The survey for the quarter ending October 31, 2019 has seen a big leap in the goodwill as a percentage of fee income in deals done. This is the fifth quarter in a row that deals have risen – from a low of 122 per cent of gross fees in quarter ending October 2018, to 157 per cent of gross fees in this latest quarter.
However, unlike previous increases which had been driven by big rises in NHS practice values, this most recent quarter has been driven forward by private and mixed practices with NHS goodwill values falling back somewhat. The quarter to the October 31, 2019 saw an average goodwill value of 157 per cent of gross fees overall. NHS average goodwill values fell back from 194 per cent of gross fees in quarter ending July 31 to 155 per cent of gross fees this time. Moving in the other direction, private average goodwill values rose from 104 per cent of gross fees in the previous quarter to 120 per cent this time. Mixed practices leapt from 120 per cent of gross fees in the quarter to July 31, 2019 to 163 per cent of gross fees in the quarter ending October 31, 2019.
The quarter did see big drops in valuations though – down from an average goodwill value of 151 per cent of gross fees in the quarter ending July 31, 2019 to 132 per cent of gross fees this time. Valuations of NHS, private and mixed practices were all down in the quarter with mixed and NHS practices seeing the biggest drops.
Alan Suggett, specialist dental accountant and partner in UNW LLP (which compiles the goodwill survey) said, “It is clear that in many parts of the country that the practices sales market is still buoyant. Why are we seeing the big difference in valuations and deals? Obviously, there is a time lag between the valuation of a practice and the eventual deal. These days that could be anything up to nine to 12 months in some cases. Another suggestion for any discrepancy could be that in the case of practice sales to corporates, these will very rarely have an open market valuation. Therefore, these only come into play in the figures at the deal stage.”
The goodwill figures are collated from accountant and lawyer members of NASDAL on a quarterly basis in order to give a useful guide to the practice sales market. These figures relate to the quarter ending October 31, 2019.
NASDAL reminds all that as with any averages, these statistics should be treated as a guideline only.