Private practice values are rising, in some cases, faster than NHS practices. Simon Hughes explores why.
Something is stirring in the private dental market, part of the sector that for many buyers was considered off limits by many prospective purchasers has suddenly become ‘in vogue’. Why is this and what does it mean to those thinking about buying or selling a private practice in the current market?
To put this in context though, the majority of calls Christie & Co receives from prospective buyers still follow a similar pattern to the following: ‘I’m looking for a four-surgery mixed practice with a GDS contract and good UDA rate with potential to grow private income.’
The reality is that there is still an imbalance between supply and demand for this type of practice. However, when the prospective buyer is asked whether a private practice would be considered as an alternative, the answer is increasingly – ‘yes’.
With continued speculation about NHS contract reforms and zero growth year on year in NHS dentistry (at best), together with serious price inflation over the last few years in the NHS sector, it’s little wonder that buyers are now turning to private dental practices.
What’s driving this interest?
The reality is that GDS contracts are, in general, becoming more difficult to perform. As the recruitment market tightens and quality associates become more challenging to attract and retain, upward pressure is exerted on associate pay scales, which compresses profit margins.
This is further impacted by falling associates’ UDA output, with many now arguing that 6,000 UDAs annually is a reasonable maximum that an NHS associate should deliver.
Clearly if average output reduces then ‘spare’ UDAs need to be attributed to other associates to avoid contract underperformance and clawback.
Conversely, private dentistry is highly profitable. In a strong economy, demand for private dentistry increases and many smaller groups, who have built portfolios of NHS practices, are now focusing on growing private income to balance the risk of the NHS reforms and continue to grow their businesses as costs inevitably increase.
They also know that being able to offer private dentistry will reduce associate attrition as careers can be developed ‘in house’ rather than elsewhere.
The net effect of this is that demand for quality private practices has increased over the last 12 months and with it, prices paid. Recent transactions confirm that prices for private practices have, in some cases, risen at a faster rate than NHS and we see this trend continuing for the immediate future.
Valuing a private practice is much more technical than a typical NHS business and it is vital to take accurate and proper advice from an experienced broker who understands this market.
For more information visit www.christie.com.