Dental Practices

Whilst there has been significant merger and acquisition activity in the market over the past 12 months, the corporate sector still only accounts for around 13% of the total practices in the UK. A mid-market is emerging as companies such as Dentex, Dental Partners and Perfect Smile move towards (or through) the fifty site mark. Additionally there has been a surge of start-ups, with smaller dental practices looking to grow rapidly so that they then become an appealing proposition for future acquisition.

The challenges faced by operators in recruiting and retaining associate dentists has driven the demand from corporate purchasers, towards urban locations. However independent buyers are less sensitive to this as they are generally “buying a job” and looking to work at the practice themselves as principal.

In the NHS sector, offers are increasingly based on actual contract performance as opposed to baseline contract value. Both buyers and lenders are more sensitive to claw-back and breach notices. Local area authorities are taking an increasingly hard line when the 4% performance threshold is breached.  A two tier market is emerging in the NHS sector.  Well located and/or run practices that have consistent UDA (Units of Dental Activity) performance are selling for significant premiums. In contrast those in remote locations with a history of under-performance are now being sold based on actual performance rather than baseline contract values.  Also of concern are increased running costs that are compressing net profit margins.

There has been a discernible shift in demand towards the private sector, particularly by corporate and multiple practice owners. This is to balance the risk of forthcoming phased contract reforms, to mitigate the net reduction in NHS funding and to drive revenue yield at practice level.

After a number of years of pilots and prototypes, the ‘new’ NHS dental contract is planned to be phased in in 2020. It is yet to be confirmed how many practices will be affected, but it seems that the first phase of conversion may be on a voluntary basis to establish proof of concept. Crucially there is no suggestion that GDS contracts will be time limited nor will UDA values be reduced. It is anticipated that there will continue to be high demand for mixed practices, particularly from independents who are in most instances both owner and practice principal.

Despite the challenges faced by operators, dentistry is perceived as a safer proposition for banks and other investors when compared to many other business sectors. Whilst private dentistry can be considered discretionary, the restriction of treatments on the NHS means that even in a challenging economy, demand for private dental treatment remains robust.

As a specialist property sector, the purchasers of dental surgeries consider the market on a regional and national basis, with owner-occupiers being attracted by the fee earning potential of a practice. There is also a keen appetite for dental practices as an investment opportunity. In considering such a proposition, purchasers are motivated by the perception of the tenant’s covenant strength and the anticipated security of the income stream. These aspects are regarded as being more important than specific locational factors.

Our clients in the dental sector include owner-occupiers, landlords, tenants, lenders and SIPP/SSAS providers. Whether you need guidance on acquisition, disposal or a valuation for other purposes you can be confident that we provide accurate, market driven advice, prepared to the highest standard. We provide a single point of contact for those instructing which ensures a prompt and consistent service from instruction through to the receiving of completed valuation report.

If you would like an in-principle discussion about the property issues affecting your practice, feel free to call us and one of our expert and friendly team will be happy to have a chat. You can contact us on 0808 169 8881 or by email via information@commercialsurveyorsdirect.co.uk. Alternatively, if you require any further information, click here.