Winter is Coming! Is a price correction coming in the dental market?
Although Summer has passed, it is now that things are really heating up in the dental practice sales market, but I fear it may be an Indian Summer before Winter sets in.
We have seen over the last year that;
Prices for private practices have equalised and, in many cases, surpassed NHS;
premium buyers, holding out for the long term, are setting new record high purchase multiples;
Serious foreign investment commenced, and I predict will further extend with additional investors from Europe, South Africa, the US and China;
An influx of new private equity (PE) backed dental entrepreneurs have started to flood the buyers’ market;
The UK dental market is highly fragmented with around 15% of practices in the UK owned by corporate dental bodies, approximately 20% by multiple sites owners (2-19) and the rest owned by independents.
The Country’s largest dental corporate, once but no more, the World’s largest has been in its present ownership for considerably longer than normal PE time frames. We must all expect it to come to market soon.
Investors may see that as an opportunity to move into or consolidate in the UK in a big way or the market may see it as a rear-guard action off the back of some widely known trading difficulties to recover their money. If it takes that second view, then the price multiple achieved on exit may not be much more than they paid to get in over 8 years ago.
If that were to be the case, then many might think that the ‘bubble has burst’ and that is the market price correction I foresee coming.
With dental practice transacted values climbing so sharply (we have seen some practices reportedly sell at x11 multiples) the days of ‘doubling your multiple’ simply by the arbitrage of practice consolidation are already looking, to me, like the halcyon days of the past.
Irrespective of my prediction above, the reality is that today, there is;
still ample appetite for the best practices;
a real competitive race to grow, most easily achieved by group buying rather than practice by practice.
So, what does this mean for the dental practice entrepreneur today?
They should be asking themselves;
Prices have been rising, how much higher will they go?
If there is a downward price correction coming is now the best time to sell?
if prices do crash how long will they take to recover? Will they recover at all?
Is now the time for me to capitalise?
Have I got a ‘quality asset’? Whether single practices or groups, the highest standards in Physical assets and Operational delivery and Profitability, will always reach the best multiples.
If you decide you’d like to explore your current opportunities, then contact either Max or myself. We know some serious investors who are looking to speed up their growth plans, possibly due to some of the reasons I mention above.