What does the practice sales market look like right now? Practice Plan director Nigel Jones spoke to Paul Graham, managing director of Christie & Co’s medical team, to find out more.
Nigel Jones (NJ): I have to admit, Paul, one of my go-to publications and sources of market information is Christie & Co’s Dental Market Review, which I find a very useful publication and would recommend to anyone that can get hold of it.
It has been interesting looking at the trend in stats. The stabilisation of the corporate share of the market has come across strongly in the last couple of years. This seems to have been the case particularly with the larger corporates, such as Rodericks, Mydentist, and PortmanDentex. However, I also picked up a growth in the smaller groups with fewer sites. Is that what you are seeing as well?
Paul Graham (PG): Yes, absolutely. The larger corporates ultimately are in a position where their ownership and aggregate ownership have declined. There have been a lot of corporate divestments, and they were typically churned back into the independent market, whether that be to first-time buyers, independent owners, or multi-site operators building their groups.
That particular customer profile, let’s call them mini corporates or small DSOs (dental service organisations), has been really active. It’s been great to see their ambition last year in reference to the years gone by when they were probably being priced out of the market because the traditional top-tier corporates were so dominant.
The independent multi-site operators, the empire builders, are agile, they’re robust, they have a passion and are building very good groups. It’s nice to see that entrepreneurial spirit. While some are happy with the limitation of getting to 20 sites, others have the ambition to get to a hundred sites, which is great to see.
Groups and corporates
NJ: Yes, the groups and corporate side of things is becoming a really interesting marketplace. We’re seeing lots of different business models and approaches emerging, which keeps things very interesting. I have picked up over the last 12 or 24 months or so, that pre-pandemic for the corporates, especially the bigger ones, it was all about scale. Just the number of sites was important.
However, more recently it seems to be less about quantity of sites and more about quality of sites. Again, is that your sense of the direction of travel?
PG: Yes, you’re spot on there, Nigel. I can’t emphasise enough how ultra-selective those types of operators are becoming. Whereas before they may have accepted something a little rough around the edges, or not quite ‘core’ portfolio, and adopted the ‘we can make it work’ attitude, that is not in the equation anymore. Something has to tick all the boxes for those traditional corporates to really home in on and acquire it. Clinical team performance, location, reputation, succession planning, those who are selling, the tie-in period, and so on are all taken into account.
Ultimately, when we’re looking at values, it’s about today’s EBITDA and whether that is going to be sustainable. Those types of businesses have seen costs increase. We’ve seen increases in staffing, labs and materials, NI costs and other factors all eroding the profit margin.
We have to make sure that type of business has all of the costs built into it in order to appraise and come up with a suggested asking price. That price has to be sustainable, not only at today’s value and figure in transaction, but as a deal will take six, possibly nine months to complete, that EBITDA is still where it was when we initially valued it in order for the sale to transact successfully.
National insurance increase
NJ: So, the employer’s national insurance hike could have quite a big impact. Is that the sort of thing you mean in terms of the six to nine months and the sort of headwinds that might be encountered?
PG: It’s exactly that. Before the increase, we were already factoring that extra cost in.
It can be a little more flexible when we see a mixed practice or fully private practice where an increase in costs can ultimately be passed on to the patient. That allows the profit margin to be more sustained than perhaps a fully NHS practice, where ultimately the income is at a limited level and costs are exponentially increasing. That will have a domino effect on overall appraisal and value.
Optimism ahead
NJ: Increases in costs aside, after a challenging/ stabilising year last year, are we set for something a little bit more exciting and dynamic this year?
PG: I think that’s fair to say. We always want to speak accurately about the market, and we can’t always have rose-tinted glasses on this. In terms of the last couple of years, it has been a challenge. What lies ahead is some optimism. I’m cautiously optimistic about this year, particularly as we get to half a year and beyond. I think we’re starting to see some trends that are really encouraging for activity operators and investors in the market.
NJ: Thank you, Paul. I hope you’re right.
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This article is sponsored by Practice Plan.
