Dental Elite releases mid-year goodwill report

03 November 2021
3 min read

Dental Elite has released its mid-year goodwill report to show some interesting findings from practice sales over the last six months. It shows what is happening in the market currently and will give you an idea of what selling your practice will do for you.

This survey covers successful sales made after the April 1, 2021, until September 30, 2021. This is the first period in which deal volumes and the types of deals completed have not been affected by the Covid-19 pandemic. Due to this, the report reflects a “normal” market with willing buyers and sellers whom are not affected by the uncertainty of the pandemic.

The current market
This report paints a very positive picture of the current market, with all indicators pointing in the right direction, although there is one anomaly with a small fall in the adjusted (normalised) EBITDA multiple, despite a growth of double in actual EBITDA multiple. The anomaly is difficult to explain but could be due to a number of larger deals completing ahead of the budget announced in March 2021, which would have been reported within the previous survey and therefore impacted the average slightly. Overall, the amount of deals were lower in the full survey for the fiscal year-end 2021 than would have been the norm.

However, the average value of a deal has grown by almost 20 percentiles, and this is the second consecutive time it has risen. As the demand for private dental care has increased, this will have impacted the trading data for dental business and therefore played a part in increasing practice asking prices. These turnover surges may seem modest at £50,000-£100,000 rises, but when applied to valuation models they will lead to strong upticks in both sale value and when expressed as a percentage of gross fees.

EBITDA and net profit
The increases in the multiples of both adjusted net profit and EBITDA show that the market is reflective of a market that is generally busier than it was six months ago. This is supported by both cheap and accessible debt for dentists whom are looking to buy dental businesses with loans that have a very low equity:debt ratio. The bigger corporates are still buying aggressively, backed by private equity. This shows that investors are still keen to invest in dentistry despite potentially making a lower profit or having businesses go to extra lengths to reach the desired return on subsequential divestment, many relying on easier to achieve organic growth.

The impact of regions
By its nature, this interim survey demonstrates a lower deal quantum so there will be areas where its data is unreliable. When looking at private practices in the North-West and the mixed practices in the North, these are hinged on only one to two transactions. Consequently, it would be very inaccurate to say that a mixed practice in the North-East is worth less than a year’s profit. This reflects a specific case which means that some of the granular data is a little volatile – particularly in the interim report. Businesses that proved most valuable include practices in London, the South-East, and the Midlands, but there is a strong appetite for the vast majority of practices nationwide. Scotland isn’t very far behind, which is interesting because this is very different than what was seen as little as three years ago.

The full report
As most dental transactions take an average of six months to complete, the deals agreed list gives a flavour of what the full report might say. It is probable that the full report will demonstrate a further rise in both average sale value and the EBITDA multipliers – particularly for mixed and private practices. Whether NHS practices can maintain 8.30x EBITDA multiples will be interesting, especially given that toughened UDA targets in 2022 could cause multiples to dip when re-introduced.

Finally, the higher adjusted EBITDA multiples for NHS practices compared to any others is a strange outcome – it doesn’t seem to match anecdotal evidence from the same time period. Looking deeper, there are reports that 47 per cent of NHS transactions were to a first or second tier consolidator in this period. This may be the result of bigger groups approaching an exit who need paper confirmed EBITDA. In contrast, the top two tiers only represent 29 per cent of overall transactions, but this continues to move upwards slowly each time a report is collected. This all points to faster consolidation of the sector, though we will have to see what the near future holds. For now, you can download the full interim report from the Dental Elite website, or contact the expert team for advice.

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