Specialist business property adviser, Christie & Co, has launched its annual Business Outlook report, Business Outlook 2022: Adjust, Adapt, Advance, which reflects on the themes, activity and challenges of 2021 and forecasts what 2022 might bring for the dental sector.
Buyer appetite remains strong
The business reported strong buyer appetite for dental businesses throughout 2021, with corporate operators being particularly active. Established corporate buyers trying to fulfil ambitious buy and build targets face stiff competition from independently-owned dental groups trying to grow to platform size to eventually become suitable for future PE backing – this buyer profile is dominating the higher end of the market at the moment.
A continued lack of supply of good quality, larger dental practices led to extremely competitive bidding and many sales agreed above asking price. Between 2017 and 2021, Christie & Co saw an 11 per cent increase in the number of offers received and 22 per cent increase on unique offers received on dental businesses, showing rising appetite from new market entrants. The average number of viewings per practice rose, also, by 7.2 per cent in 2020 compared with 2019, and a further 9.3 per cent from 2020 to 2021.
For sellers of larger dental practices, the choice of buyer has never been so varied. A number of new entrants are looking to build groups and there are also more buyers for larger assets than ever before, which comes with the consolidation of the market.
First-time buyers continue to seek income security through practice ownership, often well supported by major high-street banks, and interest for practices in more suburban locations persists, as local operators are keen to live and work in one area. Patient numbers in suburban locations are also increasing in line with changing working patterns, as many people now work from home so, out of convenience, are choosing practices closer to home, rather than closer to the workplace.
The private dentistry boom
Since most dental practices re-opened in June 2020, patient demand for NHS and private dentistry has been unprecedented, says Christie & Co. The NHS sector continues to experience significant capacity issues caused by a huge backlog of patient appointments, whilst the private sector has boomed. Noticeable trends include the migration of patients from the NHS to the private sector and a general increase in the typical spend of patients, particularly on cosmetic and aesthetic dental treatments.
The reduced activity in the NHS sector has also freed up capacity in some practices for private dentistry to be introduced. Some practice owners are comparing the economics of running a practice with a more balanced income mix and are actively considering reducing their NHS commitments (when activity returns to 100 per cent) to retain the valuable new private income.
Demand for orthodontic practices rises
The rise of popularity in aligners, cosmetic dentistry, and the impact of video conferences/meetings over the last year, has led to an upsurge in the number of patients seeking straightening and whitening treatments and a clear increase in demand for orthodontic practices in 2021.
A number of the new orthodontic contracts (seven years + three years) have come to the market, and demand for these has been strong, particularly amongst corporate operators. Values per unit of activity are lower, but contracts are longer and so provide a greater degree of security than before. A limited supply of seven + three opportunities has resulted in competitive bidding and the same corporate buyers are looking further afield with significant orthodontic transactions happening in the Scottish market, where there are no time limited contracts, but they remain as valuable.
What’s next for the UK dental market?
Looking ahead at what’s next for the UK dental market in 2022, Christie & Co predicts that profit margins will come under further pressure as the increase in employer NI contributions is introduced. Practice owners, already under rising cost pressures, will need to consider ways to mitigate this through better cost management and/or fee increases in the private sector.
In 2017, Christie & Co reported on the shortage of dentists in the UK as a result of the EU Referendum result. These pressures remain, further compounded by an acute shortage of qualified nurses in the profession. Whilst the overall number has been reported as being broadly the same as pre-pandemic, a higher-than-average number have failed to re-register. The BDA is quoted as saying that this number was up to 3,800, with the main causes cited as relatively low pay and changes in working conditions. A lack of transience in the workforce because of the pandemic is also likely to have impacted the recruitment market.
Paul Graham, head of dental at Christie & Co, comments, “Whilst many NHS dental practices are experiencing operational challenges, many other practices, especially those with a cosmetic and specialist private offering, are prospering in the pandemic. The increase in consumer spend for higher value private treatments has helped operators to recover and even exceed previous income levels, in many cases.
“Even in the moment of maximum uncertainty in March 2020, the appetite from buyers within the dental sector merely paused. Since then, the favourable dynamics of the sector, which have undoubtedly been emphasised as a result of the pandemic, have really underpinned strong interest and buyer demand. Put simply, there are more buyers for assets than ever before, particularly for larger practices, which comes with the continued consolidation of the market.”
To read the full report, Business Outlook 2021: Business Outlook 2022: Adjust, Adapt, Advance, please visit: https://www.christie.com/news-resources/business-outlook/2022/