders like Bank of America, Provide, Live Oak, and Huntington, which provide practice transition loans for dentist-to-dentist transactions, would also likely view this positively, potentially increasing lending activity and fueling further private dental transitions in an already strong and consistent market.
This type of market inside information can be valuable for dentists assessing if now is the right time for them to partner with a DSO or transition their practice to another dentist.
Positioning Ahead of 2025
For practice owners considering a sale, positioning ahead of the potential market shift in Q1 2025 is crucial. By preparing your practice now, whether through due diligence or getting ready to list, you can place yourself ahead of competitors who may wait until after the election. If the market becomes flooded with listings after a successful DSO recapitalization, being one of the first to market will give you a significant advantage and could result in a more favorable sale. Depending who wins the presidency could also affect the taxes you will pay on your transition, and since a transition can take 6-9 months, if you aren’t prepared properly, your transition could close in 2026 under higher tax rates.
– Tommy Newton, Principal at Xite Company
About Xite
Xite Company is a national leader in healthcare real estate and practice sales, boasting an established reputation committed exclusively to representing doctors since 2013. With a transaction volume surpassing $1 billion, our expertise spans across practice sales, start-ups, brokerage, demographics, development, and project management. We are committed to empowering healthcare professionals, helping them flourish as entrepreneurs and practice owners. Leveraging evidence-based data and profound industry knowledge, our dedicated team ensures a seamless journey in all real estate endeavors, from office space selection and complex construction projects to strategic practice transitions, maximizing value every step of the way.
For more information, visit https://xiteco.com