Specialist business property adviser, Christie & Co provides an overview of the UK dental market in the first half of 2018, reflecting on previous expectations, emerging trends and challenges facing the sector.
With an estimated 450 – 500 separate transactions annually and demand exceeding supply in most areas and market segments, there is no doubt that the landscape of the dental market is rapidly changing. The landscape at the top end of the market has changed significantly over the last 18 months with four of the largest corporate operators either sold or taken in significant private equity investment to fund future growth.
Meanwhile, unbranded, entrepreneurial and cash rich multiple practice owners continue to expand, while keeping an eye on achieving an exit at some of the heady multiples which have recently been achieved. This ‘multiple arbitrage,’ the difference in entry and exit pricing, is partly what is fuelling demand across the industry and will continue to do so for the foreseeable future.
As part of Christie & Co’s Business Outlook 2018, published at the beginning of this year, the team shared its market predictions for the year in the sector. At the end of 2017, we saw a flurry of M&A activity and predicted that this would continue into 2018. This included the sale of 16 strong Avsan Holdings and Metrodental in London.
It’s not all plain sailing however and the shortage of associates in more remote areas is creating a two tier market, and corporate and multiple operators more cautious about acquiring where recruitment is challenging. This directly relates to NHS contract performance, where buyers are becoming much more diligent about practices where UDA performance is outside the 4% tolerance laid down.
The lack of associates has continued to put upward pressure on pay scales leading to margin erosion for many practices in the context of NHS contracts, which are highly sought after and profitable.
The improved demand for private practices continues, as predicted, and are now being recognised as the main source of growth in a dental business.
Major transactions in 2018 have included the merger of Oradi Dental, a portfolio of three high quality NHS and mixed dental practices in Northamptonshire, to Dental Care Group, a leading provider of NHS and Private dentistry in April.
Generating significant interest and multiple offers, Christie & Co brokered the sale of Showman & Clark Dental Practice, a NHS practice in Droylsden, Greater Manchester to expanding local operator, SimplyOne Dental in January.
In May, Christie & Co also brokered the sale of Dentapol, a group of six high quality, mixed income dental practices with locations across Dorset in an off market transaction to the August Equity-backed dental company, Dental Partners. The acquisition brought the number of practices owned by Dental Partners at that time to 27 with further acquisitions in the pipeline.
Christie & Co will release its Business Outlook 2019, presenting an annual overview and year ahead forecast of all of its sectors, including Dental, in January 2019.