Paul Graham, from Christie & Co, offers insight into the world of dental practice values and what the profession can expect.
What impact is the shift to private practice having on practice values at the moment?
There has been a discernible shift in demand towards the private sector. The increase in consumer spend for higher value private treatments has helped operators to recover and, in many cases, exceed previous income levels. As a result of this demand, values are increasing and in many cases the multiple of EBITDA is greater than that for a core NHS practice.
What we’ve seen in the last 18 months among many private practices – particularly the high-end larger practices – is that they are leapfrogging the value of NHS practices.
Before there was always a bit of sensitivity around private practices. Demand was heavily weighted towards the NHS and it was always perceived as the safer and more sustainable business. There was ultimately less risk attached to it.
But what we are seeing – and the trend emerging in the marketplace – is that there is no slow down of that shift towards private dentistry right now.
Some may say that is down to NHS access issues, which is obviously an ongoing matter. But ultimately private practices that we are in touch with, that we are tracking, are not necessarily doing NHS treatments privately. This is high-end and cosmetic.
I think the ‘Zoom boom’ effect means patients are starting to consider spending money on improving their smiles.
The pandemic has really emphasised the consumer spend for private dentistry.
As demand continues, what else do you think is having an influence?
There’s a general invested appetite. When we look at the UK marketplace, around 15-20% is consolidated – corporate ownership is typically at the high end of the market. They are, and still do, have ambitious buying targets to achieve.
Even during the pandemic, we have seen these corporate buyers active in the marketplace. There was a pause for a time but that was short lived and interest reignited in the summer of 2020. This is a continued theme.
When you look at the independent operator just now, some are buying their fourth, fifth, sixth practices and building small portfolios.
But equally the first-time buyer is coming into the marketplace and they are just looking to secure a career position within dentistry.
I think kudos to the profession here, especially when you look at the initial lockdown in March 2020 and practices essentially closing.
Despite a second and third lockdown, the profession remained open. That was a real game changer and really helped to underpin a lot of confidence in the market.
It was very appealing for an investor or independent purchaser, who were ultimately being supported by market lenders.
Last year saw an impressive level of buying and selling activity in the dental practice market. Is this something you expect to see in 2022?
The issue that we’ve got is that the demand outweighs supply significantly. I say it’s an issue – it’s a good one to have if you’re a seller as it’s really helping to drive prices.
On average, Christie & Co arranges six or seven viewings per practice. Ultimately, we are achieving a minimum of one offer for every two viewings that take place. It just shows the demand that’s there.
I think there’s been a lack of supply coming to the marketplace. This is really down to a lot of operators who recognise that they are recovering their business or enjoying good times.
Granted there are still difficulties within the NHS but many practices that are leaning towards private dentistry are having a ball of a time.
Naturally when that happens, there is probably a reluctance for an operator to consider selling. I do think that will change.
Obviously, we’ve seen NHS targets go up before Christmas in England. I think that may well be the catalyst that will bring some of those businesses to the market again. The good thing is that the demand is there.
Last year also saw a rise in bigger practice transactions. Why do you think that is?
I think they’ve always been in demand. They managed to be very good businesses pre-pandemic and arguably became better businesses post-pandemic.
I think that’s ultimately down to the owners of that type of business who have been quick and agile to adapt their business and work in the current environments.
Again, those who have recognised some of those larger opportunities in the marketplace tend to offer a bit more flexibility in terms of the revenue streams that are coming into practice.
When you hone in on the capable buyers of practices, larger practices tend to hold an increased turnover and profitability and, therefore, a higher value.
When you look at who can afford those practices, you hone in on the corporate buyer or the multi-site operator. The latter is particularly dominating the market right now. There are more buyers in that category than ever before.
How does dentistry compare to other sectors?
There are similarities on one topic and that’s staffing issues and recruitment. It’s probably reassuring that it is not just contained to the dental sector. Other commercial industries are experiencing the same.
Just generally when we look at other sectors that Christie & Co operates in, the hospitality market, for example, has been hard hit.
But there’s a theme in terms of transactional activity. There’s a demand for those types of business, particularly those who have managed to adapt and improve their business through the pandemic. This is similar to those in the dental world.
Quality will sell and businesses that are priced correctly will drive demand. I think the important thing to note is, because of the demand that is there in the marketplace, Christie & Co can run a process for you. That doesn’t mean shouting about the practice being for sale to any old buyer. It’s still very much a bespoke and targeted approach. But it’s being able to facilitate and drive that competition is really helping the end result.
How will this impact the value of dental practices over the next few years?
There’s a bit of crystal ball gazing with this. But if we look at the last eight years, the market has just continued to go northwards.
We’ve not seen demand tail off or pause as a result of the pandemic. This gives a bit of confidence that we’re probably unlikely to see that demand tail off at all.
The market is getting stronger and stronger. The spotlight on oral health has really been emphasised as a result of the pandemic. I think the spend from the consumer is more mainstream than ever before.
So long as the businesses are performing from a profitability and reputation perspective, I see that there’s always going to be a buyer there for it.
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