We are currently in the last quarter of the year and the dental market is very active, with a great demand for all types of dental practices in the UK.
The NHS contract is still considered a great option, with its “evergreen” status ensuring high recurring revenue and quality of earnings. Meanwhile, private practices are also achieving great completion prices and demand for these types of practices is on the rise. Current figures suggest around 19% of dental patients currently receive wholly private care.
Approximately 400 practices are coming to market every year and the UK dental market is highly fragmented with around 16% of the total practices in the UK owned by corporate groups. Currently, we see completion prices averaging between x6 and x7 EBITDA for single sites practices.
Dental groups with an EBITDA in excess of £1.5m can be sold at higher multiples, but we are rarely seeing independent single sites selling above x7 EBITDA.
Best way to maximise the sale value
At Samera, we feel the best way to maximise the sale value is by having a competitive sale process and approaching the market with the true value.
Increasingly, buyers are scrutinizing contract performance rather than NHS contract value, analysing statements of activity and QOF for the quality of delivery of the contract, as well as looking at each associates delivery of UDAs and private income for sustainability. Clearly, an associate delivering 12,000 UDAs per year is a risk, and a low UDA value sub £23 is also a risk as it represents a low-profit-margin, especially in areas where it is harder to recruit.
Some of the large groups are not as active as they were 3 years ago on the acquisitions front, allowing an opportunity for well funded other buyers to acquire practices that in the past would have been approached and acquired directly by large groups.
Whilst in many ways it may still be a seller’s market, the smarter well-funded buyers are questioning valuations now more than ever. Many of the expanding groups are acquiring with the view to be able to sell their larger group in a few years at a higher multiple than what they paid for it. By paying over the odds, now, makes it a pointless exercise if they overpay – in their eyes.
Make your money when you buy
As any savvy investor clearly knows, you make your money when you buy – not when you sell!
Therefore, it is imperative, that any seller presents their practice well, transparently, and with realistic expectations of what they can expect rather than a valuation that is way beyond the market norms. Whilst it may feel great to be told by a keen broker that your practice will sell at record levels, the savvier buyers learn quickly who to work with and what value to believe.
If sellers expectations are set too high, many months can be wasted and credibility from strong buyers is lost too.
Trust plays such an important part of the deal.
Remember, anyone can make assumptions and add thousands of ££ to an `adjusted` EBITDA, but the danger is to lose credibility in the marketplace and to put the sellers in a vulnerable position.
We feel valuers have a responsibility to value businesses accurately. They also need to discuss with buyers and sellers the real potential that can add value and increase the price, and make real financial adjustments that will be sustainable once the sale is completed.
There are many types of buyers in the actual market, some whom do not need to rely heavily on bank loans, such as corporate buyers, whilst some others might be able to offer more clinical flexibility post completion such as individual or multi-sites owners.
It is common to see part of the price paid on a deferred basis, predominantly in the sale of private dental practices, or in relation to the private income of the practice, over a period of time and usually linked to the performance of the practice.
It is always advisable to have a conversation with a specialist dental sales agent.
Free Dental Practice Valuations with Samera
Our agents at Samera always try to match the right practice with the right buyer, for the right price and terms. If you are thinking about selling or perhaps maybe considering this in a few years check out our Samera Practice Valuation – it has been designed for dentists planning their exit in a few years.
For an accurate market appraisal of your practice, get in touch with one of our friendly and professional specialists.