This year has undoubtedly seen unprecedented challenges for all businesses. After months of being unable to trade as a result of the first lockdown, you would expect to see corporate operators disposing of non-performing assets to account for lost income and higher costs.
Interestingly, we have not seen such a trend in the dental industry. Quite the opposite, in fact. Following a brief period of practice sales being put on hold, dental groups across the United Kingdom gradually resumed purchasing sites, now seeking to make up for lost time.
Groups such as Portman, Dentex, Rodericks, and Colosseum have all completed purchases in 2020, with Christie & Co handling several of the sales. Using an agent like Christie & Co that works solely for the seller ensures owners reach a very specific type of buyer and often creates competitive bidding processes that leverage demand and produce deals above the asking price.
While the dental sector has been significantly affected by COVID-19, and principals and associates alike face new challenges and a shifting landscape of regulation, the nature of employment has protected many businesses from some of the staff challenges that affect other sectors.
For example, in March, the UK government announced the introduction of the furlough scheme. Companies could continue to employ staff while they were closed or operating at a reduced capacity, with the government covering 80% of their wages up to £2,500 per month, and the company covering the remaining 20%.
In the UK, dental associates are generally self-employed and work on a profit share or commission structure, so they could not benefit from the furlough scheme. This meant that as practices were forced to close and owners continued to pay 20% of the wage bill for employed staff such as nurses and receptionists, they generally did not have to do so for dentists.
This left many associates without income for several months and drove them toward ownership in an effort to secure their future earning potential. The revenue consistency provided by Plan and National Health Service (NHS) income has also helped to shield many practices from the worst impacts of being unable to trade.
Following their reopening in June, and despite the significant restriction of fallow time, dental practices were not hampered by a reluctance from patients to return. Instead, most practices continue to struggle keeping up with demand. Patients who would usually utilize an NHS dentist are increasingly going private to be seen quicker, and some practices have passed on personal protective equipment (PPE) costs to patients.
Within months of reopening, several corporate operators were reporting a strong return of revenue, at least proportional to the number of patients they could see given fallow time restrictions. As opposed to discussing plans to pare down, group operators have emerged from lockdown with extra vigor to make up for lost time and restart ambitious acquisition plans.
We have also recently noticed an increasing trend in the number of associates looking to secure their income by acquiring their own dental practice. In fact, in the last year, approximately 80% of Christie & Co practice sales were acquired by independent operators.
Despite the ongoing burden of student debt, young independent dentists are commonly supported by banks keen to finance the relatively safe bet of dental businesses. Family money and associates pooling resources to build substantial deposits are common sights in a market where ownership is still very desirable.
This buyer appetite from both corporates and independent associates has increased competition in the dental market, bringing it to a level higher than we’ve seen in a long time. The total value of offers received by Christie & Co from July to August exceeded that received from January to March (pre-pandemic) by £50 million.
One example of the reinvigorated appetite from corporate operators is two mixed practices in Merseyside that a national group has agreed to purchase. The multiples achieved are in line with pre-pandemic pricing, and 100% of the proceeds will be paid on completion with no onerous tie-in terms.
On the independent side, we recently agreed to a deal for a two-chair mixed practice in Birmingham with a bank-funded first-time buyer, proving that the demand from the independent market is equally as strong. We fully expect this trend to continue with prices remaining in line with national demand.
Mr. Brown is an associate director within Christie & Co’s specialist dental team, advising those wishing to buy or sell a dental practice in the South and South West of England. He has been with Christie & Co for six years and manages around 10 to 12 sales per year.
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