The dental market is evolving faster than ever and the last Dental Elite Benchmarking Report – which is available for free download on the website – provides key performance indicators like EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) margins, buyer demographics, and more. Financial Consultant, Bill Carr, and I, explored the latest insights at the Dentistry Show London as an extension of this report. It’s important to understand what these figures mean for current practice owners, those preparing for a sale, and those looking to purchase – allowing an improved comprehension of your future.
An appetite for dental finance
The potential for borrowing and lending within dentistry is easier right now than ever before. The medical sector is – to some extent – recession proof, so many banks are willing to lend to buyers, making dentistry one of the few low-risk lending sectors.
Banks that had previously taken a step back have now returned to dentistry, with at least five maintaining their interest in the market. For example, NatWest have reengineered their lending criteria, sharing an increased appetite for unsecured dental finance with other banks. Others have altered deposit requirements too – with some being reduced to as little as 10%.
Although capital gains tax may have some influence, momentum comes from the continuous confidence and optimism of strong market conditions.
The present and future of consolidation
Although corporates have started purchasing again, most of the market continues to be independently owned, representing 60% of practices today. Whilst consolidation is certainly altering the dental market, data shows that it has not yet taken over. Around 23 larger dental groups own roughly 2,500 practices across the UK – which is just 20% of the total. After that, the following approximate 2,000 practices are owned by roughly 600 individual entities, with the rest independently owned. This balance matters because it reiterates the saturation of smaller practices over corporates.
Practice profitability is key to attracting either a corporate or individual buyer. A general ballpoint is that practices generating less than £200,000 EBITDA now sell nearly exclusively to independent buyers, with groups typically focusing on those generating above £400,000. Due to this, the proportion of Dental Elite transactions with dental groups has fallen from 35% to 30% in the past year, indicating two broader concepts: larger groups are becoming more selective and smaller buyers are becoming more market competitive – partially due to the increased ease in access to support and funding.
Buyer selectivity
Price isn’t the only consideration for vendors who receive an offer – ideal structure often matters as much, if not more.
Regionally, completed transaction patterns have remained consistent, with the greatest level of activity being a straight line from Manchester down to London onto the south coast. Opposingly, the North East and South West Peninsulas see fewer sales, which is largely due to recruitment challenges and a less competitive market. For buyers, this trend indicates where is easier to buy for those without geographical restrictions and looking for a long-term investment.
Sustainable costs
For vendors, it remains crucial to manage budgets very carefully in the lead up to a sale. Small cost increases can accumulate into significant outgoings over time – which, in turn, will affect the EBITDA value.
This includes the steady rise in operational expenses over the years, such as the increase of National Living Wage and National Insurance Contributions for employers inflating from 13.8% to 15%, with a reduced threshold from £10,000 to £5,000. All these cost rises are as in addition to higher staff expenses, and increased marketing expenses.
What to do with this new tool
Constantly updated data allows buyers and sellers alike to understand the market and how external factors may impact the purchase or sale of a practice. Despite the fluctuation of certain aspects like bank involvement, many elements remain – including regional trends, developments in buyer behaviour, and other social shifts. How practices are financed and ultimately sold within the modern dental field is affected by these aligned understandings.
For principals – whether planning to exchange imminently or in the future – knowing these trends and subtle market movements allows more strategic decisions to be made, particularly with the support of Dental Elite, whose team of professionals can assist in following and preparing for the market shifts.
For more information contact Dental Elite. Visit www.dentalelite.co.uk, email info@dentalelite.co.uk or call 01788 545 900
Author: Luke Moore, Co-Founder and Director of Dental Elite
