Paul Graham analyses the market trends to explain the increasing interest in buying into private dentistry.
The private dentistry market is on the move, with increasing demand for quality practices across the board. What’s driving increased demand, who’s buying and what’s in demand?
There is undoubtedly a noticeable shift in demand towards the private dentistry sector; this is borne from the challenges NHS operators face in recruiting and retaining associate dentists. Brexit is inextricably linked to recruitment and retention in the dental workforce, presenting a real challenge for operators.
The number of European Economic Area (EEA) registered dentists fell for three consecutive years from 2014 to 2016. It finally stabilised in 2017, with the total number of EEA dentists remaining flat at around 6,800.
Geographical areas further away from main population centres are most affected by the declining number of EEA- and overseas-qualified dentists.
An agreement on exit terms should stabilise the number of dentists leaving the UK. But, more importantly, the government should aim to welcome skilled dentists. Reducing immigration barriers for dentists who qualified outside of the EEA will attract more dentists to the UK workforce.
What drives private dentistry demand?
Many multiple operators are turning to fully private dentistry practices to balance their portfolio risk, due to eroding NHS margins. In addition, they are beginning to identify that added value comes through the development of private dentistry revenue. This is achieved through upskilling associates to sell private dentistry treatments ethically. And introducing hygiene services that, when done correctly, offer a highly profitable element within a practice.
Many practice owners assume restrictions stop them from introducing private dentistry revenue streams. Particularly if their practice location is within an NHS landscape and has less favourable demographics; however, this train of thought is flawed. Some of the best private dentistry practices in the country are not in the salubrious addresses you would expect.
Who is buying private dentistry practices?
Independent partnerships, multiple practice owners and corporates drive demand. There is a perception in the market that it’s just corporates buying practices, but this is inaccurate. Corporates account for around 15% of the dental market and there is undoubtedly consolidation happening at the top tier of the market, particularly when there is a premium price point for certain profile of practices.
As a result, you naturally hone in on who is financially capable to deliver on that level of purchase; understandably, it is often a corporate operator. However, the buyer profile that currently dominates the market is the emerging private dentistry multiple practice owner. They play a crucial role in fuelling activity in the mid-market.
What’s in demand?
While there are many more buyers willing to consider purchasing a private dentistry practice, the stigma or sensitivity around the transition of ownership is starting to ease slightly. Deferring part of the consideration and linking this deferred consideration to the retained principal’s ‘tie-in’ period often mitigates this.
We completed on a number of these sales where the price achieved was not only in excess of market value, but terms that favoured the seller. Too often we see sellers who have been dealing directly with a buyer, receiving unfavourable and unrealistic conditions attached to a mediocre offer.
Increasing enquiries from private equity and other investors, attracted by the solidarity of the sector, is another interesting trend of the current market looking for larger, associate-led practices and they have a similar appetite to the acquisitive private dentistry multiple practice owners.
The scalability of a practice comes high on their list of priorities, with four or more surgeries and the principal staying on post-sale being of particular interest.
In October, Christie & Co sold Atkinson Dental Practice, a high-quality, private dentistry practice in Jesmond, Newcastle-upon-Tyne. This three-surgery dental practice had a small GDS contract along with 37% FPI and 41% plan income.
The business was sold in excess of the asking price with favourable post-sale terms agreed for the principal who tied-in, after receiving multiple bids from private dentistry and corporate buyers.
For more information visit www.christie.com.
Published first in Dentistry magazine. If interested in signing up to receive Dentistry magazine, visit www.fmc.co.uk.