COVID-19 and Dental Practice Values
The planet’s media is gripped by COVID-19 (coronavirus). Currently, the global and national reactions we are seeing is causing more economic and mental health damage than mortality, with the repercussions moving from the global health sphere into business and politics.
As a company, we have replaced meetings with more video calls and phone calls with clients, utilising technology to present opportunities to buyers and investors. This is something that we started doing 18 months ago and it is now more relevant than ever.
We are encouraging our clients to contact us by phone, email, video calls and social media and we have set up dedicated WhatsApp groups with all our clients, with access 7 days per week.
We are monitoring the situation and will adapt to upcoming government advice regarding meetings and social contacts.
It is normal that there is some apprehension, but we must try not to panic and we should plan for different scenarios. There is time now to learn social media platforms, photography, budget marketing and completing CQC.
So how will all this affect our economic corner where healthcare meets business?
NHS dental practice owners will be busily consulting about the force majeure clauses in their contracts which may deliver them full contract revenue without all the costs.
Private dental practices are a little more difficult to predict. There may just be silver linings to the current clouds, with all the economic giveaways that the Government have already announced and possibly more to come, such as;
Coronavirus Job Retention Scheme
Increase in the NI employee allowance;
Rates holidays for certain size businesses;
Grants (with Dental practices hoping to get the same 25k grant as Retail/Restaurants)
For both NHS and private dental practices the clinical wage bill has always been scaleable to the work performed, leaving the waged support staff as their biggest issue to address.
So how will all this affect dental practice values?
As usual 10 different people will give you 10 different answers, but the considered Pluto Partners view is this;
There is very strong appetite for NHS practices and groups now, and buyers/investors have no intention of slowing down the market.
Private Equity works with leveraged Debt. That debt usually comes with set timescales around repayment on the basis that a certain sum of money is available to spend for a certain amount of time. For both Corporates and the individual buyer with record low rates and the huge liquidity boost of Government backed loan facilities coming on stream, now is the time to look to buy.
The borrowers generally look to spend their money as quickly and efficiently as possible, so that they can either crystallise their returns and possibly go back to increase their borrowings or exit the sector.
They will not want to delay or slow down purchasing. The current climate will absolutely affect dental practices financial performance but investors will probably discount the effect as exceptional and focus on pre CoVid performance.
Indeed not all dental revenue will be lost forever, instead much of it will simply be deferred and buyers will take that into account when projecting forward.
A very recent Goldman Sachs analysis said ‘The consensus is that there is no systemic risk, no one is even talking about that. Governments are intervening in the market to stabilise them and the private banking sector is very well capitalised…It feels more like 9/11 than it does like 2008’.
Taking all this into account we see no imminent drop in dental practice financial values and we don’t expect to see it. We expect deal structuring on private practices to adapt, with higher proportion of the agreed price being deferred over a period of time, as a way to maintain and maximise practice value and minimise risk on investment.
Dental Corporates are still eager to view and make offers, we have only seen one or two of them delaying completions, so this could be an opportunity for the freshly financed independent dental buyers to step up and make the move from associate to principal.
If you wish to discuss your options, specifically in the buying or selling situation give us a call, now’s the time you’ve got spare to do it!
The entire Pluto Partners team are sending well wishes and support to all our clients, family and friends. We are committed as always to continue to offer the highest level of care to our clients and partners.
Keep well everyone, see you soon on the other side.
Nick & Max.