Business bites - Private dental practices in vogue as buyers seek out quality
This article was first published in Dentistry on 07 June 2018.
Something is stirring in the private dental market as a part of the sector which for many buyers was considered off limits has suddenly become ‘in vogue.’ Why is this and what does it mean to anybody thinking about buying or selling a private practice in the current market?
The majority of calls Christie & Co receives from prospective buyers follow a similar pattern to the following; “I’m looking for a four surgery mixed practice with a GDS contract and good UDA rate with potential to grow private income.” The reality is that there is still an imbalance between demand and supply for this type of practice. However, when the prospective buyer is asked whether a private practice would be considered as an alternative, the answer is increasingly “yes.” With continued speculation about NHS contract reforms and zero growth year on year in NHS dentistry (at best), together with serious price inflation over the last few years in the NHS sector, it’s little wonder that buyers are now turning to private dental practices.
So what’s driving this?
The reality is that GDS contracts are, in general, becoming more difficult to perform. As the recruitment market tightens and quality Associates become more challenging to attract and retain, upward pressure is exerted on Associate pay scales, which compresses profit margins. This is further impacted by falling Associates’ UDA output, with many now arguing that 6,000 UDAs annually is a reasonable maximum that an NHS Associate should deliver. Clearly if average output reduces then ‘spare’ UDAs need to be attributed to other Associates to avoid contract underperformance and clawback.
Conversely, private dentistry is highly profitable. In a strong economy, demand for private dentistry increases and many smaller groups, who have built portfolios of NHS practices, are now focusing on growing private income to balance the risk of the NHS reforms and continue to grow their businesses as costs inevitably increase. They also know that being able to offer private dentistry will reduce Associate attrition as careers can be developed ‘in house’ rather than elsewhere.
The net effect of this is that demand for quality private practices has increased over the last 12 months and with it, prices paid. Recent transactions confirm that prices for private practices have, in some cases, risen at a faster rate than NHS and we see this trend continuing for the immediate future.
Valuing a private practice is much more technical than a typical NHS business and it is vital to take accurate and proper advice from an experienced broker who understands this market.
The article can be viewed on Dentistry.co.uk here.