June 12, 2025 • 26 mins
Get your free verifiable CPD for this episode here >>> https://www.dentistswhoinvest.com/videos/dental-practice-market-outlook-2025-with-mr-luke-moore
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Curious about dental practice values in today's market? Wonder what's really happening with corporate buyers and whether NHS practices still command premium prices? The data might surprise you.
Luke Moore, Head of Dental Elite's practice brokerage team, joins us to unpack the revealing findings from their annual dental market report—a comprehensive analysis representing roughly 25% of all UK dental practice transactions. This insider's view of completed sales (not just valuations) delivers eye-opening insights for anyone considering buying or selling a practice.
We dismantle the prevailing "urban myth" that corporates dominate today's acquisition landscape. The reality? Independent dentists purchasing their first, second or third practices remain the primary buyers, while the largest groups have pivoted toward fewer, larger acquisitions with specific strategic focus.
The conversation explores why mixed practices command the highest multiples from independent buyers (averaging 3.87x FMT), while private practices are the "jewels in the crown" for corporate buyers (averaging 7.36x EBITDA). Luke shares fascinating details about regional valuation disparities, with practices in recruitment-challenged areas selling for significantly lower multiples than their urban counterparts.
Perhaps most revealing is the emerging trend of sellers prioritising complete payment at completion over potentially higher valuations with deferred components—a shift Luke attributes partly to mixed post-sale experiences reported by principals who've previously sold to larger groups.
Whether you're a practice owner contemplating your exit strategy, an associate exploring ownership opportunities, or simply interested in the business of dentistry, this data-rich conversation provides crucial context for navigating today's complex dental marketplace.
Earn complimentary verifiable CPD by completing the associated assessment through the link in our show notes.
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Disclaimer: All content on this channel is for education purposes only and does not constitute an investment recommendation or individual financial advice. For that, you should speak to a regulated, independent professional. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. The views expressed on this channel may no longer be current. The information provided is not a personal recommendation for any particular investment. Tax treatment depends on individual circumstances and all tax rules may change in the future. If you are unsure about the suitability of an investment, you should speak to a regulated, independent professional. Investment figures quoted refer to simulated past performance and that past performance is not a reliable indicator of future results/performance.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Dr James (00:00):
The UK dental practice market is constantly evolving,
ever-changing and dynamic, andthat's why we're joined today by
Mr Luke Moore, head of DentalElite practice broker within the
UK.
Luke is going to be sharingwith us the highlights from his
company's recent market outlookreport, so that we can get the
best bits and also understandwhat we can expect in these
(00:21):
coming months.
I'm also happy to share thatthere is free verifiable CPD
associated with this podcastepisode.
Whenever you finish the episode, all you have to do is click
the link in the podcastdescription.
It'll take you right throughthe Dentist University website.
You'll be able to complete ashort questionnaire and, once
passed, you fill in yourreflections and we'll go ahead
and email over to you yourverifiable CPD certificate,
(00:45):
which is entirely free.
What that means is this podcastepisode will be able to
contribute towards yourverifiable cbd hours during this
learning cycle.
Look, welcome back to denisoninvest podcast.
Let's talk, because that issomething that you have released
very recently with dental elite, right?
Luke (01:07):
yeah, so we've um, so every sort of about may or may
sort of mid-may time we releaseour annual goodwill report,
which basically covers everytransaction that we've acted on
in the previous fiscal year, umup until the end of march.
So it takes about a month orsix weeks or so to kind of
collate all the data.
Um, and what that looks at is,as an agent, we act on anywhere
between sort of 100 to 120individual dental practice
(01:29):
transactions in a year, and wethink that's in a marketplace
where roughly somewhere between500 to 600 deals happen in a
year.
So it gives you coverage ofsomewhere between sort of 20 to
25% of the market.
And as an agent we act ontransactions that might be worth
50 grand, transactions thatmight be worth 10 million and 10
million pounds, um, and so itkind of gives you a broad flavor
(01:50):
of what the trends are in themarket who's buying, who's not
buying, what they're paying,what they're not paying um and
basically what's going on,whether that's nhs, mixed or
private 50 grand for a dentalpractice.
I mean, obviously that's whenyou've kind of got a far sale,
so that.
So when you're talking aboutthose, they're normally losing
horrendous amounts of money,which does happen, because don't
when we do what.
(02:10):
I guess the one trend is whichwe, to be fair, we don't talk
about in the report um is thatwe are getting approached by
more and more squats, um as in,and they're people who sometimes
have been really successful.
So we've had some reallysuccessful sales or practices
that have only opened in thelast sort of three to four years
that have happened in the lastyear, where they've sort of
built it up, got it to like amillion to 1.2 million in
(02:30):
revenue, said, look, you knowwhat this is.
As far as I want to take it a,because there's a pivot point
when you sort of get beyond 1.2to 1.3 mil where if you're
selling the business, thenyou're more likely to sell to a
group, and if you sell to agroup you're more likely to have
post-sale conditions, iestaying on for a period of time.
So quite often quite a few ofthe frequent squatters for lack
of a better word um will, um, uh, will tend to sort of get to
(02:53):
that sort of 1.2 to 1.3 mark,and then sometimes we'll come to
market and then they'll do itall over again in another town.
So we see that quite a lot, um.
But equally, what we also get is, unfortunately, we get the
other side of the coin where weget people who've sort of spent
200, 300 grand on the site andit just hasn't worked for
whatever reason, and so oftenand there's something there's no
, there's no reason sometimesit's pure cash flow.
(03:14):
Sometimes it's a case of, if Ilook to open a squat, you've got
to be there, you've got to beavailable to treat patients when
they want to be treated.
But they've spent all of themoney in getting money in, in
borrowing a load of money toopen this snazzy dental practice
, and then they've forgotten theneed to earn a living, so
they've taken an associate jobthree days a week somewhere else
and actually that means thatthe business can't thrive.
At the same time, um, andsometimes it's just picking the
(03:35):
wrong location, wrong area,whatever, um.
So yeah, unfortunatelysometimes we do sell practices
50 grand, and they're normallythe ones where it hasn't quite
worked out.
Or sometimes you get a reallydistressed you know principal
sale.
You know someone, maybe down inthe southwest peninsula, who's,
you know, done doing a coupleof underground private work and
is just approaching retirementand just wants someone to take
over the lease.
(03:56):
Basically so it's a nominalfigure interesting, interesting.
Dr James (04:00):
I'm glad that I asked then, because it was just that
that stuck out at me then I waslike how does that work?
So thanks for the context.
25% is quite the sample size ofthe market.
So I think it's fair to saythat any conclusions we draw
from this, well, they certainlyhave some data to back them up,
some good data.
Luke (04:16):
Yeah, absolutely and obviously.
I guess, in addition to thatsort of 25%, what our team are
doing is we're talking to M&Amanagers all day long.
Talking to m&a managers all daylong.
So even if we're not directlyacting on a sale, often we know
what certain deals we haveenacted on what multiples
they've gone for.
So after they don't feed intothe report, they probably do
feed into our valuationmethodology when we're signing
stuff off of our panels.
So yeah, so broadly, we have anoverview of what's going on
(04:37):
across the whole marketinteresting, all right.
Dr James (04:40):
Well, I'm intrigued to hear more.
