The dental business market: a year in review and what’s to come in 2022

Paul Graham gives an insight into the recent trends of the dental business market and what is expected over the year to come.

Despite the turbulence of 2020, I’m pleased to report buoyant market conditions in 2021. Deal activity picked up where it left off in late 2020 as buyers made up for lost time.

There was a glut of completed deals in the first quarter of the year. Particularly as sellers sought to beat the anticipated increase in capital gains tax in the Chancellor’s spring Budget. In the event, no changes were announced.  

Strong demand for dental businesses continued throughout the year. In the higher price ranges, there was a clear increase in the choice of potential buyers for the best practices. The corporate and mid-sized group operators were extremely active. A number of new buyers emerged to increase competition in this segment of the market. The lack of supply of good quality, larger practices led to extremely competitive bidding processes. Sale prices achieved were regularly ahead of the asking price. 

Enquiries from investors

Enquiries from private equity and other investors, attracted by the solidarity of the sector, is another interesting trend of the current market. The scalability of a portfolio of practices along with a reliable infrastructure and management team, comes high on their list of priorities. Established corporate and mid-sized groups, typically with private equity (PE) backing already, tried to fulfil ambitious buy and build targets but faced stiff competition from independently-owned dental groups which are trying to grow to platform size to eventually become suitable for future PE backing themselves – this buyer profile is dominating the market at the moment. Another trend that we’re seeing now is the number of new entrants looking to build groups. Put simply, for sellers of larger dental practices, the choice of buyers and deal structures has never been so varied.

We have also seen an upturn from independent first-time entrants. This plays a crucial role in fuelling activity at the lower end of the market. This is not a new trend by any means but is a surge of activity emphasised by the pandemic as associates seek income security through practice ownership, often well supported by major high street banks. 

Market outlook for the year ahead…

Market demand is driven by the sentiment of buyers and is often influenced by how their own businesses are trading. 

Since most dental practices re-opened in June 2020, patient demand for NHS and private dentistry has been unprecedented. The NHS sector continues to experience significant capacity issues caused by a huge backlog of patient appointments. Meanwhile the private sector has boomed. Noticeable trends include the migration of patients from the NHS to private sector and a general increase in the typical spend of patients. In particular, on cosmetic and aesthetic dental treatments. 

The reduced activity in the NHS sector has also freed up capacity in some practices for private dentistry to be introduced where, previously, it had not been offered. Some dental practice owners are comparing the economics of running a practice with a more balanced income mix and are actively considering reducing their NHS commitments to retain the valuable new private income. 

Rising cost pressures

Profit margins will come under further pressure in 2022 as the increase in employer NI contributions is introduced. Practice owners are already under rising cost pressures. They will need to consider ways to mitigate this through better cost management and/or fee increases in the private sector.

Dentistry has not been immune to the combined effects of Brexit and the pandemic. In 2017, we reported on the shortage of dentists in the UK caused by the referendum result. These pressures remain and are further compounded by an acute shortage of qualified nurses in the profession. The overall number has been reported as being broadly the same as pre-pandemic. Yet a higher-than-average number have failed to re-register. The BDA is quoted as saying that this number was up to 3,800, with the main causes cited as relatively low pay and changes in working conditions. A lack of transience in the workforce as a result of the pandemic is also likely to have affected the recruitment market.    

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