Every six months, Dental Elite releases updates to show how the dental practice market has been performing, with benchmarking data from the previous year, regional trends and notable changes articulated and explained. In our most recent Goodwill Report, we have been able to demonstrate that the nuance involved is more important than averages to unpick disparities and more accurately project continuing trends.
The data shows that the market over the past financial year has been resilient, despite a number of serious challenges. There have been some notable adjustments in the types of buyers across different kinds of practices in different regions. Owner-operator sales are achieving higher rates in more favourable locations, with averages that mask some significant variations between outcomes for private versus mixed and NHS practice sales. Group buyer dynamics have also shifted, and group acquisitions are also achieving higher rates in sought-after regions, with interesting high-value exceptions across the country.
Multiples, EBITDA and goodwill
For accurate valuations in dental acquisitions and mergers, we use a number of factors – tangible and intangible – to ensure calculations reflect the true value of dental practices. Dental Practices are valued by applying a market multiplier to the net profit of the dental practice. Generally, when we refer to multiples, we are alluding to a calculation based on the projected value of the dental practice’s earnings before interest, taxes, depreciation and amortisation (EBITDA), or Fair, Maintainable Trade (FMT). Multiples are a useful tool for comparing data pools across regions and articulating trends where businesses follow different models.
Multiples account for goodwill – an accounting concept used to demonstrate the value of the intangible assets of a going concern. This might include the practice’s reputation and patient base, as well as the projected worth of ongoing trade. Goodwill is affected where there are unknowable variables in play – such as variable recruitment challenges in different regions.
A closer look at recent trends in the independent market
In the financial year 2023-2024, multiples remained generally consistent, with multiples in sales to first time buyers very slightly lower than the previous year period. Within these averages were slightly higher multiples for mixed and private practices, and a very slight dip for NHS practices.
The detail behind average prices paid tells an interesting story. The independent market saw a small reduction (1.55%) in prices overall; but this doesn’t give an accurate picture of changing practice characteristics. Mixed practices saw a 10.63% increase, and private practices saw a 7.49% surge. At the same time, average prices paid for NHS practices dropped by 17.71%, with smaller deals or fire sales, skewing the data.
There was a slight fall (3.77%) in independent sales overall, but all signs point to a burgeoning confidence in borrowing. There has been a significant reduction in inflation since our interim Goodwill Report Oct 2023, which has fostered a more positive outlook – reassuring buyers amidst the uncertainties. The base rate at the time of writing remains at 5.25% but the prospect of a gradual reduction to around 4% by Christmas, and to around 3.25% by 2027 offers hope.
Group acquisitions – shifts in buyer dynamics alongside external factors
Buyer dynamics are ever-changing in the group acquisition market. The largest Tier 1 group buyers (owning 50 plus practices) have slowed, while micro-consolidators have gained traction. This is partly due to softer multiples overall, but also because Tier 3 (10-20 practices) or Tier 4 (3-9 practices) often offer better deal terms with larger upfront payments, or no deferred consideration at all.
This trend has allowed the group sales market to sustain higher multiples. Tier 3 and 4 groups may pay higher multiples on average, but may encounter difficulties executing larger transactions. On the lower end of the multiple range (6.43x), 47% are private, 37% mixed and 16% are NHS. Averages hit 7.27x, and the highest figure in the multiple range reached 9.00x EBITDA. On the higher end of the multiple range, the market reflects a movement towards private from NHS practices. Last year, 61.9% of the market was private, 28.57% was mixed and 9.52% NHS.
Although multiples outside London and other affluent areas may be slightly lower on average, the multiple can increase depending on variables like the EBITDA margin or income diversity, regardless of the location.
Exciting prospects, keeping the market buoyant
The dental acquisition market, despite the recent pressures of COVID-19, inflation and interest rates, remains resilient and is a green-light market for investors, buyers and banks. Last year’s interest rate rise did impact the market, but the dental sector didn’t fall off the edge. Funding is still readily available and buyers are still looking to acquire. The most encouraging news for prospective buyers is that banks are currently very open to supporting first-time-buyers, as well as dentists with existing businesses. Commitment is strong from lenders, with exciting new players emerging. Rates are holding steady from 2.35% above the base rate, and partial amortisation loans are upwards of 1.7%.
At Dental Elite, we use our 14 years of specialist experience to work closely with clients and ensure each practice is evaluated on its own merits. With our help, vendors are successfully achieving the best deals possible based on their practice’s own unique attributes, regardless of location.
Working closely with a specialist agent that understands the market is vital to ensure your valuation is as accurate as possible. It also ensures you make the best of opportunities within the current market, and achieve the deal – as well as the buyer – that best suits your practice.