I guess a good thing to startoff with asking is what do you
feel has changed this year?
Because this data is fresh offthe flipping press, right.
You know it's hot off the pressright.
So, as a man who's been in thebusiness for as long as you have
, there's going to be certainthings that stuck out at you
that were just like wow, this isdifferent, or this is new, or
that surprised me.
Luke (05:05):
Interested, interested to know.
Yeah, so I guess the I guessthe first thing is is that a lot
?
I think there's a bit of anurban myth there out there that
and most of the deals that weact on are sold to dental groups
, um, whereas actually, you know, roughly speaking, that only
represents about 30 of themarket.
Still, the most commonpurchaser in a in the dental
practice market is someone who'sbuying their first, second or
third dental practice and thatis by far the vast majority of
transactions, if anything.
(05:26):
Actually the corporates andthey'll come back to the
corporates being quieter in aminute.
But look at the corporates interms of what people expect them
to be, ie sort of the big fiveto ten corporates.
You know your portman dentex isyour envisages, your my dentist
, your boopers you know they arestill.
You know they are still a lot,lot quieter and a couple of them
aren't even buying at all.
So people perceive that ascorporate.
(05:47):
Now, what I deem as a corporateand for the context of this
survey, because we break thereport into two is anyone who's
already got more than fivepractices in their estate, and I
guess the biggest trend at themoment is probably the most
active buyers of what we callour tier four buyers, and
they're the people who've gotsomewhere between five to 10
dental practices in their estateand they're probably the most
(06:08):
active group buyers within thatcorporate selection at this
point in time.
Dr James (06:13):
Right, so you would define corporate as over five.
Luke (06:18):
Over five.
I mean corporate is a big word,it's probably the wrong word,
but we call it groups in thereport.
So we say that basically, whenyou get to five practices, at
that point you, from ourpurposes, are considered a
dental group because you know,as most people will find, you
have got to that kind of level.
When you get to five sites,you're not in the site every day
, you know you're not theprincipal dentist who's making
(06:38):
individual decisions.
At that point you start to haveto have some infrastructure.
So you'll start to see an areamanager, you'll start to see
maybe some sort of hr presenceand you know, maybe a principal
who isn't working in thepractice, who it comes and does
a visit once a month orsomething along those lines.
So it's slightly it's aslightly different culture to
what you've got when you're insort of that one spot, one to
four bracket interesting.
Dr James (06:57):
Look, you know, just whilst we're on this teeny tiny
tangent from the subject matterat hand today, when it comes to
getting the finance foracquisitions, as in, you're the
principal and you want to buythe next practice and the next
practice and the next practice.
People have told me or I'veheard whispers again, to use
your phrase you talked aboutearlier maybe a bit of an urban
myth here that you hit a littlebit of a glass ceiling whenever
it comes to the banks beingwilling to give you funding at
(07:19):
around a five to ten dentalpractice mark.
Is that true?
Luke (07:23):
and I think that is in part true.
Yeah, because I think whatwe're starting to see and the
reason why I think tier four, aswe've dubbed them, are probably
active at the moment is theyhad a really quiet period
through covid.
So I think a lot of them sortof you know, because they had a
lot of individual bank debt thatthey'd given personal
guarantees to they didn't reallybuy for sort of two to three
years.
So what happened was is they'vepaid down a lot of this debt
(07:43):
and they've built up a lot ofcash and now, all of a sudden,
they've come back and said youknow what?
Actually, you know, I thinkthese businesses are selling
businesses and we're going to goagain and they're buying,
they're borrowing more money andthen you know, they're
leveraging, if you like, whatthey've already got within their
existing estate for having paiddown.
Now, again, when you get to thatfive to dental practice mark is
(08:04):
that the borrowing does becomeslightly different.
So when you're borrowing apractice by your second or third
practice, you're probably stillgetting away with borrowing 80%
of the value of the practicewith a 20% deposit give or take.
There'll obviously be somenuances, Whereas when you get to
the five practices mark.
People want to see that there'smore skin in the game.
So, more realistically, you'rehaving to put more of your own
(08:27):
assets in, so be that sort of 40to 50% mark.
But sometimes that's not incash terms.
Sometimes that's by offeringsecurity over whatever growth
you've got in your existingpractice portfolio.
But it's not quite asstraightforward as going to the
bank and saying, right, here'san individual asset, I want to
buy it for a million pounds.
Here's 200,000 pounds.
Will you give me the money?
Because they will considereverything else that's going on
(08:47):
in the background and they'realso going to want to see how
your existing estate'sperforming.
So you've got at that point.
Often there is a bit of a pausebecause what banks want to see
is that okay.
So now you've got fourpractices.
How well are you running them?
Because we get you'd probablybe a good dentist, but are you
actually a good business person?
And can you make sure all thewheels are turning if you're not
actually in the practicedelivering the income?
Dr James (09:07):
and you know that's a interesting one because, uh, you
know again not the reallysubject matter at hand for this
podcast again today, but theshift from owner operator to
associate led.
You just have to know yournumbers that much more.
I was talking to an accountantnot so long ago and he said
James, it might interest you toknow that in his experience
(09:27):
outside the corporates dependshow you define corporate.
He said that you'd be stunnedhow few practices actually are
associate led and he he reckonsit's about 10 or so.
Luke (09:39):
Yeah, I think that's probably accurate because most
people will tend to, you know,buy the one, and that's why we
deem them as one, two or threeindependents, because when you
get to sort of the thirdpractice mark, that's the point
where you can't have a physicalpresence in every practice every
week, you know, because veryfew principals go.
I'll do one day here, one dayhere, you know, and they get to
practice four, and they're doingone day a week in each, because
people just find that quitedestabilizing.
(10:01):
So you're right, when you getbeyond that sort of you know,
most people, when they're up tothat free practice mark,
normally have some kind ofclinical presence in the
practice, you know, at least ona fortnightly basis, whereas I
think and that's where your 10figure comes in um, because most
people, most practices, youknow, within the uk, are still
owned by the independent sectorinteresting and to throw another
(10:23):
stat at you, what we dub astier three and tier four.
So that's anyone who basicallyowns from someone anywhere
between five to twenty dentalpractices, that group of
practices, and there's onlyactually about 600 unique
ownerships within that.
Dr James (10:38):
So it's quite a small group of people within that sort
of five to twenty dentalpractice footprint yeah, you
know, I'm actually evensurprised that it's that much so
, 600 people who have, who havethat level of that number, yeah,
I'm not sure people as in eachmight be.
Luke (10:51):
There's some partnerships within that, but there's 600
different ownership um basis isbasically within that group
there you go.
Dr James (10:59):
I'm even, to be honest , I'm even surprised it's that
many.
But there we are.
But I love stats, so absolutely.
Stuff like that is more thanwelcome on the podcast.
I was going to say something.
What was I going to say?
Just out of interest.
Luke (11:11):
I showed a podcast last Friday.
Dr James (11:13):
I showed a podcast last Friday super interesting
podcast I shot on friday lastweek with a chap, uh, in um
scotland advanced dental care.
I believe it's called philipfryle.
Okay, oh, they're the frills.
Yeah, 10, 25 dental practicesand he still works four days
clinically mind-blowing.
(11:33):
Yeah, I mean it's great.
That's actually a bit morecommon than you think.
