Luke Moore discusses fluctuations and cycles in the economic environment.
The dental market is continually shifting and so gaining a clear snapshot is not always straightforward. This is especially so in light of recent activities in the market, such as the Portman and Dentex merger and, of course, the announcements in the recent mini-budget. Another topical subject at the moment is that of NHS contracts, with many practice owners contemplating whether to give back some, or all, of their contracts in a bid to grow their private services and protect their baseline profits.
This comes as a partial result of the rise in inflation and the increasing costs for staffing, lab fees and materials. While it can be tricky to gain a clear image of what’s going on at the moment, it’s still worth reflecting on the market’s activity over the past few months.
A summer review
Focusing on group valuations in particular, there have been strong performances for NHS, mixed and private practices, in areas such as the Midlands and in the South East. Birmingham has also been a prime area for private and NHS practices. There are also more buyers appearing in the South West, including a corporate group that is seeking to acquire all three types of practices. Multiples for private and mixed practices are high at the moment – the same can be said for the smaller to mid-size NHS practices. So, there are buyers out there, which is important if you’re thinking of selling at some point in the near future.
As a result of the current economic environment, where shifts are happening at breakneck speed, will NHS multiples begin to decrease if they haven’t started doing so already? Rising costs are a concern across every sector of society at the moment, and it’s likely going to continue being a challenge for some time. Alongside material costs and lab fees, the current recruitment crisis means that many employers are likely paying more in an attempt to retain staff as well. The NHS announced their 4.5 per cent pay rise (which may look more like 3 per cent when it has been processed through the NHS system), but again, will it actually help businesses offset the rise in costs? It’s worth noting that, in any other context, this pay rise will likely have been welcome, but in this current climate it’s hard to gauge the difference this will make just yet.
Going private?
Many NHS-heavy practices that are feeling the squeeze may consider growing the private aspect of the business, in order to offset the loss of profit from the NHS work they’re completing. Multiples for smaller to medium sized NHS practices are likely to be similar to pre-pandemic, but as discussed, the profitability of the business may be reduced due to higher costs that you have no influence over. There are a few ways that a business can increase its private element – if financially and spatially feasible, adding an additional surgery is one way to grow private income. Or, reducing your NHS contracts marginally could also be considered – you’ll still have an underlying NHS bedrock to function as a mixed practice, but you’ll have the time and space to nourish the private side of the business. As you can set your own private fees, and increase them exponentially, this may help you offset certain pressures on your business.
When valuing a practice, some experts will advise you on how you can grow your private income – this will not only help you mitigate rising costs, but may also increase your practice’s profitability should you wish to sell further down the line. It’s worth noting that specialist advice is also crucial when considering handing back NHS contracts. It’s impossible to determine how the market will look in the coming months, and any changes you wish to make should be well thought out and planned with professional input.
Find out more
The dental market is cyclical. How it appears now might not be how it appears in the coming months. For a more in-depth analysis on market insights over the past few months, visit the Dental Elite website and register to watch their free webinar, “A summer review and market insights from leading figures of the dental industry”. You can join Phil Kolodynski, Matthew Hadman, Mike Bryan, Paul Shinwell and Nick Moore as they discuss topics from the current practice sales market and recent multiples, NHS contracts and the impacts of the rise of inflation.
Visit the Dental Update Webinars page to watch the webinar on demand.
For more information call 01788 545 900, email info@dentalelite.co.uk or visit www.dentalelite.co.uk