The report highlighted important areas within the industry, including sector ownership structures, evolving market dynamics and current pricing patterns.
Ownership and composition
The UK dental market has approximately 12,344 dental practices, not dissimilar to figures in previous years. However, there has been a shift in ownership, with the top four groups now managing approximately 12.4 per cent of all UK practices, a decrease of 0.6 per cent from 2023.
The largest groups are Mydentist with 532 practices, BUPA Dental with 389, PortmanDentex with 380, and Rodericks Dental Partners with 226.
The previous year was characterised by a strategic shift towards divestiture, culminating in a 3.3 per cent contraction in corporate ownership of practices. Notably, the divestment trend facilitated a transition of ownership, predominantly towards independent buyers. The sector continues to be largely independent, with 65 per cent of practices owned by independent single or dual practices.
The rise in ‘squat’ practice openings has continued, made feasible by the 2020 changes to Use Classes Orders, reflecting the sustained demand for private dentistry, which offers developers the flexibility to create future-proof practices without the need for an initial premium.
Supply and demand
Transaction volumes surged by 150 per cent in agreed transactions and exchanges during the latter half of 2023, with a 29 per cent decrease in transaction timelines. The time taken from an offer being accepted to exchange has moved from 283 days before 2023 to 201 days in 2023, results largely attributed to the volume and pace of corporate divestments.
Although corporate divestments have been historically viewed with a certain stigma, the industry’s perspective has evolved. These practices are highly sought after, especially by independent, working principals who bring valuable local insights and a commitment to nurturing the practices and their teams onsite.
Christie & Co noted that its deals completed at an average of 13 per cent above asking price. There has also been a year-on-year increase in the overall number of offers received, which soared by over 80 per cent to approximately 600 in the second half of 2023.
The appetite from the independent first-time buyer and existing owner segment has continued to recognise an even spread in demand for all practice types and revenue mix in 2024.
Appetite for private or private-led mixed practices from small groups has remained consistent, at 38 per cent of offers received in 2023 versus 54 per cent in 2024.
The rate of completed corporate transactions declined by 9.8 per cent in 2023, and shifted away from practices where the leading income was derived from NHS. Offers for this type of practice (NHS mixed or fully NHS) accounted for some 57 per cent of offers. In 2024, this has reduced to just eight per cent, with the balance of 92 per cent of offers received focused on mixed private or fully private practices. Interest has been led by available market stock and in the bandings of pricing that would more commonly align with the various buyer types.
Deal structures
As market dynamics evolved in 2023, there was a noticeable shift towards increased cautiousness among corporate and group purchasers. This manifested in an enhanced reliance on deferred consideration in deal structuring – where an overly opportunistic 40 per cent to 45 per cent of the offer was deferred - serving as both a risk mitigation tool and a means for more effective capital allocation. This has been seen in the market as both unsustainable and unfavourable.
In 2024, the market witnessed a correction towards a more normalised deferment rate, with approximately 30 per cent of the offer being deferred. This adjustment reflects a balanced approach to risk management and capital deployment, aligning more closely with buyer and seller expectations.
Pricing trends
The 2023 mini-budget resulted in many buyers choosing to moderate or temporarily suspend their acquisition plans, a sharp contrast to their growth in 2022. The market has undergone a constructive and healthy recalibration. Stability has been restored in pricing, signalling a new phase of equilibrium and resilience.
Historically, group dental practices enjoyed a substantial premium on their valuations, particularly in terms of EBITDA multiples, driven by the potential for arbitrage and significant uplift for extensive EBITDA platforms. Recent trends have indicated a shift in this dynamic.
The once-wide valuation gap between group practices and single asset sites has narrowed. The premium paid for group dental practices, while still present, has diminished.
This convergence signals a changing investor sentiment, where the arbitrage and uplift previously attributed to substantial EBITDA platforms are no longer as pronounced. Consequently, this trend has contributed to the erosion of multiples paid for single asset sites, as the valuation premium for groups becomes less distinct.
Christie & Co’s benchmarking data has shown a stark increase in practice costs. Lab and materials account for approximately 15 per cent of costs, heat and light account for approximately one per cent and staffing accounts for approximately 18 per cent.
Operational review and sentiment
In May 2024, Christie & Co reached out to over 35,000 dental professionals - including the largest corporates, medium-sized and smaller groups, and independent practice owners - to get their views on a range of topics.
The results include:
- Overall, more respondents feel positive about the sector than negative
- Over half of respondents feel there has been an increase in patient demand for NHS dentistry
- Forty per cent of respondents feel demand has increased for high-end elective treatments
- General dentistry is perceived to be the likely core driver for private growth by those who work within it
- Over 60 per cent of respondents feel there will be an increase in therapist-led NHS treatment
- Over half of respondents feel the changes made to NHS dentistry in April 2024 are unlikely to facilitate the delivery of NHS dentistry
- The majority of respondents feel dental service delivery will be improved as a consequence of the Overseas Registration Examination (ORE) entrance exams, offering additional access to dentists
- Sixty per cent of respondents feel digital dentistry is at the forefront of future growth
- Over half of the professionals surveyed plan to either buy or sell a practice in the next three years
The financial landscape
In a review of the finance landscape by Christie Finance, it is noted that the dental market continues to be a prime sector for lenders, with strong interest during 2023/2024 with 94 per cent of banks foreseeing an increase in lending appetite into the sector in the next 12 months.
Christie & Co has seen an increase in groups looking for alternative or additional lenders whose policies align with their aspirations. Independent buyers have also had better opportunities to realise their dreams of owning a practice without being priced out of the market.
In the future, the finance broker expects improved access to finance to act as a driver for operators to invest in their practices. More sustainable revenue levels will give confidence that return on investment can be achieved.
Joel Mannix, head of dental at Christie & Co, commented, “As we continue to navigate 2024, the dental market is already exhibiting signs of a significant uptick in activity, surpassing the previous year's patterns.
“This early momentum suggests an optimistic outlook for the remainder of the year, underscoring a dynamic shift towards a more vibrant and competitive market landscape. This is being driven, in part, through newer market opportunities, including new emerging buyers, as well as reignited transactional activity that was delayed or paused, particularly on the larger scale opportunities in 2023.”
For more information visit https://www.christie.com/dental-market-review-2024/