Luke (11:36):
So like you've got anushka brogan, um of demira against
and I think she might be after50 practices now she still does
one day a week clinically.
So a lot of you know quiteoften that kind of that grouping
of sort of to the tier threes,to tier fours actually really
like their dentistry and so theyoften still do a day a week and
a lot of people are quitesurprised that they do well,
(11:56):
there you go, interesting.
Dr James (11:58):
Okay, let's talk valuations, because this is some
of the fun stuff that usuallycomes out of these reports and
we did.
This is pertinent because wedid a podcast on this maybe like
four or five months ago, soit'll be interesting to see how
things have moved around alittle bit.
What?
What are you seeing out there?
What is, uh, mixed, mixed,private nhs?
What are the valuations?
How are they moving around?
Luke (12:19):
yeah, so this of course based on completed transactions
as opposed to valuations, but Iguess, yeah, to do a bit of a
stat dump then.
So the average purchase pricelast year was £1,267,078.
And that's for just thebusiness element.
So if we take out anyproperties, obviously they
distort the figures.
So that was the averagepurchase price of a dental
practice we acted on last year.
(12:41):
But you can kind of see thetrends between the individual
groups.
So if you look at what we callour tier one buyers now they are
people who already have morethan sort of you know they're
sort of 50 practices plus withinthe already within their estate
.
So that's sort of the big five.
You can visit your departments.
Their average transaction valuefor us was 3,245,000.
(13:02):
And that's the same for thetier two.
So the people who've got morethan 20 practices already.
They were 3,484,000.
So what you can start to see isthe bigger groups are moving
towards buying bigger stuff.
What they've dropped away fromis doing a huge volume of
acquisitions.
They're focusing now on justbuying really big deals and
(13:23):
doing less of them.
Now that's in part by designand in part by that's the way
the markets move, because Iguess what you've also got is,
as I mentioned earlier, is areally active market of people
who've got somewhere betweenfive to 20 dental practices and
because they're being morecompetitive, often they've got
the ability to be more flexiblein their deal terms.
(13:43):
So, for instance, if you sellinto a group, often as part of
their covenants with the bank isthat they have to offer 70% or
75% upfront and they have todefer 25%, and a lot of people
have the misconception thatthat's to de-risk the deal, but
often that's only in part.
Often it's part of theirlending that they can only
borrow five times EBITDA at thepoint of completion.
(14:03):
That's all they can pay at thepoint of completion and the rest
of it is all about cash flowlending.
So they're you, so all they'redoing is basically borrowing the
money off the vendor.
Now, of course, if you're atier four buyer and you're not
and you're not answerable to aninvestment bank or you're,
you've got more flexible lendingterms within your existing
estate.
You may be able to pay moreupfront and accordingly, that's
(14:24):
where I think some of the biggergroups are losing out on some
of the more mid-market deals andthat was quite a big trend last
year is kind of seeing how thathappened.
Dr James (14:33):
Interesting, okay, and then anything else that leapt
out at you when you got the datastream.
Luke (14:40):
Well, the other thing I guess is that the average ebitda
multiple um last year was 7.16um, which is actually a little
bit lower than it was inprevious years and and I think
anecdotally a little bit, peoplewere a bit confused by that,
saying well, actually, you know,I thought the market was
improving.
You know, interest ratestability seems to settle down a
bit.
Um, obviously we've got thewhole thing with trump and all
(15:00):
the all the other stuff that'sgoing on, so we're not in a
totally stable world, but we'reprobably more stable than we
were sort of two or three yearsago.
But I think the thing toremember is a lot of these deals
actually um are deals thatmight because the average
transaction takes nine to twelvemonths is these are deals that
are kind of feeding through umthat might have been agreed sort
of nine months previously, whenmaybe stability wasn't quite
the same.
(15:20):
And secondly, going back to my,what my point was about the
bigger groups is a lot of peoplenow are taking the view but
particularly because you know ofthat we seem to be in a more
imbalanced economic climate isif someone says to you, okay,
I'll give you a million pound,but I'll give it to all on
completion.
A lot of people are taking thatdeal.
Then they say the 1.1 or the1.15 um deal where I'm saying,
(15:44):
well, I'll give you 70 oncompletion and then I'll give
you 10 a year for the next threeyears on the basis of the fact
that you guarantee the incomeand maybe you grow it by a bit
as well.
Um, people are saying, look abird in the hands about them and
two in the bush.
And of course what that doesfrom my perspective is it does
mean that it does deflate themultiple slightly.
Um, but it's, but he's quiteagain, you know that's more and
more common that people aresaying you know what?
(16:05):
It's not all about the pricefor me anymore.
I'd much rather take a dealwhere I know I've got my money
and I've got the flexibility todo what I want.
And I think some of that iswhere some of the bigger groups
and I don't mean all the biggroups by this by any stretch
before someone that I get toldoff um is that some of the big
groups have got principals nowout in the marketplace who are
now ex-principals, who haven'thad the best experience
(16:26):
post-sale.
Dr James (16:28):
Interesting.
So people are taking the cashup front, and that's more.
You know the reason behind that, or at least the theory the
reason behind that is is becausethey well, they sense potential
turmoil coming up and they wantto.
Just you know behind that or atleast the theory, the reason
behind that is is because theywell, they, they sense potential
turmoil coming up and they wantto just, you know, take the
cash basically, yeah, I thinkeveryone's got their own reasons
as to why they do it.
Luke (16:48):
I think for some people it's, you know, is that one of
the main motivations for thesale of the business is to lose
some stress, and their idea isis that if they've got all the
money and they, they are thenchoosing themselves how much
holiday they take and how muchincome they do post-sale is that
that doesn't matter.
I think actually, a lot ofpeople find it more stressful
sometimes to sell the businessand then be tied in for four
years with a target over yourhead, thinking oh actually, you
(17:10):
know, can I take another coupleof weeks off and go to the surf
of France this summer?
Oh no, probably not, becauseactually, as it stands at the
moment, I'm only running to 88%of my annual target.
I really need to be heredelivering some dentistry and a
lot of people, and I think somepeople look at it going well.
Actually, to honest, why did Isell my business?
I sold my business because Iwanted more freedom and I wanted
to be able to enjoy my life,and now I'm deciding not to go
(17:32):
on holiday because I'm worriedabout my target understood.
Dr James (17:35):
What about nhs versus private, any anything we can
talk on there?
Luke (17:42):
yeah, no, absolutely yeah so in terms of um at the moment
it's fair to say that thatdifference between the markets.
So if we're talking about salesto independence, nhs and mixed
practices are still exceedinglypopular, and a lot of that is
because people still like thesecurity of an nhs contract, so
they like the idea that you'vegot that kind of guarantee, kind
of monthly inflow.
And so what we're seeing isthat when you go into the areas
(18:06):
where recruitment tends to be abit easier because there is a
geographical disparity betweenit, you'll find that NHS
practices in particular doreally really well in those
areas.
But also because peopleperceive that they can leverage
a lot of the NHS into privatedentistry and then if ultimately
in three, three years time,when they've got their feet
under the table, they want to dothe private conversion, then
then they can do it themselves.
(18:26):
But at least in the interimthey know they've got the
security of getting theirmonthly loan repaid every month.
And we see the same for planpractices.
Actually plan practices doreally well in the market for
that reason, that kind ofguaranteed, kind of monthly info
um.
