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MediEstates - ASK DEAN: What factors affect the multiples which determine the value of a dental practice?
ASK DEAN: What factors affect the multiples which determine the value of a dental practice?


What factors affect the multiples which determine the value of a dental practice?


When it comes to the valuation of a dental practice it’s no longer about using the traditional method of percentage of turnover. Today, most practice valuations are carried out using the EBITDA method - Earnings Before Interest Tax Depreciation and Amortisation - a metric used to more accurately evaluate a company’s ongoing operating performance. Once the EBITDA figure has been calculated, it is then multiplied by a number that is determined by the business, the market and the economic climate to eventually result in an accurate practice value.

Those currently looking to purchase a dental practice fall into two distinct categories - the individual owner/occupier and the group/corporate multi-site owner. Individual practices are currently valued using a multiple of EBITDA or a multiple of the net adjusted profit. For larger groups of three or more practices, a higher valuation multiple of EBITDA is used. Generally, the lower the perceived risk and the more sustainable the profit is, the higher the profit multiplier for groups can be.

Calculating the value of a practice is not a straightforward process and a number of variables and considerations need to be taken into account. With so much at stake, it’s worth looking at the various considerations that impact the multiples used in the valuation procedure.

Location and demographics
Practice location is one of the most significant factors when it comes to obtaining accurate valuations. London remains a ‘hotspot’, where demand for practices often exceeds supply and competition for those practices that do come to market is intense. Valuation multiples can also be higher in other popular areas such as the Home Counties and the Midlands.

Urban areas - major cities and towns - versus rural and remote locations all affect UDA rates, salaries, rental costs, general overheads, the number of patients and crucially, the recruitment of the dental team. It goes without saying that a practice in a poor location, unable to attract and retain key members of staff, finds it extremely challenging to either fulfil NHS contracts or drive private revenue and therefore we would expect to attract lower multiples for such a sale. That being said, for the right principal, this type of business can offer extremely good value for money. For NHS and mixed practices UDA values vary across the country.

The property itself
It’s important also to look at the commercial property itself, whether it is freehold or leasehold, as well as the number of surgeries and the demographics of the surrounding area. Awareness of average earnings and the disposable income of the local population and any future commercial and residential developments nearby gives prospective buyers a realistic idea of the future potential of the practice. By looking at local figures of sale and lease prices for properties, along with the average value per square foot for the area, it is possible to analyse the average value for the bricks and mortar of the practice.

Consideration also needs to be given to the costs of the business, including staff, establishment costs, and the clinical costs which can usually be a practice’s highest expense. One way to reduce costs and therefore increase the EBITDA, is to think how best to run most efficiently. For example, implementing automated systems and processes to handle certain aspects of the business can have a positive impact on the productivity and profitability of the business.

Help is at hand
Every dental practice is unique, so when it comes to the complexities of selling or buying a practice it makes sense to enlist the help of a team of dedicated dental practice brokers to achieve the right valuation and manage the practice transition. MediEstates, the UK’s largest specialist dental practice broker, is marketing over 140 dental practices at any one time and our specialist dental property experts are here to help deliver a smooth transfer and successful deal.
Posted by: Dean Barker on 08 Nov 2018

General Buyer Terms 

This agreement is in relation to MediEstates Limited whose registered office is at 1st Floor, Pacific House, Stanier Way, Wyvern Business Park, Derby, DE21 6BF acting for and on behalf of our clients ("the Vendors"); and yourself (Buyer's Name) in relation for an introduction to a prospective sale of a business as a going concern. By registering through this agreement I agree to all terms set out below:

  1. Definitions
    In this Agreement the following terms and phrases shall have the following meaning unless the context otherwise requires:

    Business
    Dental Practice business providing dental care. This business is under the MediEstates Ltd sale terms.
    Confidential Information
    Means the actual Vendors identity and all confidential information in respect of the Business, including, but not limited to, any ideas, business methods, prices, accounts, finance, marketing, research, development, manpower plans, processes, market opportunities, intentions, design rights, product information, customer lists or details, employees’ details, trade secrets, computer systems and software, and other matters connected with the products or services manufactured, marketed, provided or obtained by the Vendor, and information concerning the Vendor’s relationships with actual or potential clients or customers and the needs and requirements of such clients’ or customers’ operations.
  2. Obligation of Confidentiality
    The Prospective Purchaser agrees to treat as confidential, information supplied by or on behalf of the Vendor in connection with the sale of the Business.
  3. Exclusions
    The obligation of confidentiality set out in clause 2 does not apply to:
    1. any information received from a third party who was legally free at the time of disclosure to disclose it;
    2. any information which was already lawfully in the Prospective Purchaser’s possession prior to receiving it from MediEstates Ltd on behalf of the Vendor; and
    3. any information which is in its entirety already in the public domain.
  4. Duties of Prospective Purchaser
    1. The Prospective Purchaser shall take such a reasonable security measures to protect the Confidential Information and trade secrets.
    2. The Prospective Purchaser shall not, without the prior written consent of the Vendor, permit any of the Confidential Information:
      1. to be disclosed, other than in confidence to its legal or professional advisors;
      2. to be copied or reproduced;
      3. to be commercially exploited in any way;
      4. to be used for any purpose other than in connection with the prospective purchase of the Business;
      5. MediEstates is registered under the Data Protection Act 1998. Upon Signing this agreement you agree to follow the legal obligations of this act to protect the details of the information supplied to you, with it no to be passed outside of the control of you the prospective purchaser.
    3. The Prospective Purchaser agrees to keep a record of Confidential Information received.
    4. The Prospective Purchaser will return to MediEstates or the Vendor all documents containing Confidential Information and all copies of those documents on demand at any time which are in its possession or under its control, and for this purpose the term “documents” includes computer discs and all other materials capable of storing data and information. The Prospective Purchaser agrees that such documents remain the property of the MediEstates on behalf of the Vendor.
    5. The Prospective Purchaser must not jeopardise or re-direct the sale under any circumstances.
    6. The Prospective Purchaser must not contact the Local Area Team or CCG regarding any practice sale, by any means of media unless written permission is granted from the Vendor.
    7. To carry out own due diligence on practice purchases and accepts that any information MediEstates has supplied is information provided by the vendor and is not responsible for its accuracy or completeness.
  5. This Agreement
    The existence of this Agreement and its terms are confidential and neither MediEstates nor the Purchaser may disclose anything about this Agreement or its subject matter or implementation to any person other than in confidence to their legal or professional advisers.
  6. Duties of Prospective Purchaser
    When buying Dental practices, finance is normally needed. Our organisation operated over more than one of the MediHoldings brand, by completing this from you agree that the information can be shared to our other organisations to avoid the need to register independently and provide the best possible service.

    MediEstates will refer you to the specialist dental lending team and MediFinancial who will contact the necessary banks, whom have preferential healthcare lending rates in some cases, to ascertain which funding is available to you.
    By signing this agreement you do not have to use any of the banks MediFinancial contact, it is just another service which we provide.
  7. Deposit for Dental Practice
    If you are interested in putting forward a formal offer in for a practice, once the offer is accepted there will be a deposit required to secure the practice sale which is dependant of the practice size. This deposit is held in a client account and will be returned to the buyer on completion of the practice sale. You the buyer, will be required to sign a deposit schedule which will cover the buyer and the seller in the event that the practice sale does not proceed.
  8. Changes to this Agreement
    Any changes made to this agreement must be authorised and signed by one of MediEstates Ltd Directors.
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