The dental sector is one of the most vibrant and interesting of all business sectors. As with many markets, it’s also undergoing a period of change - in particular the way practices are valued on behalf of the banks and the ownership profile of dental practices across the UK as the corporate operators begin to consolidate the sector.
The shape of the sector is fascinating with as little as 10 per cent of practices in corporate ownership, which is much less than in other healthcare sectors such as pharmacy and social care. So whatever your view is of corporates owning and operating dental practices (and they do polarise opinion) it is clear that they are here to stay, and as the NHS contract evolves over the next few years they could be set to play an even more significant role (note, for instance, the two recent acquisitions by Oasis of Smiles and Apex).
It’s not just about the big two corporate operators though – across the UK there are well over 150 multiple owners of practices; typically with five to 25 sites. This is a very interesting part of the market, as they tend not to operate under one brand and as such can be very difficult to identify. They are typically very entrepreneurial, agile in their decision making and very well funded given the support that they enjoy from the banks to expand. For a potential seller, they offer an interesting alternative to corporate operators as they are smaller and can offer more clinical flexibility post sale for the dentist remaining in his or her (recently sold) practice. This may suit some better than others though.
It is highly likely that over the next few years we will see independent practices being bought by smaller groups and smaller groups being bought be larger groups – this is very typical of a market consolidating and becoming more attractive to institutional investors.
So what type of practice is in demand?
An NHS contract is perceived to lower the risk and therefore creates a relative safe haven for mostpurchasers, particularly if the practice has good demographics and the potential to develop private income. However, as the changing NHS contract approaches it’s likely that some buyers may consider that buying a private practice offers a better return, relative to the lower values when compared to the NHS market.
Specialist sectors such as orthodontics are still highly sought after, despite much recent uncertainty around contract renewals and the seemingly inconsistent interpretation of NHSE policy towards the transfer of PDS contracts. Banks are still willing to lend to such businesses but it is fair to say that they are taking a more cautious view, lending less and over a shorter period of time.
Geographical variation
Within the market there are certainly hot and cool spots, often dictated by the availability of dentists in a particular area and of course UDA/ UOA rates and oral health needs. The hot spots will be of no surprise - London, the South east, the Midlands and the North, where density of population is greatest.