Whereas, conversely, if you goto the group side of the market,
actually you'll see the privatepractices tend to be the jewels
in the crown, and that's what alot of the groups are hunting
(18:46):
down, because, arguably, inprivate practices you've got
more control over your income.
Thus you've got more controlover the underlying EBITDA and
profitability in terms of what'sgoing on.
Now you'll notice in the reportthat there is a degree of
absence in data of big NHSpractices being sold, and that's
the reason for that is twofold.
The first is that big NHSpractices and we deem an NHS
practice to be more than 80% ofits income derived from NHS the
(19:11):
ones in sort of the really urban, sort of London and Manchester
kind of areas.
They don't exist to the samelevel that they existed before,
because a lot of people, aswe've gone through the last few
years there's been much more umdisgruntlement with the nhs have
moved their practices to bemore mixed, so they've fallen
under that 80 percent threshold.
So so that number.
I think the primary reason isthat less of those practices
(19:31):
exist.
And the second reason is isthat if you go out to the, the
regions um, and what I mean bythat is the areas where
recruitment is deemed to betougher um, which you can see on
a heat map in the report.
So I'm talking about thesouthwest peninsula sort of some
, some stretches of thenortheast you'll notice that
sometimes those practices justdon't sell because at the moment
you know, there is quite a lotof uncertainty if I buy 30,000
(19:54):
UDAs in Cornwall, am I going tobe able to find the dentist to
service it?
And some sometimes even if youput a low multiple on it, often
it's still.
Finding a buyer can be tricky.
So there is a bit of an absencein data at that point.
But I guess, focusing on NHS fora second into the regions and
focusing on the recruitment sideof things, you'll notice that
if you go to the northeast andyou're an independent buyer and
(20:15):
you're buying here on a multipleof what we call fair,
maintainable trade as opposed toEBITDA.
So what I mean by that is it'sthe EBITDA plus whatever the
principal would earn if theyworked in their nine to 10
sessions a week.
So it's a higher profit figurebut you pay a lower multiple for
it as a base.
But if you're going up to theNortheast you're paying pretty
much a whole turn less as amultiple of FMT than what you
(20:38):
pay if you're buying the sameprice in Birmingham.
Likewise, if you go to thesouthwest, you're paying 0.6
times lower than what you wouldpay in one of the urban natures.
And again, that's two reasons.
It's considerably lesscompetition because generally if
recruitment's tougher in anarea, normally it's because less
dentists live there, so you'vegot the same thing about if
you're a buyer Less buyers livethere, so you've got less
competition.
Dr James (20:58):
And I think the second thing is just that degree
interesting and, yeah,completely get how people who
are operating over 80 percent oftheir turnover is nhs is.
That must be super flipping,rare these days.
I mean mix.
I can see how.
Yeah, okay, cool that there'dbe scope for a mixed practice in
(21:20):
those areas, but you're goingto get a lot of private football
football in the center of thosesorts of cities, so I can, I
can completely see how that's athat.
Well, that stacks up.
Basically, and just out ofinterest, pure interest.
Um, I know you said the reportis more about valuations than
multiples, but if multiples, Ijust find them so fascinating
and I think a lot of dentistsout there do.
If we were to talk about themultiples of nhs using your
(21:43):
definitions that we talked aboutjust a second ago, uh, nhs,
mixed and private.
Uh, as things stand, ballparkfigure, liquor figure, put her
in the air.
How do those, how do thosecompare?
Uh, well, I can actually giveyou live data.
So if I'm talking about a saleto an independent dentist.
Luke (21:57):
So this is going back to our fmt, which obviously is most
of our audience here.
If you're buying an nhspractice, you're typically
playing about 3.16 times as a ukaverage um fmt for that.
And again to put a bit ofcontext to that, the average
fair maintainable trade in thereport was 227 grand um and and
that's on a typical revenue of575 000.
(22:20):
So it's about 39 of thepractice turnover is typically
fmt.
So if you're paying 3.16 timesfor that, that translates into
about 130 of turnover.
To kind of make the mathseasier.
If you're buying a mixedpractice, as I said, they are
the jewels in the crown for theindependent market.
So you're typically paying 3.87times FMT for that practice.
(22:42):
Again, translating that back,that's about 155% of turnover
give or take.
And if you're buying a privatepractice and and the smaller
private practice, as I said, dotend to be less popular because
sometimes that people look andgo is there a reason why this
business hasn't grown?
Um, they will.
They typically get 2.96 timesfmt, which translates into about
(23:03):
125 percent of turnover give ortake interesting.
So mixed right biggest multiplesyeah, and I think that's yeah,
it is because I think A it's amuch bigger grouping, because
it's anything that's more than20% NHS and anything that's less
than 80% NHS, it's basicallyeverything in between.
But secondly, I think it'sbecause people perceive if
you've got a mix of incomestreams, you've probably got a
(23:25):
bit of plan, you've got a bit ofhygiene revenue, a bit of NHS,
you've got some security overthe income, whereas I think
sometimes if you're a fullyprivate practice and you're a
one-man band and you're relyingon all the patients coming to
the new dentist when it's sold,that's seen as a much riskier
acquisition than somethingthat's more mixed.
Dr James (23:42):
And does that data change if we're talking about
corporate acquisitions versusindependents?
Talking about corporateacquisitions versus independents
?
Luke (23:49):
Yeah, so if you look at it from a sort of sale to groups,
if I find my right data tablefor a second so if you're
looking at a mixed practice,they tend to sell for about 6.9.
On last year, on average theysold for 6.98 times EBITDA.
But again going back to myearlier comment, that's because
there isn't that manypredominantly NHS practices that
(24:10):
sold, whereas the average NHSmultiple was 7.2 times.
But that's a really small datapool and that's often because
people recognise if thispractice is still NHS.
Actually, there's probably amassive opportunity to be able
to scope this and we did quite afew of those in London and the
South East where people lookedand said actually, do you know
what?
I can relocate this practiceand I can actually rather take
(24:30):
this from a two million poundrevenue practice to a three and
a half million pound revenuepractice within two to three
years.
Dr James (24:36):
um, and it's quite interesting how you know those
opportunities are really rare,but who prepare premium for them
and they come up, um, whereas,conversely, private practices,
which are the jewel in the crownfor the group, sales to groups
with 7.36 times as an averagemultiple and if I'm correct as
well, correct me if I'm wrongthe reason why those multiples
are going to be so much higheras well is am I right in saying
(24:57):
that whenever a group buys it,it's usually going to be more
than one practice right which isgoing to put the multiple up?
Luke (25:02):
yeah, um, no, groups do tend to buy more individual
assets than they buy multipleassets.
Um, again, I think that'ssomething that sort of changed
about four or five years ago isthat to get a premium now on
your multiple to be a group,you've got to have a lot of
EBITDA.
So we're talking sort of amillion to one and a half
million pounds in EBITDA to bereally warranting some kind of
(25:24):
premium on your EBITDA multipleas a group, whereas before I
think five years ago people usedto buy four or five practices,
group them together.
They're paid, say, six timesfor them and they go and flip
into a group for seven and ahalf to eight times.
There was an instant markup.
Those kind of days have gonebecause I think a lot of the
groups realized they boughtrather than buying what they
thought were buying.
