Simon Hughes reflects on the first half of the year.
June is an opportune month to reflect on the first half of the year, reviewing whether predictions made at the beginning have come to pass and how we believe the market will shape up for the remainder of the year.
At the end of 2017, we saw a flurry of merger and acquisition activity and predicted that this would continue into 2018. The ownership landscape amongst the largest operators looks very different to even a couple of years ago. Of the six largest operators, four have either sold outright or taken in significant investment from private equity to fund future growth.
The acquisition of Southern Dental by Jacobs Holding, which owns dental groups across Europe, adds an international dimension to the dental sector and it will be interesting to see how its labour force is managed across the various countries in post-Brexit Britain.
Below the larger companies, there is a plethora of multiple practice owners, many of which are unbranded and therefore, not easy to recognise. They are entrepreneurial, well-funded and rapidly expanding. The net effect of this is that for any principal considering the sale of a quality practice, which is of sufficient scale to operate under an associated-led model, the choice of prospective purchaser has never been better.
A flight to quality
It is not all plain sailing – the challenges that many practice operators face, including recruitment and retention of quality associates, has directly influenced UDA performance and led to significant clawback, particularly in the last two years. This is causing a shift in demand to locations where recruitment is less challenging, which is typically in population centres.
Practices in remote locations where there is a history of contract underperformance are still saleable, but a two-tier market is emerging where buyers are becoming more discerning and diligent in their approach, so accurate pricing is key.
Growth potential is also fundamental for buyers. This may seem obvious, but effective funding cuts in NHS dentistry and rising costs means that the ability to grow private revenue streams and yield per surgery in a mixed practice is more important than ever.
A more sophisticated market
There is no doubt that the market is changing quickly. Whilst most principals are dentists first and business people second, there is a much greater awareness that goodwill commands significant value.
Whilst EBITDA is still an anathema to some, it is the primary driver for dental practice values and differentiates the profitable practices from the less profitable for many, especially banks. Sale processes need to adapt, and the savvier practice owner recognises that there is a direct correlation between the quality of information provided to prospective purchasers and the price achieved.
Christie & Co has 30 offices across the UK and Europe and is the only Royal Institution of Chartered Surveyors accredited firm dealing in dental practice sales. Its dental team provides accurate and insightful advice to independent practice owners, multiple operators and corporates. For a confidential discussion about any aspect of buying, selling or financing a practice, call Simon Hughes on 0207 227 0749.