A surge in demand
In January and February this year (UNW Bulletin and Dentistry magazine), we predicted that there would be a surge of new buyers entering the dental market from overseas and within the UK.
This proved true with the recent major acquisition of large corporate Southern Dental by Switzerland based private equity company, Jacobs Holdings, and small group Genesis Dental Care (which consists of 11 sites in locations including Derbyshire, Lincolnshire, and Yorkshire) being purchased by August Equity, based in London.
Demand is still outstripping supply
The first half of 2017 has seen record number of buyers register to purchase, with 408 new buyers registered with Mediestates since the start of January this year.
This takes us to well over 4,500 buyers looking to buy and ensures we have seen no softening in the prices of dental practices, creating more buying competition and keeping dental practice values strong.
Banks’ taps still open for funding practice purchases
Bank lending rates in the dental sector are at one of the lowest points in recent years, with some deals going through at between 1.9 and 1.98% above base rate. This, alongside extended credit terms and in some cases 100% lending, made funding much more accessible in the dental sector.
NHS contract reform
With the changes to NHS dental contracts still not clear, we do not envisage there being a total contact reform before 2020.
Some concerns brought to the fore by the 81 practices currently testing the NHS dental contract prototype arrangements are:
- Issues around the complexity of remuneration between activity and UDAs
- Complicated contract management
- Incorporating high need patients
- Assessing access
It is anticipated that the Department of Health will publish an evaluation of the findings and performance of these prototype arrangements in the autumn of this year.
Practice location – located centrally in a city on the south coast, this practice has been established for over 30 years and was set up by the current principal. The practice benefits from good accessibility for all patients, making it a desirable acquisition for the incoming purchaser.
Type of practice – this three-surgery practice benefits from holding an NHS orthodontic contract and an NHS general contract, along with small capitation scheme and FPI patients. There is huge scope within this already thriving business for further growth and development. The freehold premises are owned by the vendor, who was happy to consider offers either with the sale of the property or on a leasehold basis.
Financials – the practice NHS contracts combined held a value of c£220,000. This gave a total turnover of £436,756 with the private income and capitation included. The net profit was higher than average and could be improved further with careful planning by an incoming buyer.
Buyer appetite – the practice advertising was focused towards buyers with a specialist interest in orthodontics. This resulted in a total of seven viewings and a subsequent offer for the purchase of both the business and the freehold property.
Reason for sale/incoming purchaser – the vendor wished to retire from running the practice with the option to stay on if required by the incoming buyer. This was the buyer’s first acquisition and he hopes to obtain further sites locally over the coming years, growing their portfolio in the area.
Price achieved - £440,000 for the goodwill, equipment and fixtures and fittings, in addition to £200,000 for the freehold premises.
Practice location – originally established in 1975, the current principal and his wife acquired the business in 1993 as a going concern. The practice is located in the third largest English district by population within a highly sought after area, and benefits from being surrounded by excellent transport links.
Type of practice – this is a four-surgery NHS practice. The clinical work is completed by the vendor and his wife in addition to four part-time associates. The freehold premises were to be included within the sale and were valued at £230,000.
Financials – the annual turnover of £717,175 is derived predominantly from the NHS contract worth just under £670,000 for c21,000 UDAs, boasting huge potential to grow the business by implementing private treatments.
Buyer appetite – the practice was advertised to our premier tier buyers only, with nine viewings taking place and a timely sale being achieved.
Reason for sale/incoming purchaser – the outgoing principal and his wife ideally wanted to retire immediately; however, has since agreed to continue working at the practice to ensure a smooth transitional period is achieved as this was the buyer’s first purchase.
Price achieved – £1,255,000 for the goodwill, equipment, fixtures and fittings, which was greater than our valuation.
Practice location – established for over 60 years, the current principal acquired the practice in 2013 as a going concern; however, their plan has changed and are now relocating. The practice is located in a mainly residential area in west Lancashire close to a seaside resort, with local shops and amenities close by. There is also the added benefit of free parking outside the practice.
Type of practice – this is a five-surgery practice – four of the surgeries are currently in use with the fifth surgery available. The practice is currently open Monday to Thursday. Available on a leasehold basis within a detached property that occupies the whole of the ground floor, this practice has lot of potential for further expansion.
Financials – annual turnover of £542,510 is derived through an attractive NHS base of £410,000 over 15,000 UDAs, fee per item and capitation based patients. The practice has huge scope to increase the private turnover by opening for additional days and utilising the fifth surgery.
Buyer appetites – we successfully marketed the practice with the details being sent out to over 500 buyers. Nine viewings took place resulting in multiple offers being placed. Due to the demand of the buyers and various revised offers we were able to reach the vendors expectations through a sealed bid.
Reason for sale/incoming purchaser – the vendor was looking to relocate so wanted to exit the practice on completion, to move forward with their future plans. The incoming purchaser already owned another practice close by, so planned to work between both practices and further expand their existing portfolio.
Price achieved - £985,000 inclusive of the goodwill, equipment, fixtures and fittings, and was greater than our valuation.