Over the last quarter, there have been quite a few key dental events that have occurred, namely BUPA’s decision to dispose of a large number of their practices and the extension of the five-year recognition of EU qualifications. Despite this, however, there has been very little in the way of movement within the dental market, although there are potential changes on the horizon.
A brief overview of the dental market
The overall multiple currently sits at around 7.17x earnings before interest, taxes, depreciation, and amortization (EBITDA) for associate-led practices. This includes NHS practices. However, if we were to exclude NHS practices from the equation, the average multiple would sit at around 7.73x. This demonstrates that the market is still somewhat competitive, with much of this competition seen in the private sector. This is in spite of the merger between Dentex and Portman, and the Rodericks Dental Partners merger that took place earlier this year as well. Overall things are looking strong, albeit the market for NHS practices appears slightly weaker in comparison to private, and likely weaker than it was two years ago. There’s no secret as to why this is the case: all of the challenges faced by the dental sector have undoubtedly contributed. Just some of the issues have come from the recruitment crisis and interest rate hikes. With regards to the recruitment struggles, we’ve been hearing about the proposed changes to the overseas registration pathway, and hopefully in the coming years we will feel the benefits of this.
It’s also worth mentioning that many buyers who are looking at NHS practices are now more often than not considering the private potential of that business, and how sustainable these private opportunities would be alongside their NHS commitments. As you know, many principals are making the move to reduce their NHS contract, or even scrapping it entirely. However, some first- and second-time buyers are actually quite keen to retain their NHS contracts, no doubt due to the concerns regarding inflation and recession. Should challenges or unexpected changes arise, having an NHS contract to fall back on could provide peace of mind. So, for small to medium mixed practices, retaining your NHS commitments can be positive. We’re also seeing some successful private squats come to market: many of them are situated in favourable areas, like high streets where there’s strong footfall, and they’re starting off on a strong trajectory. So, over the past three to six months, we’ve been seeing a lot of these types of practices popping up.
There are always challenges within the dental market and, at the moment, this seems the case with NHS practices in more rural areas where recruitment is much harder. Concerns surrounding inflation are still prevalent: at the time of writing, core inflation has just gone up. This links with the next challenge – interest rates. If you’re buying a practice now, there will be a risk that the base rate will rise, which could have an impact on your bottom line. For potential buyers, this might be something that you need to think about.
There’s also an election on the horizon, which at the time of writing looks more in favour of a Labour-led government. Of course, this means we may have several changes regarding economic and monetary policy, which could influence your decisions in terms of selling or holding your practice. There’s also consideration concerning Capital Gains Tax and whether that will be brought more in line with Income Tax. So, there’s much discussion regarding how a Labour government may influence changes within the market, of which there may be challenges and opportunities in equal measure, depending on what end of the spectrum you sit. The recruitment issues remain, for dentists as well as dental nurses and auxiliary staff – many practice owners are faced with higher costs in order to retain and reward existing team members.
Remaining strong amid the challenges
Despite the myriad of recent challenges faced by the dental sector, it remains strong in many areas. Most private practices are seeing increases to their revenue, with many still sustaining the higher revenues that they’ve achieved since the pandemic. While there are concerns regarding inflation and maintaining EBITDA, mostly-private practices can still alter and increase revenues in order to offset these changes.
The market is adjusting, especially at the higher end of the market, and as always Dental Elite will be keeping their ear to the ground to see how these changes could impact the dental market in the short- and long-term.