They were buying groups.
They were actually buying justa collection of assets without
(25:45):
any infrastructure.
So nowadays A the market's gota lot more competitive, so they
have to pay higher multiples forindividual assets.
And secondly, I think peoplewill look at it and go what is
what?
Am I actually benefiting bybuying multiple practices?
Am I benefiting from aninfrastructure?
Am I benefiting from anythingthat resembles a group and
normally you don't get thatunless you've got at least a
million to a million and a halfin ebitda I'm actually really
(26:07):
glad I asked that question then.
Dr James (26:08):
Is it's much more nuanced than one would have
thought then?
Really isn't it by the scienceof it?
Luke (26:12):
I mean five years ago.
Yeah, buy a collection ofdental practices, you know,
bunch them together, sell themon, you get an EBITDA, you get
an EBITDA markup.
Just don't get that anymorelook.
Dr James (26:20):
Is there anywhere that the listeners of the podcast
can download this report?
Maybe we put a link below thepodcast.
Luke (26:27):
But of course if you go to the dental elite website
there'll be a link um on thereanyway which is dentalelite.
co.
uk.
The UK dental practice market is constantly evolving,
ever-changing and dynamic, andthat's why we're joined today by
Mr Luke Moore, head of DentalElite practice broker within the
UK.
Luke is going to be sharingwith us the highlights from his
company's recent market outlookreport, so that we can get the
best bits and also understandwhat we can expect in these
(00:21):
coming months.
I'm also happy to share thatthere is free verifiable CPD
associated with this podcastepisode.
Whenever you finish the episode, all you have to do is click
the link in the podcastdescription.
It'll take you right throughthe Dentist University website.
You'll be able to complete ashort questionnaire and, once
passed, you fill in yourreflections and we'll go ahead
and email over to you yourverifiable CPD certificate,
(00:45):
which is entirely free.
What that means is this podcastepisode will be able to
contribute towards yourverifiable cbd hours during this
learning cycle.
Look, welcome back to denisoninvest podcast.
Let's talk, because that issomething that you have released
very recently with dental elite, right?
Luke (01:07):
yeah, so we've um, so every sort of about may or may
sort of mid-may time we releaseour annual goodwill report,
which basically covers everytransaction that we've acted on
in the previous fiscal year, umup until the end of march.
So it takes about a month orsix weeks or so to kind of
collate all the data.
Um, and what that looks at is,as an agent, we act on anywhere
between sort of 100 to 120individual dental practice
(01:29):
transactions in a year, and wethink that's in a marketplace
where roughly somewhere between500 to 600 deals happen in a
year.
So it gives you coverage ofsomewhere between sort of 20 to
25% of the market.
And as an agent we act ontransactions that might be worth
50 grand, transactions thatmight be worth 10 million and 10
million pounds, um, and so itkind of gives you a broad flavor
(01:50):
of what the trends are in themarket who's buying, who's not
buying, what they're paying,what they're not paying um and
basically what's going on,whether that's nhs, mixed or
private 50 grand for a dentalpractice.
I mean, obviously that's whenyou've kind of got a far sale,
so that.
So when you're talking aboutthose, they're normally losing
horrendous amounts of money,which does happen, because don't
when we do what.
(02:10):
I guess the one trend is whichwe, to be fair, we don't talk
about in the report um is thatwe are getting approached by
more and more squats, um as in,and they're people who sometimes
have been really successful.
So we've had some reallysuccessful sales or practices
that have only opened in thelast sort of three to four years
that have happened in the lastyear, where they've sort of
built it up, got it to like amillion to 1.2 million in
(02:30):
revenue, said, look, you knowwhat this is.
As far as I want to take it a,because there's a pivot point
when you sort of get beyond 1.2to 1.3 mil where if you're
selling the business, thenyou're more likely to sell to a
group, and if you sell to agroup you're more likely to have
post-sale conditions, iestaying on for a period of time.
So quite often quite a few ofthe frequent squatters for lack
of a better word um will, um, uh, will tend to sort of get to
(02:53):
that sort of 1.2 to 1.3 mark,and then sometimes we'll come to
market and then they'll do itall over again in another town.
So we see that quite a lot, um.
But equally, what we also get is, unfortunately, we get the
other side of the coin where weget people who've sort of spent
200, 300 grand on the site andit just hasn't worked for
whatever reason, and so oftenand there's something there's no
, there's no reason sometimesit's pure cash flow.
(03:14):
Sometimes it's a case of, if Ilook to open a squat, you've got
to be there, you've got to beavailable to treat patients when
they want to be treated.
But they've spent all of themoney in getting money in, in
borrowing a load of money toopen this snazzy dental practice
, and then they've forgotten theneed to earn a living, so
they've taken an associate jobthree days a week somewhere else
and actually that means thatthe business can't thrive.
At the same time, um, andsometimes it's just picking the
(03:35):
wrong location, wrong area,whatever, um.
So yeah, unfortunatelysometimes we do sell practices
50 grand, and they're normallythe ones where it hasn't quite
worked out.
Or sometimes you get a reallydistressed you know principal
sale.
You know someone, maybe down inthe southwest peninsula, who's,
you know, done doing a coupleof underground private work and
is just approaching retirementand just wants someone to take
over the lease.
(03:56):
Basically so it's a nominalfigure interesting, interesting.
Dr James (04:00):
I'm glad that I asked then, because it was just that
that stuck out at me then I waslike how does that work?
So thanks for the context.
25% is quite the sample size ofthe market.
So I think it's fair to saythat any conclusions we draw
from this, well, they certainlyhave some data to back them up,
some good data.
Luke (04:16):
Yeah, absolutely and obviously.
I guess, in addition to thatsort of 25%, what our team are
doing is we're talking to M&Amanagers all day long.
Talking to m&a managers all daylong.
So even if we're not directlyacting on a sale, often we know
what certain deals we haveenacted on what multiples
they've gone for.
So after they don't feed intothe report, they probably do
feed into our valuationmethodology when we're signing
stuff off of our panels.
So yeah, so broadly, we have anoverview of what's going on
(04:37):
across the whole marketinteresting, all right.
Dr James (04:40):
Well, I'm intrigued to hear more.
I guess a good thing to startoff with asking is what do you
feel has changed this year?
Because this data is fresh offthe flipping press, right.
You know it's hot off the pressright.
So, as a man who's been in thebusiness for as long as you have
, there's going to be certainthings that stuck out at you
that were just like wow, this isdifferent, or this is new, or
that surprised me.
Luke (05:05):
Interested, interested to know.
Yeah, so I guess the I guessthe first thing is is that a lot
?
I think there's a bit of anurban myth there out there that
and most of the deals that weact on are sold to dental groups
, um, whereas actually, you know, roughly speaking, that only
represents about 30 of themarket.
Still, the most commonpurchaser in a in the dental
practice market is someone who'sbuying their first, second or
third dental practice and thatis by far the vast majority of
transactions, if anything.
(05:26):
Actually the corporates andthey'll come back to the
corporates being quieter in aminute.
But look at the corporates interms of what people expect them
to be, ie sort of the big fiveto ten corporates.
You know your portman dentex isyour envisages, your my dentist
, your boopers you know they arestill.
You know they are still a lot,lot quieter and a couple of them
aren't even buying at all.
So people perceive that ascorporate.
