Getting the maximum for your practice in a changing landscape – Luke Moore
Featured Products Promotional FeaturesPosted by: Dental Design 9th January 2019
At the BDIA Dental Showcase 2018, Co-founder of Dental Elite, Luke Moore, and Director of Recruitment Services, Luke Arnold, presented a lecture titled ‘The great corporate practice grab: Getting the maximum for your practice in a changing landscape.’ If you were unable to make the lecture, here’s what you need to know…
Current market
In order to secure the maximum value for your practice, it is important to first understand the impact the current state of the market is having on valuation trends and values. If you weren’t already aware, practice sales and acquisitions have been hugely affected in the last 18 months or so by several corporates who, due to underperformance and recruitment issues (amongst other things), have been closing or selling a number of their practices; some at a heavily discounted value with one being sold for as little as 10% of turnover. This, in turn, has paved the way for new buyer trends, particularly in regards to independent buyers who have capitalised on the disposal of these corporate practices and become a lot more savvy in their approach to acquisitions.
Separate to this, we’ve seen a noticeable increase in the amount of ‘consolidator’ buyers who have taken advantage of a somewhat fragmented market by acquiring multiple practices, grouping them together and selling them on. Meanwhile, the ‘empire builders’ continue their dominance as the biggest acquirers of larger NHS, private and mixed practices, most likely helped by the fact that Private Equity continue to be excited by the sector. For the smaller consolidators, bank funding is becoming increasingly accessible provided you can demonstrate that your group is hitting (or getting very close!) your NHS targets.
But going back to recruitment – it is not just corporates that have been struggling to recruit dentists and dental professionals. Practices all across the UK have experienced resourcing issues to some degree over the last 18 months or so, resulting in problems with UDA output and access to care. There are a variety of reasons for this, most notably that we are seeing far less applications from EU citizens to work in the UK – who in the past made up approximately 17% of the dentistry workforce.[i]There are several hypotheses for this, but is certainly not helped by both the softening of the pound and the uncertainty caused by Brexit. Of those that have chosen to apply to work in the UK, their ability to start a position has been hampered by Capita’s inability to process Performer Numbers quickly and efficiently enough, which has only exacerbated the problem further. Of course, had the government made the decision to exclude dentists from the Tier 2 visa cap moving forward, the future of recruitment might not seem so critical. But as it is, only doctors and nurses are exempt from the cap on skilled workers entering the UK, so it seems that there is currently little that can be done to fill in the gaps.
The other reason behind the shortage that must be mentioned is that the amount of undergraduate places available at dental schools in the UK has reduced in recent years. Coupled with the rising number of dental professionals planning to leave the NHS and growing part-time workforce, the numbers simply aren’t there to replace outgoing professionals. Unfortunately, however, it’s not just an issue of recruitment. Businesses are also struggling to retain staff once they have them – predominantly because competing practices are using bigger remuneration packages to entice professionals to join their team. Indeed, a lot of practices are in the same boat when it comes to recruitment, so if they have the resources to attract talent they will utilise that to their advantage.
The resulting effect
As a result of all this, some practices are finding it much harder to maintain the same level of profit they had previously, which could have a serious impact on growth in the future. If this is the case, goodwill values will likely be affected, potentially impairing a principal’s ability to grow and sell their practice; this is what the numbers tell us, anyway. Indeed, according to our calculations, should a practice decrease its income by £20,000 the EBITDA would fall by £13,240. That equates to a drop of £92,680 in value at a multiple of 7x, which suggests that if vendors are to get the maximum price they must concentrate on demonstrating that they have a stable team, so retention and prompt recruitment is key.
How to increase chances of growing and selling
There are a number of steps that can be taken to grow and sell a dental practice, including reviewing expenditure. For instance, you could offer discretionary bonuses based on performance instead of a pay rise, helping to save money and increase profit margins all while motivating staff. Alongside this, take a smarter approach to recruiting and retaining your team by implementing a three-pronged approach. Firstly, attract candidates (active and passive) with competitive packages and through the appropriate channels; second, interviews are a two way thing so sell your practice by highlighting the benefits of working there; and third, dedicate time to good onboarding practices to create a great environment that professionals want to work in.
Finally, get a practice healthcheck that includes an in-depth analysis of your dental practice and suggested changes that would help to boost the valuation price. Dental Elite offers this as a complimentary service, taking into consideration the impact of current trends and the state of the market. The dental landscape may be changing, but with the right support from a specialist broker and valuations agency and a savvy approach, you should hopefully be able to minimise losses and protect the value of your practice.
For more information on Dental Elite visit www.dentalelite.co.uk, email info@dentalelite.co.ukor call 01788 545 900
[i]Cavendish Coalition. Submission to House of Lords EU Internal Market Sub-Committee. Accessed online October 2018 at https://www.adass.org.uk/media/5653/cavendish-coalition-house-of-lords-inquiry-eu-internal-market-sub-committee.pdf
