Statistics gathered across the UK dental market over the first half of the fiscal year 2024-25 demonstrate a healthy market with good multiples, despite some evidence of pre-budget caution exercised by the larger groups. One of the key takeaways in Dental Elite’s latest Goodwill Report[i] is that independent buyers have made use of this opportunity to challenge the market.
79% of transactions occurring in the first and second quarter of 2024-25 were independent buyers purchasing their first or second dental practice. The remaining 21% was comprised of dental groups – though not always the usual suspects. The larger dental groups have stepped back from mass acquisitions so far this year.
Anecdotally, many of these independent buyers have paid down a lot of their debt over the last few years whilst they haven’t been acquiring – they’re in a really good position financially and they are looking to expand their emerging businesses.
The 470 independent practice owners, with two or more practices, purchasing in this period represent 8% of the whole market. Although this subgroup is not catching up to dental groups, this does display a distinct shift. They are on the rise and are starting to challenge the market.
Flexibility and risk management – groups versus independents
Whilst the biggest players have focused on earnings before interest, taxes, depreciation and amortisation (EBITDA) of their own estates instead of acquisition, pursuing only the ‘vanilla perfect-fit practices’ where the risks are shared among multiple dentists. They’re picking these up almost exclusively on 70/30 deals, and leveraging their risk accordingly.
The cost of debt has increased significantly over the last couple of years, meaning groups are now much stricter about the risks they take. They have to put 70% down. The remaining 30% deferred consideration doesn’t come with any interest, but has to come out of cashflow with the risk being taken on the part of the selling principal.
The larger groups will take action if it’s something they really want to add to their portfolio, but they’re not going to get out of bed for £100k of EBITDA. This marks a change from activity during periods of consolidation, when the same groups were fighting for £160k of EBITDA at higher multiples.
The key difference for independents is flexibility. Micro-consolidators can be a lot more generous in their offering, and can afford to take on a higher level of risk. A Tier 4 buyer (with between 3 and 9 practices) might be going to a high street bank, or using cash reserves from an existing estate gained over a number of years to finance a deal. They may have been quieter during the really expensive debt periods. If a buyer in this position knows the practice well, and they are confident it can weather any changes they might be happy to pay 100% on completion.
The report – some more narrative behind the stats
When we did this survey a year ago, the average practice price was around £1.1 million. That’s fallen in this survey to £729k. That’s not because multiples have dropped – it’s because fewer bigger practices are coming to market.
Movements in multiples during this period were quite modest. Mixed practices had the highest fair maintainable trade (FMT) in the survey – on average £100k up on private and NHS practices in this particular assessment. However, there is quite a wide variation depending on location and practice particulars.
There is evidence that owner-occupier and independent buyers are paying a greater multiple on higher turnover practices than groups. The average multiple for first-time and second-time buyers currently stands at 3.20x, slightly lower than the 3.26x reported in our 2023/24 Goodwill Report. Though modest, 0.06x could add £20k to the purchase price of an average mixed practice, for example, so it is worth noting.
The story is similar for group practices where there has been a 0.1x reduction in the multiple. On average the typical EBITDA is about £200k – which is around the threshold where group practices start to be interested. In purchase terms, that’s only about £25k.
Staying abreast of a forever-changing market
Using specialist dental brokers is essential in a changing market. The experienced teams at Dental Elite work tirelessly to stay abreast of the dental market. Brokers and advisers work closely with clients to ensure they are supported throughout the process of buying or selling their practice, so that they can achieve the results they need.
Deals represented in the survey would have been negotiated when interest rates were fluctuating and when changes to the tax burden were an unknown. Now the base rate has started to level, multiples are showing signs of improving – definitely for the independent market. Capital Gains Tax will affect bigger practices – but regardless of that, these buyers are not necessarily as well received in today’s market because people want to see organic growth, and they don’t want to pay for that. For that reason, the market between £600 and £1 million is currently the fastest moving.
For more information on Dental Elite visit www.dentalelite.co.uk, email info@dentalelite.co.uk or call 01788 545 900
Author:
Luke Moore is one of the Founders and Directors of Dental Elite and has overseen well in excess of 750 practice sales and valuations. With over 19 years working in the dental industry, Luke has extensive knowledge in both dental practice transfers and recruitment and understands the complexities of NHS and Private practices.
[i] https://dentalelite.co.uk/goodwill-guide/