(05:47):
Now, what I deem as a corporateand for the context of this
survey, because we break thereport into two is anyone who's
already got more than fivepractices in their estate, and I
guess the biggest trend at themoment is probably the most
active buyers of what we callour tier four buyers, and
they're the people who've gotsomewhere between five to 10
dental practices in their estateand they're probably the most
(06:08):
active group buyers within thatcorporate selection at this
point in time.
Dr James (06:13):
Right, so you would define corporate as over five.
Luke (06:18):
Over five.
I mean corporate is a big word,it's probably the wrong word,
but we call it groups in thereport.
So we say that basically, whenyou get to five practices, at
that point you, from ourpurposes, are considered a
dental group because you know,as most people will find, you
have got to that kind of level.
When you get to five sites,you're not in the site every day
, you know you're not theprincipal dentist who's making
(06:38):
individual decisions.
At that point you start to haveto have some infrastructure.
So you'll start to see an areamanager, you'll start to see
maybe some sort of hr presenceand you know, maybe a principal
who isn't working in thepractice, who it comes and does
a visit once a month orsomething along those lines.
So it's slightly it's aslightly different culture to
what you've got when you're insort of that one spot, one to
four bracket interesting.
Dr James (06:57):
Look, you know, just whilst we're on this teeny tiny
tangent from the subject matterat hand today, when it comes to
getting the finance foracquisitions, as in, you're the
principal and you want to buythe next practice and the next
practice and the next practice.
People have told me or I'veheard whispers again, to use
your phrase you talked aboutearlier maybe a bit of an urban
myth here that you hit a littlebit of a glass ceiling whenever
it comes to the banks beingwilling to give you funding at
(07:19):
around a five to ten dentalpractice mark.
Is that true?
Luke (07:23):
and I think that is in part true.
Yeah, because I think whatwe're starting to see and the
reason why I think tier four, aswe've dubbed them, are probably
active at the moment is theyhad a really quiet period
through covid.
So I think a lot of them sortof you know, because they had a
lot of individual bank debt thatthey'd given personal
guarantees to they didn't reallybuy for sort of two to three
years.
So what happened was is they'vepaid down a lot of this debt
(07:43):
and they've built up a lot ofcash and now, all of a sudden,
they've come back and said youknow what?
Actually, you know, I thinkthese businesses are selling
businesses and we're going to goagain and they're buying,
they're borrowing more money andthen you know, they're
leveraging, if you like, whatthey've already got within their
existing estate for having paiddown.
Now, again, when you get to thatfive to dental practice mark is
(08:04):
that the borrowing does becomeslightly different.
So when you're borrowing apractice by your second or third
practice, you're probably stillgetting away with borrowing 80%
of the value of the practicewith a 20% deposit give or take.
There'll obviously be somenuances, Whereas when you get to
the five practices mark.
People want to see that there'smore skin in the game.
So, more realistically, you'rehaving to put more of your own
(08:27):
assets in, so be that sort of 40to 50% mark.
But sometimes that's not incash terms.
Sometimes that's by offeringsecurity over whatever growth
you've got in your existingpractice portfolio.
But it's not quite asstraightforward as going to the
bank and saying, right, here'san individual asset, I want to
buy it for a million pounds.
Here's 200,000 pounds.
Will you give me the money?
Because they will considereverything else that's going on
(08:47):
in the background and they'realso going to want to see how
your existing estate'sperforming.
So you've got at that point.
Often there is a bit of a pausebecause what banks want to see
is that okay.
So now you've got fourpractices.
How well are you running them?
Because we get you'd probablybe a good dentist, but are you
actually a good business person?
And can you make sure all thewheels are turning if you're not
actually in the practicedelivering the income?
Dr James (09:07):
and you know that's a interesting one because, uh, you
know again not the reallysubject matter at hand for this
podcast again today, but theshift from owner operator to
associate led.
You just have to know yournumbers that much more.
I was talking to an accountantnot so long ago and he said
James, it might interest you toknow that in his experience
(09:27):
outside the corporates dependshow you define corporate.
He said that you'd be stunnedhow few practices actually are
associate led and he he reckonsit's about 10 or so.
Luke (09:39):
Yeah, I think that's probably accurate because most
people will tend to, you know,buy the one, and that's why we
deem them as one, two or threeindependents, because when you
get to sort of the thirdpractice mark, that's the point
where you can't have a physicalpresence in every practice every
week, you know, because veryfew principals go.
I'll do one day here, one dayhere, you know, and they get to
practice four, and they're doingone day a week in each, because
people just find that quitedestabilizing.
(10:01):
So you're right, when you getbeyond that sort of you know,
most people, when they're up tothat free practice mark,
normally have some kind ofclinical presence in the
practice, you know, at least ona fortnightly basis, whereas I
think and that's where your 10figure comes in um, because most
people, most practices, youknow, within the uk, are still
owned by the independent sectorinteresting and to throw another
(10:23):
stat at you, what we dub astier three and tier four.
So that's anyone who basicallyowns from someone anywhere
between five to twenty dentalpractices, that group of
practices, and there's onlyactually about 600 unique
ownerships within that.
Dr James (10:38):
So it's quite a small group of people within that sort
of five to twenty dentalpractice footprint yeah, you
know, I'm actually evensurprised that it's that much so
, 600 people who have, who havethat level of that number, yeah,
I'm not sure people as in eachmight be.
Luke (10:51):
There's some partnerships within that, but there's 600
different ownership um basis isbasically within that group
there you go.
Dr James (10:59):
I'm even, to be honest , I'm even surprised it's that
many.
But there we are.
But I love stats, so absolutely.
Stuff like that is more thanwelcome on the podcast.
I was going to say something.
What was I going to say?
Just out of interest.
Luke (11:11):
I showed a podcast last Friday.
Dr James (11:13):
I showed a podcast last Friday super interesting
podcast I shot on friday lastweek with a chap, uh, in um
scotland advanced dental care.
I believe it's called philipfryle.
Okay, oh, they're the frills.
Yeah, 10, 25 dental practicesand he still works four days
clinically mind-blowing.
(11:33):
Yeah, I mean it's great.
That's actually a bit morecommon than you think.
Luke (11:36):
So like you've got anushka brogan, um of demira against
and I think she might be after50 practices now she still does
one day a week clinically.
So a lot of you know quiteoften that kind of that grouping
of sort of to the tier threes,to tier fours actually really
like their dentistry and so theyoften still do a day a week and
a lot of people are quitesurprised that they do well,
(11:56):
there you go, interesting.
Dr James (11:58):
Okay, let's talk valuations, because this is some
of the fun stuff that usuallycomes out of these reports and
we did.
This is pertinent because wedid a podcast on this maybe like
four or five months ago, soit'll be interesting to see how
things have moved around alittle bit.
What?
What are you seeing out there?
What is, uh, mixed, mixed,private nhs?
What are the valuations?
How are they moving around?
Luke (12:19):
yeah, so this of course based on completed transactions
as opposed to valuations, but Iguess, yeah, to do a bit of a
stat dump then.
So the average purchase pricelast year was £1,267,078.
And that's for just thebusiness element.
So if we take out anyproperties, obviously they
distort the figures.
So that was the averagepurchase price of a dental
practice we acted on last year.
