Dental market update – for Buyers and Sellers

Since lockdown commenced over 10 weeks ago we at ProPractices  have been keeping in regular communication with a range of stakeholders in the Dental market to include banks, bank valuers, lawyers, independent practice owners and the larger Dental groups

From a clinical and operational perspective the dominant issues seem to be:

  • PPE availability and costs
  • SOP  – defining, phasing in/ out, AGP’s
  • Staff – furloughing, Associate rates/ status
  • Impact of PPE and SOP on subsequent patient throughput and profitability
  • The return to work process and protocols

Despite the confusion around the aforementioned issues, somewhat surprisingly the market for dental practices has NOT been materially affected by the C-19 issues as explained below. Financial liquidity is vital for any functioning market and we are assured in our regular communication with the Banks that operate in the Dental market, that they remain very committed to the sector and continue to provide attractive terms relative to other market sectors.

Demand for buying Dental practices

Of the 1,000 or so Dental practices that are sold in England and Wales each year over 80% are sold either to Associates or to independent Dental practice owners looking to grow their market share.

      i.        Associate buyers

Over the last 4-6 weeks, we at ProPractices have seen a surge in enquiries from Associates in Wales and West looking to acquire practices, for the following reasons:

  • Uncertainty around Associate UDA allocations and rates post Covid
  • Nervousness around private dentistry in terms of Associate income share given likely slower throughput of patients
  • Some initial ‘noises’ within the industry around Associates having employed  status vis a vis self employed
  • Associates wishing to take control over own financial destiny

In response to the aforementioned points, Associates are incentivised by the very low cost of capital complemented by the increasing presence of the ‘Bank of Mum and Dad’ to take these first steps on ownership ladder. Inevitably the more entrepreneurial dentists are hoping to pick up ‘value’ opportunities or distressed practices.

    ii.        Expanding independent practices

There is always a steady stream of independent Dental principals who are following a ‘buy and build’ strategy. We are seeing a consistent level of demand from this cohort who want to:

  • Gain a larger market share in their existing geographical market
  • Acquire additional skill sets and dental services,
  • Build critical patient mass
  • Develop bespoke capitation plans
  • Develop economies of  scale and operational efficiencies in terms of practice management, resources, supply chain etc

   iii.        Dental Groups

ProPractices  are in regular of contact with many of the 25 dental groups who account for 15% of the market.

In general, they as a cohort remain committed to growth by acquisition. The exception would be MyDentist who is focussed on integration and operational efficiencies and more recently BUPA who have temporarily withdrawn from acquisitions to focus on integration of the practices they acquired over the last 24 months. Many of the remaining 23 dental groups are private equity backed and have market share and acquisition targets to meet. They are, in the main, committed to their original business plans however, in some cases, a few are ‘pivoting’ in response to Covid 19 and increasing their exposure and focus to NHS practices. On the other hand other groups have sharpened their focus onto the Private Dental sector. In general these groups are focussed on multi sites operations or large practices with minimum of 4 chairs and turnover approaching £1million as well as specialist ‘high end‘ practices – specifically Orthodontic and Implant practices

Market Supply of Dental practices

The process of engaging with practice sellers is a long term process centred on building trust, relationship management and time. At ProPractices  our journey with a practice owner – from the initial discussion through to sale, can take as little as 6 months to a 2-3 years.

Our recent client experiences is as follows:

  • Covid 19 has accelerated the sales process due to operational, clinical and financial reasons and as a consequences sellers wish to expedite the exit strategy
  • No change and wishes to progress the sale process in an orderly fashion

Supply of practices to the market broadly remains the same as usual with around  5% of all practices coming to market annually

Practice valuation, competition and consideration

Valuation is always an emotive subject with Dentists. Although a useful yardstick it can be a bit of a theoretical exercise especially if no buyers are identified or interested!  ProPractices’ primary focus is to ensure that there is the optimal level of competition in place for the sales process.  This will comprise a qualified pool of multiple buyers in order to maximise the practice consideration.

In terms of ‘average’ Mixed and NHS practices, certainly in Wales and West, values  broadly remain the same as pre-Covid levels although there is some nervousness, naturally, regarding private fee components  and the short term impact on cash flow and patient capacity. So the typical mixed practice may have taken a slight softening to their values in the short term and any nervousness is likely, we believe certainly with larger practices, to manifest in slightly larger retentions and deferrals

As regards private Dental practices there is a concern around the implications of Covid 19 on the reduction in patient throughput and increased operating cost related to a more cumbersome SOP, additional cleaning time and the cost of PPE. However, we are hearing of some innovative private and implant dentist looking to maintain productivity and profit levels by looking to optimise the level of patient surgery visits by utilisation of virtual consultations. Typically, these sessions will be used for initial consultative stages of the implant journey, cosmetic dentistry as well as some general dentistry using online care platforms and video-based services such as Zoom, WhatsApp, Facetime etc

As regards large multi-site practices it is certainly felt by leading industry figures that valuations and considerations for these types of operations had become unsustainable over the last few years. The market was due for a market correction and we believe that incredible multiples of 13x will not be seen for the foreseeable future and will return to more acceptable levels of just below 10x.

We at ProPractices hope this is a useful update for the Dental market in Wales – especially potential buyers and sellers.

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