A new report from business property advisor, Christie & Co, offers an overview of the UK dental sector, including ownership structures, market dynamics, pricing patterns, an assessment of the appetite of banks to lend within the sector, and an extensive sentiment survey of more than 35,000 dental professionals.

The period covered is the second half of last year and the first half of this year (2023-24).

Ownership and composition

The UK dental market comprises approximately 12,344 dental practices, which is similar to figures in previous years.

However, there’s been a shift in ownership, with the top four groups now managing approximately 12.4% of all UK practices, a decrease of 0.6% from 2022-23.

The largest groups are MyDentist with 532 practices, Bupa Dental with 389, PortmanDentex with 380, and Rodericks Dental Partners with 226.

2023 was characterised by a strategic shift towards divestiture, culminating in a 3.3% contraction in corporate ownership of practices.

Notably, the divestment trend facilitated a transition of ownership, predominantly towards independent buyers.

The sector continues to be largely independent, with 65% of practices owned by independent single or dual practices, which underscores the resilience and entrepreneurial spirit within UK dentistry – despite the ongoing headwinds.

The rise in new ‘squat’ practice openings continued, made feasible by the 2020 changes to Use Classes Orders, reflects the sustained demand for private dentistry, which offers developers the flexibility to create futureproof practices without the need for an initial premium for goodwill.

Supply and demand

Transaction volumes surged by 150% in agreed transactions and exchanges during the latter half of 2023, and a 29% decrease in transaction timelines, with the time taken from offer accepted to exchange moving from 283 days before 2023 to 201 days in 2023, results largely attributed to the volume and pace of corporate divestments.

And, although corporate divestments were historically viewed with a certain stigma, the industry’s perspective has significantly evolved.

These practices are now highly sought after, especially by independent, working principals who bring valuable local insights and a commitment to nurturing the practices and their teams onsite.

Christie & Co noted that its deals completed at an average of 13% above asking price and there was a year-on-year increase in the overall number of offers received, which soared by more than 80% to approximately 600 in the second half of 2023.

The appetite from the independent first-time buyer and existing owner segment continues to recognise an even spread in demand for all practice types and revenue mix in 2024.

Appetite for private or private-led mixed practices from small groups has remained consistent, at 38% of offers received in 2023 versus 54% of offers received in 2024.

Unsurprisingly, the rate of completed corporate transactions declined by 9.8% in 2023, and shifted dramatically away from practices where the leading income was derived from NHS.

Offers for this type of practice (NHS mixed or fully NHS) accounted for some 57% of offers, and in 2024 this has reduced to just 8%, with the balance of 92% of offers received focused on mixed private or fully private practices.

Interest is led by available market stock and in the bandings of pricing that would more commonly align with the various buyer types.

Deal structures

As market dynamics evolved in 2023, there was a noticeable shift towards increased cautiousness among corporate and group purchasers. This manifested in an enhanced reliance on deferred consideration in deal structuring – where an overly-opportunistic 40%-45% of the offer was deferred – serving as both a risk mitigation tool and a means for more effective capital allocation.

This was seen in the market as both unsustainable and unfavourable.

In 2024, the market is witnessing a correction towards a more-normalised deferment rate, with approximately 30% of the offer being deferred. This adjustment reflects a balanced approach to risk management and capital deployment, aligning more closely with buyer and seller expectations.

Pricing trends

The 2023 mini-budget resulted in many buyers choosing to moderate or temporarily suspend their acquisition plans, a sharp contrast to their aggressive growth in 2022. As a result, the market has undergone a constructive and healthy recalibration. Stability has been restored in pricing, signalling a new phase of equilibrium and resilience.

Historically, group dental practices enjoyed a substantial premium on their valuations, particularly in terms of EBITDA multiples, driven by the potential for arbitrage and significant uplift for extensive EBITDA platforms.

Recent trends are indicating a shift in this dynamic.

The once-wide valuation gap between group practices and single asset sites is narrowing. The premium paid for group dental practices, while still present, has diminished. This convergence signals a changing investor sentiment, where the arbitrage and uplift previously attributed to substantial EBITDA platforms are no longer as pronounced.

Consequently, this trend is contributing to the erosion of multiples paid for single asset sites, as the valuation premium for groups becomes less distinct.

Christie & Co’s benchmarking data shows a stark increase in practice costs, with lab and materials accounting for approximately 15% of costs, heat and light accounting for approximately 1%, and staffing accounting for approximately 18%.

Operational review and sentiment

In May this year, Christie & Co contacted more than 35,000 dental professionals – including the largest corporates, medium-sized and smaller groups, and independent practice owners – to get their views on a range of topics. The results include:

• Overall, more respondents feel positive about the sector than negative
• Over half of respondents feel there has been an increase in patient demand for NHS dentistry
• 40% of respondents feel demand has increased for high-end elective treatments
• General dentistry is perceived to be the probable core driver for private growth by those who work within it
• Over 60% of respondents feel there will be an increase in therapist-led NHS treatment
• Over half of respondents feel the changes made to NHS dentistry in April this year is unlikely to facilitate the delivery of NHS dentistry
• The majority of respondents feel dental service delivery will be improved as a consequence of the ORE (Overseas Registration Examination) entrance exams, offering additional access to dentists
• 60% of respondents feel digital dentistry is at the forefront of future growth
• Over half of the professionals surveyed plan to either buy or sell a practice in the next three years

The finance landscape

In a review of the finance landscape by Christie Finance, the report notes that the dental market continues to be a prime sector for lenders, with appetite remaining strong during 2023-24 and 94% of banks foreseeing an increase in lending appetite into the sector in the next 12 months.

Christie Finance has seen an increase in groups looking for alternative or additional lenders whose policies are more in line with their aspirations. Independent buyers have also had better opportunities to realise their dreams of owning a practice without being priced out of the market.

Going forward, the finance broker expects improved access to finance to act as a driver for operators to invest in their practices, with more sustainable revenue levels giving confidence that return on investment can be achieved.

Joel Mannix, head of dental at Christie & Co, said: “As we continue to navigate 2024, the dental market is already exhibiting signs of a significant uptick in activity, surpassing the previous year’s patterns.

“This early momentum suggests an optimistic outlook for the remainder of the year, underscoring a dynamic shift towards a more-vibrant and competitive market landscape.

“This is being driven, in part, through newer market opportunities, including new emerging buyers, as well as reignited transactional activity that was delayed or paused, particularly on the larger-scale opportunities in 2023.”

Read the full report here