The big news at the end of 2024 was the return of corporates to the acquisitions market, coming out of hibernation with some strategic purchases matching pre-covid levels. Where there was a wait-and-see approach 12-18 months ago, there is now much greater confidence. Some high-value sales to corporates and micro-consolidators have challenged preconceptions, favouring bigger NHS contracts. These acquisitions benefit from the stability of a contract alongside the potential to develop more private activity.
Many current buyers are independents, or burgeoning micro-consolidators who have quietly used the period during and after covid to pay off debt, and are in a strong position to buy their second, third, fourth or fifth practice. This is a trend that will continue well into 2025.
Growth is the key word. Anybody looking to buy a dental practice wants their investment to have the potential to increase in value over time. For an independent buyer, that added value will be vital to service a bank loan at 80-90 per cent lending. If you’re a corporate group or micro-consolidator, you need to make sure you have arbitrage after five years when you come to exit.
Location is paramount – but not the whole story
There’s a misconception that NHS (earnings before interest, taxes, depreciation, and amortisation) EBITDA multiples have softened but that’s not what the evidence is showing. Practices delivering anywhere from 4,000 to 14,000 UDAs are still popular. Geography is an differentiator, but having an NHS contract is still the jewel in the crown when a practice is launched on the market.
The biggest issue currently affecting NHS practice sales has been a difficulty to meet targets in certain locations of the UK. In areas where recruitment is an ongoing problem, there has been a general softening of multiples and lack of interest. Buyers want to avoid purchasing at full performance when there is only capacity to deliver 90 per cent. However, a large-scale, established private practice turning over £1.5m in an otherwise undesirable area will frequently achieve good multiples.
Unsurprisingly, the renewed corporate interest in NHS practices favours areas without such problems. These businesses often have good underlying EBITDA. This positive calculation is now translating into higher multiples than we’ve seen in recent years. Big NHS practices in London and the South East can sell for more than double their turnover.
Private and mixed practice activity
Some of the larger groups are demonstrating renewed activity in the private practice market too – returning to the market with lessons learned after some notable failures. The data indicates that corporates are only moving forward with practices that align with their objectives, and have a minimum of five surgeries if they can see potential for growth. If a practice is profitable but has limited room for development, this will likely favour a sale to an independent buyer.
While smaller private practices are tending to fall behind, a mixed practice is currently of greater appeal to one of the big corporates if its activity is closer to the private end. An independent or partnership buyer, looking for a higher grossing practice is probably still seeking the security of a solid proportion of NHS activity.
Smaller to midsize NHS practices or mixed ones more weighted towards the NHS with growth potential started going back to bidding deadlines with multiple offers towards the end of 2024. This was a surprise turn – earlier in the year, these practices weren’t achieving competitive prices through bidding.
Some notes for independents
An associate buying at the moment is probably taking a considerable hit on their earnings what with interest rates as well as the likely investment of time and resources required to develop the practice. If you’ve got a practice you want to fund that’s delivering a turnover of £200-£300k, you’re likely to be earning £60-80k a year. There is growth opportunity, but it comes with some short to medium-term risks.
Some individuals have had great success with squat practices. However, there have also been horror stories. When making this decision, you have to be clear on how the business will operate. What’s your target market? Is it a genuine opportunity or is buying goodwill a better investment?
Whether you’re looking to buy or sell a dental practice, you will benefit from bespoke support from specialists, such as those at Dental Elite, who understand the market.
So, what’s hot so far in 2025? The answer depends on many variables, like the quality of the business, location, the type of practice and the type of buyer, but the hottest asset this year is capacity for growth.
For more information visit www.dentalelite.co.uk