(12:41):
But you can kind of see thetrends between the individual
groups.
So if you look at what we callour tier one buyers now they are
people who already have morethan sort of you know they're
sort of 50 practices plus withinthe already within their estate
.
So that's sort of the big five.
You can visit your departments.
Their average transaction valuefor us was 3,245,000.
(13:02):
And that's the same for thetier two.
So the people who've got morethan 20 practices already.
They were 3,484,000.
So what you can start to see isthe bigger groups are moving
towards buying bigger stuff.
What they've dropped away fromis doing a huge volume of
acquisitions.
They're focusing now on justbuying really big deals and
(13:23):
doing less of them.
Now that's in part by designand in part by that's the way
the markets move, because Iguess what you've also got is,
as I mentioned earlier, is areally active market of people
who've got somewhere betweenfive to 20 dental practices and
because they're being morecompetitive, often they've got
the ability to be more flexiblein their deal terms.
(13:43):
So, for instance, if you sellinto a group, often as part of
their covenants with the bank isthat they have to offer 70% or
75% upfront and they have todefer 25%, and a lot of people
have the misconception thatthat's to de-risk the deal, but
often that's only in part.
Often it's part of theirlending that they can only
borrow five times EBITDA at thepoint of completion.
(14:03):
That's all they can pay at thepoint of completion and the rest
of it is all about cash flowlending.
So they're you, so all they'redoing is basically borrowing the
money off the vendor.
Now, of course, if you're atier four buyer and you're not
and you're not answerable to aninvestment bank or you're,
you've got more flexible lendingterms within your existing
estate.
You may be able to pay moreupfront and accordingly, that's
(14:24):
where I think some of the biggergroups are losing out on some
of the more mid-market deals andthat was quite a big trend last
year is kind of seeing how thathappened.
Dr James (14:33):
Interesting, okay, and then anything else that leapt
out at you when you got the datastream.
Luke (14:40):
Well, the other thing I guess is that the average ebitda
multiple um last year was 7.16um, which is actually a little
bit lower than it was inprevious years and and I think
anecdotally a little bit, peoplewere a bit confused by that,
saying well, actually, you know,I thought the market was
improving.
You know, interest ratestability seems to settle down a
bit.
Um, obviously we've got thewhole thing with trump and all
(15:00):
the all the other stuff that'sgoing on, so we're not in a
totally stable world, but we'reprobably more stable than we
were sort of two or three yearsago.
But I think the thing toremember is a lot of these deals
actually um are deals thatmight because the average
transaction takes nine to twelvemonths is these are deals that
are kind of feeding through umthat might have been agreed sort
of nine months previously, whenmaybe stability wasn't quite
the same.
(15:20):
And secondly, going back to my,what my point was about the
bigger groups is a lot of peoplenow are taking the view but
particularly because you know ofthat we seem to be in a more
imbalanced economic climate isif someone says to you, okay,
I'll give you a million pound,but I'll give it to all on
completion.
A lot of people are taking thatdeal.
Then they say the 1.1 or the1.15 um deal where I'm saying,
(15:44):
well, I'll give you 70 oncompletion and then I'll give
you 10 a year for the next threeyears on the basis of the fact
that you guarantee the incomeand maybe you grow it by a bit
as well.
Um, people are saying, look abird in the hands about them and
two in the bush.
And of course what that doesfrom my perspective is it does
mean that it does deflate themultiple slightly.
Um, but it's, but he's quiteagain, you know that's more and
more common that people aresaying you know what?
(16:05):
It's not all about the pricefor me anymore.
I'd much rather take a dealwhere I know I've got my money
and I've got the flexibility todo what I want.
And I think some of that iswhere some of the bigger groups
and I don't mean all the biggroups by this by any stretch
before someone that I get toldoff um is that some of the big
groups have got principals nowout in the marketplace who are
now ex-principals, who haven'thad the best experience
(16:26):
post-sale.
Dr James (16:28):
Interesting.
So people are taking the cashup front, and that's more.
You know the reason behind that, or at least the theory the
reason behind that is is becausethey well, they sense potential
turmoil coming up and they wantto.
Just you know behind that or atleast the theory, the reason
behind that is is because theywell, they, they sense potential
turmoil coming up and they wantto just, you know, take the
cash basically, yeah, I thinkeveryone's got their own reasons
as to why they do it.
Luke (16:48):
I think for some people it's, you know, is that one of
the main motivations for thesale of the business is to lose
some stress, and their idea isis that if they've got all the
money and they, they are thenchoosing themselves how much
holiday they take and how muchincome they do post-sale is that
that doesn't matter.
I think actually, a lot ofpeople find it more stressful
sometimes to sell the businessand then be tied in for four
years with a target over yourhead, thinking oh actually, you
(17:10):
know, can I take another coupleof weeks off and go to the surf
of France this summer?
Oh no, probably not, becauseactually, as it stands at the
moment, I'm only running to 88%of my annual target.
I really need to be heredelivering some dentistry and a
lot of people, and I think somepeople look at it going well.
Actually, to honest, why did Isell my business?
I sold my business because Iwanted more freedom and I wanted
to be able to enjoy my life,and now I'm deciding not to go
(17:32):
on holiday because I'm worriedabout my target understood.
Dr James (17:35):
What about nhs versus private, any anything we can
talk on there?
Luke (17:42):
yeah, no, absolutely yeah so in terms of um at the moment
it's fair to say that thatdifference between the markets.
So if we're talking about salesto independence, nhs and mixed
practices are still exceedinglypopular, and a lot of that is
because people still like thesecurity of an nhs contract, so
they like the idea that you'vegot that kind of guarantee, kind
of monthly inflow.
And so what we're seeing isthat when you go into the areas
(18:06):
where recruitment tends to be abit easier because there is a
geographical disparity betweenit, you'll find that NHS
practices in particular doreally really well in those
areas.
But also because peopleperceive that they can leverage
a lot of the NHS into privatedentistry and then if ultimately
in three, three years time,when they've got their feet
under the table, they want to dothe private conversion, then
then they can do it themselves.
(18:26):
But at least in the interimthey know they've got the
security of getting theirmonthly loan repaid every month.
And we see the same for planpractices.
Actually plan practices doreally well in the market for
that reason, that kind ofguaranteed, kind of monthly info
um.
Whereas, conversely, if you goto the group side of the market,
actually you'll see the privatepractices tend to be the jewels
in the crown, and that's what alot of the groups are hunting
(18:46):
down, because, arguably, inprivate practices you've got
more control over your income.
Thus you've got more controlover the underlying EBITDA and
profitability in terms of what'sgoing on.
Now you'll notice in the reportthat there is a degree of
absence in data of big NHSpractices being sold, and that's
the reason for that is twofold.
The first is that big NHSpractices and we deem an NHS
practice to be more than 80% ofits income derived from NHS the
(19:11):
ones in sort of the really urban, sort of London and Manchester
kind of areas.
They don't exist to the samelevel that they existed before,
because a lot of people, aswe've gone through the last few
years there's been much more umdisgruntlement with the nhs have
moved their practices to bemore mixed, so they've fallen
under that 80 percent threshold.
So so that number.
I think the primary reason isthat less of those practices
(19:31):
exist.
And the second reason is isthat if you go out to the, the
regions um, and what I mean bythat is the areas where
recruitment is deemed to betougher um, which you can see on
a heat map in the report.
