The UK dental practice market – where are we now?

As we approach the end of the year, I think it is fair to suggest that the economy has taken quite a battering in 2022, with further headwinds still to come. Equally though, we shouldn’t write-off the many successes achieved and positive trends that have emerged. These can often be overshadowed too easily – it takes years to build the market and just weeks to pull it down.

I understand that the dynamics of a buyer versus seller relationship and their respective objectives can become arduous and conflicting, however, during times of flux, it’s important to take a balanced view and tune out the noise.

To provide a snapshot of where we find ourselves at the end of 2022, our year-to-date figures offer a positive story. At Christie & Co, we have:

• Generated 360+ viewings
• Secured a minimum of one offer for every two viewings
• Received 250+ offers, with an aggregate value of £750m+
• Launched 105+ new practices to market
• Completed on 100+ practice sales
• Sold 75% of practices to independent buyers.

Take your time

What we have seen economically and politically in recent weeks and months has undoubtedly created a more cautious atmosphere. However, healthcare is, of course, a needs-driven sector and dentistry is sufficiently robust to weather this storm in the right hands and with expert guidance. There is no textbook time to buy or sell, it’s more a case of assessing the market, the opportunity, your personal objectives, and, importantly, the supply and demand at that time.

To do that, those looking to divest or invest in a dental business need to have someone by their side who is in tune with all the market dynamics. If you are looking to sell, please consider seeking advice from a specialist broker that is RICS-regulated and has a deep understanding of the sector.

By preparing early, you’re giving the broker plenty of time to understand the business ahead of a potential sale, which will give them the opportunity to identify any possible hurdles and actions to be taken in advance to ensure the best possible outcome is achieved.

Funding landscape

The market is as buoyant as it has ever been, which gives lenders comfort that the sector is still strong and that there are plenty of growth opportunities for operators.

The rise in base rate from 2.25% to 3% – the biggest increase for 33 years – and with potential rises still to come, lenders are being more cautious about the funding they offer.

As a result, they will be stress testing practices at a higher rate so where previously a lender might have tested Debt Service Cover (DSC) at 6.5%, they are now applying a 5% base rate plus your interest rate to ensure durability of the profit to repay the debt of the loan.

This could mean that when you are calculating DSC, you are working on loan repayments at 8.5%, This sounds like a huge amount, but when you make a comparison to the lower rate, it should be easily achievable by a stable business and via a robust business plan.

Whatever your position, be it a first-time purchaser or a multiple site owner, it’s important to have as much available cash deposit as possible, which will allow you to reduce your loan to value, which is typically between 90 – 70%.

Paul Graham joined Christie & Co’s Corporate Medical team in 2014. He was made Director in 2017 and was later appointed as Head of Dental in the UK, leading an expanding multi-disciplinary team of agents and advisors across the country, spearheading the brokerage side of the dental business, and driving significant high-profile transactions.

If you are looking to utilise security as part of that package, it can weaken the deal because of the amount of loan you have to take, which puts stress on the profit you need to make to cover the additional uplift in base rate. Demonstrating to the bank that you are in a strong cash position gives them comfort that their investment would be safe in your hands.

However, the banks are very much still lending and are confident in the necessity and stability of dental practices, and if you have the right experience and the right practice then you will have plenty of options.

Looking to 2023

In our Dental Market Review 2022, which we launched earlier this year, we reported that the value of sale prices in the UK dental sector rose by 8.6% in 2021, showing a growing incentive for owners to sell if they are ready. We also reported a 24% increase in buyers registering their interest in acquiring a dental practice, so it’s clear that the appetite for businesses is there.

We are currently working on our Business Outlook 2023 publication, which will be available early next year. Keep your eyes peeled for your chance to get hold of a copy, to help inform your future selling and purchasing decisions.

As seen in BDJ in Practice, Volume 35, December 2022.

If you are considering selling your dental practice in the next few years, it’s not too early to reach out to the experts. So, if you are interested in selling your practice, or for further information about the market in general, email paul.graham@christie.com or call 07739 876 621.