The UK dental market has bounced back to pre-Covid levels, according to business property advisor, Christie & Co, which today released its 2021 mid-year review.
The first quarter of the year saw a glut of deals carried forward from 2020. Increased buyer confidence and the threat of a rise in Capital Gains Tax (CGT) in the chancellor’s spring Budget contributed to a record volume and value of deals completing in a short period of time. Moving through 2021, deal volumes are returning to pre-Covid levels, but the likelihood of CGT rises in the autumn Budget could place another artificial deadline for completions leading to a spike in September and October.
Pricing and deal terms have returned to pre-Covid levels, and multiple offers are coming in on higher-quality practices. But, with demand continuing to outstrip supply in most segments the lack of new opportunities coming onto the open market is leading to premium prices being achieved for many practice types. This also means that competition for practices remains fierce, with multiple offers on practices being commonplace. Christie & Co agreed offers with an aggregate value of £200 million during Q4 2020 and Q1 2021 and received an average of three offers per practice.
There is limited evidence of distress in the dental sector despite the pandemic, however smaller practices have inevitably found it more difficult to adapt to the new operating procedures. There is evidence of price inflation for larger practices, and it is likely that corporate buyers will continue to bid aggressively for such businesses.
Christie & Co saw an increased number of buyers coming into the market; both established dental companies that had put their expansion plans on hold in 2020, and new market entrants that have been encouraged by the positive way that dentistry adapted to the post-lockdown trading environment.
There is an emerging trend from buyers, particularly corporate and dental groups, becoming more entrepreneurial in how they treat ‘deferred consideration’ in the sale of larger private practices. This is aimed at aligning the financial interests of buyer and seller after completion for a defined period, not just to tie in the seller but to incentivise the business to grow under new ownership and to share in that upside. There is evidence now of a number of new buyers coming to the market offering this alternative to the traditional structure.
Deal structures briefly adjusted in mid-2020, with buyers looking to defer part of the proceeds as a result of the perceived increase in risk. However, the quick recovery in the income of most dental businesses has boosted confidence, and deal structures are now broadly similar to before the pandemic.
Bank lending has also returned to near normal levels, encouraged by the strong trading conditions that many, particularly in the private sector, have experienced especially in the last six months of last year. Despite a prior nervousness to lend to first-time buyers, banks in England are generally supportive of the dental market – which has fared well through the pandemic – and a number of challenger banks are coming into the market which is positive for those wanting to acquire. Banks in Scotland are also very keen to lend, which is encouraging for those wanting to dip their toe in practice ownership.
The review report concludes with a look ahead to the remainder of this year. Christie & Co predicts that NHS reforms in England are on the horizon. The contract reform programme in Wales might point the way to a capitation-based system, as Scotland has been for years, however whether these are workable in England given the access issues experienced through the pilots and prototypes, is another question. Additionally, Average Earning Payments from NHS Scotland are due to end in July which, due to fewer rules and restrictions, will make transacting easier.
Paul Graham, head of dental at Christie & Co, said: “The market has rebounded incredibly well and, whilst the profession is still experiencing some operational challenges, this hasn’t hindered the appetite coming from investors looking to acquire. Practice owners looking to sell their business can be confident of pre-Covid demand.”
Read the full report here.
Date published: June 30, 2021