So I'm talking about thesouthwest peninsula sort of some
, some stretches of thenortheast you'll notice that
sometimes those practices justdon't sell because at the moment
you know, there is quite a lotof uncertainty if I buy 30,000
(19:54):
UDAs in Cornwall, am I going tobe able to find the dentist to
service it?
And some sometimes even if youput a low multiple on it, often
it's still.
Finding a buyer can be tricky.
So there is a bit of an absencein data at that point.
But I guess, focusing on NHS fora second into the regions and
focusing on the recruitment sideof things, you'll notice that
if you go to the northeast andyou're an independent buyer and
(20:15):
you're buying here on a multipleof what we call fair,
maintainable trade as opposed toEBITDA.
So what I mean by that is it'sthe EBITDA plus whatever the
principal would earn if theyworked in their nine to 10
sessions a week.
So it's a higher profit figurebut you pay a lower multiple for
it as a base.
But if you're going up to theNortheast you're paying pretty
much a whole turn less as amultiple of FMT than what you
(20:38):
pay if you're buying the sameprice in Birmingham.
Likewise, if you go to thesouthwest, you're paying 0.6
times lower than what you wouldpay in one of the urban natures.
And again, that's two reasons.
It's considerably lesscompetition because generally if
recruitment's tougher in anarea, normally it's because less
dentists live there, so you'vegot the same thing about if
you're a buyer Less buyers livethere, so you've got less
competition.
Dr James (20:58):
And I think the second thing is just that degree
interesting and, yeah,completely get how people who
are operating over 80 percent oftheir turnover is nhs is.
That must be super flipping,rare these days.
I mean mix.
I can see how.
Yeah, okay, cool that there'dbe scope for a mixed practice in
(21:20):
those areas, but you're goingto get a lot of private football
football in the center of thosesorts of cities, so I can, I
can completely see how that's athat.
Well, that stacks up.
Basically, and just out ofinterest, pure interest.
Um, I know you said the reportis more about valuations than
multiples, but if multiples, Ijust find them so fascinating
and I think a lot of dentistsout there do.
If we were to talk about themultiples of nhs using your
(21:43):
definitions that we talked aboutjust a second ago, uh, nhs,
mixed and private.
Uh, as things stand, ballparkfigure, liquor figure, put her
in the air.
How do those, how do thosecompare?
Uh, well, I can actually giveyou live data.
So if I'm talking about a saleto an independent dentist.
Luke (21:57):
So this is going back to our fmt, which obviously is most
of our audience here.
If you're buying an nhspractice, you're typically
playing about 3.16 times as a ukaverage um fmt for that.
And again to put a bit ofcontext to that, the average
fair maintainable trade in thereport was 227 grand um and and
that's on a typical revenue of575 000.
(22:20):
So it's about 39 of thepractice turnover is typically
fmt.
So if you're paying 3.16 timesfor that, that translates into
about 130 of turnover.
To kind of make the mathseasier.
If you're buying a mixedpractice, as I said, they are
the jewels in the crown for theindependent market.
So you're typically paying 3.87times FMT for that practice.
(22:42):
Again, translating that back,that's about 155% of turnover
give or take.
And if you're buying a privatepractice and and the smaller
private practice, as I said, dotend to be less popular because
sometimes that people look andgo is there a reason why this
business hasn't grown?
Um, they will.
They typically get 2.96 timesfmt, which translates into about
(23:03):
125 percent of turnover give ortake interesting.
So mixed right biggest multiplesyeah, and I think that's yeah,
it is because I think A it's amuch bigger grouping, because
it's anything that's more than20% NHS and anything that's less
than 80% NHS, it's basicallyeverything in between.
But secondly, I think it'sbecause people perceive if
you've got a mix of incomestreams, you've probably got a
(23:25):
bit of plan, you've got a bit ofhygiene revenue, a bit of NHS,
you've got some security overthe income, whereas I think
sometimes if you're a fullyprivate practice and you're a
one-man band and you're relyingon all the patients coming to
the new dentist when it's sold,that's seen as a much riskier
acquisition than somethingthat's more mixed.
Dr James (23:42):
And does that data change if we're talking about
corporate acquisitions versusindependents?
Talking about corporateacquisitions versus independents
?
Luke (23:49):
Yeah, so if you look at it from a sort of sale to groups,
if I find my right data tablefor a second so if you're
looking at a mixed practice,they tend to sell for about 6.9.
On last year, on average theysold for 6.98 times EBITDA.
But again going back to myearlier comment, that's because
there isn't that manypredominantly NHS practices that
(24:10):
sold, whereas the average NHSmultiple was 7.2 times.
But that's a really small datapool and that's often because
people recognise if thispractice is still NHS.
Actually, there's probably amassive opportunity to be able
to scope this and we did quite afew of those in London and the
South East where people lookedand said actually, do you know
what?
I can relocate this practiceand I can actually rather take
(24:30):
this from a two million poundrevenue practice to a three and
a half million pound revenuepractice within two to three
years.
Dr James (24:36):
um, and it's quite interesting how you know those
opportunities are really rare,but who prepare premium for them
and they come up, um, whereas,conversely, private practices,
which are the jewel in the crownfor the group, sales to groups
with 7.36 times as an averagemultiple and if I'm correct as
well, correct me if I'm wrongthe reason why those multiples
are going to be so much higheras well is am I right in saying
(24:57):
that whenever a group buys it,it's usually going to be more
than one practice right which isgoing to put the multiple up?
Luke (25:02):
yeah, um, no, groups do tend to buy more individual
assets than they buy multipleassets.
Um, again, I think that'ssomething that sort of changed
about four or five years ago isthat to get a premium now on
your multiple to be a group,you've got to have a lot of
EBITDA.
So we're talking sort of amillion to one and a half
million pounds in EBITDA to bereally warranting some kind of
(25:24):
premium on your EBITDA multipleas a group, whereas before I
think five years ago people usedto buy four or five practices,
group them together.
They're paid, say, six timesfor them and they go and flip
into a group for seven and ahalf to eight times.
There was an instant markup.
Those kind of days have gonebecause I think a lot of the
groups realized they boughtrather than buying what they
thought were buying.
They were buying groups.
They were actually buying justa collection of assets without
(25:45):
any infrastructure.
So nowadays A the market's gota lot more competitive, so they
have to pay higher multiples forindividual assets.
And secondly, I think peoplewill look at it and go what is
what?
Am I actually benefiting bybuying multiple practices?
Am I benefiting from aninfrastructure?
Am I benefiting from anythingthat resembles a group and
normally you don't get thatunless you've got at least a
million to a million and a halfin ebitda I'm actually really
(26:07):
glad I asked that question then.
Dr James (26:08):
Is it's much more nuanced than one would have
thought then?
Really isn't it by the scienceof it?
Luke (26:12):
I mean five years ago.
Yeah, buy a collection ofdental practices, you know,
bunch them together, sell themon, you get an EBITDA, you get
an EBITDA markup.
Just don't get that anymorelook.
Dr James (26:20):
Is there anywhere that the listeners of the podcast
can download this report?
Maybe we put a link below thepodcast.
Luke (26:27):
But of course if you go to the dental elite website
there'll be a link um on thereanyway which is dentalelite.
co.
uk.
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