Dentists can feel quite overwhelmed when considering how to maximise the sales value of their dental practice. When considering the sale of a practice, it is helpful for practice owners to learn more about how multiples work, so vendors can focus their energies more productively on enhancing their value. Additionally helpful, is a clear understanding of the impact of external variables such as the Bank of England base rate on sales multiples.
PESTLE factors: e.g. The Bank of England base rate
The base rate is set by the Bank of England – also known as the bank rate or referred to as the interest rate.[i] In February 2024, this was 5.25%. Over the course of a year this has been reduced to 4.5%. While not equivalent to post-COVID pricing, this has made the cost of borrowing cheaper for buyers. Very few commercial loans are based on fixed rates, so this change means servicing a £1 million debt is now £7,500 cheaper than it was last year.
Private equity, which finances most larger corporate purchases, also benefits from a lower base rate. These firms borrow from challenger banks rather than high street firms to finance multiple ventures. This kind of lending is considered more risky as there’s less control and no personal guarantees, meaning the cost of borrowing money for private equity firms tends to be greater. For this reason, private equity firms will always be assessing their investment in terms of a reliable and quick return. When the cost of borrowing falls, this reduces their financial burden across all their assets, and eases the financial pressure, leading to more confident investment. However, these buyers will generally seek deal terms that protect their investment and mitigate risks.
The micro market factors
A lower base rate encourages spending, activating and energising the market, and if factors affecting multiples are managed well, this can increase potential buyers’ interest in your practice.
When Dental Elite goes to value a dental practice, the experienced team of brokers look at the risks that might affect the earnings before interest, taxes, depreciation, and amortisation (EBITDA) multiples a practice can achieve. One of the more significant factors vendors are often unaware of is the impact of a high-value associate, which can negatively impact on your multiple. For example, key person risk[ii] is a factor. In the context of dentistry, this usually involves the risk that a high-grossing associate will leave soon after the sale of a practice, and will be very difficult to replace. Depending on the practice, one thing we might advise is diversifying risk by increasing the hours of another good associate, or taking on one or more new team members and giving them time to build a rapport with patients before going to market.
Another big factor in recent times has been a difficulty to meet NHS contracts due to the recruitment crisis, and practices maximising their private offer to maintain profitability. It’s becoming a common problem that practices under contract to perform 10,000 UDAs are only able to deliver 5,000. A practice that has been in breach of contract for underperformance for two or three years will potentially have their contract permanently reduced or taken away. Talking to the area commissioning team and changing your contract is better than having sequential breach notices, as this will affect lending and will impact on your multiples.
Another consideration is your increased costs. We are in an inflationary environment, so while many patients remain careful about choosing expensive treatments, your costs are also rising. At the time of writing, inflation is at 2.8%, and is expected to rise this year to around 3.7% by Q3 2025.[iii] If the impact of increased operational costs are affecting your practice, it is worth examining your offer closely against the demand and competition in your area.
A professional valuation
Working with specialist teams such as those at Dental Elite will greatly increase your chance of getting a deal that works best for you. Clients are closely supported throughout the whole sales process, from initial consultation, through to valuation, finding a suitable buyer and progressing the sale, all the way to completion.
To get the multiple you need, getting the right advice is crucial. To stay ahead of the game, it is also helpful to gain a working knowledge of the terminology, external factors that affect your buyers’ decision-making process and a deeper understanding of how multiples are affected.
For more information on Dental Elite visit www.dentalelite.co.uk, email info@dentalelite.co.uk or call 01788 545 900
[i] https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate
[ii] Bedard S. Key Person Risk: What Is It Costing Your Business? Forbes Business Council. January 2024. Available at: https://www.forbes.com/councils/forbesbusinesscouncil/2024/01/10/key-person-risk-what-is-it-costing-your-business/ Accessed March 2025
[iii] https://commonslibrary.parliament.uk/research-briefings/sn02792/
