Buying a practice in 2019

Buying a practice in 2019? Five major trends you can’t afford to ignore

John Clarke Practice Management Leave a Comment

Things change fast in dentistry. Remaining ahead of the curve when buying a dental practice is a bit like trying to keep up with Usain Bolt in a 100 metre race. Without a considerable head start, the chances are you’ll soon be overtaken due to the speed in which the market has evolved, particularly during the last five years.

The main catalysts for change have been characterised by the emergence of a new breed of purchaser, more caution displayed towards the NHS, a greater appetite for the private sector and soaring practice sales. With continued uncertainty around Brexit, pricing and deal structures varying significantly and rising competition levels, it’s difficult to predict how the dental sector will look in two years time, let alone five.

However, if you are considering buying a practice in 2019 there are five major trends that you can’t afford to ignore in pursuit of owning your dream business.

Goodwill values are fluctuating

*According to the latest goodwill survey from the National Association of Specialist Dental Accountants and Lawyers (NASDAL) for the quarter ending 31 October 2018, the average goodwill values of all types of dental practice have fallen. NHS sales have experienced the greatest reduction with an average goodwill value of 177% of gross fees (down from 224%). Fully private practice sales were at an average value of 104% of gross fees (down from 125%) and mixed practices also saw a slight reduction from 111% of gross fees to 108%.

It remains to be seen whether these statistics herald the start of a downward trend or are merely a blip. Specialist dental sales agents will reference a still buoyant market in which buyer demand continues to outstrip supply where financial providers have strong appetite to lend.

NHS practices may not be the golden goose

Lucrative NHS contracts may no longer be the golden goose from which you can build your retirement nest egg. Difficulties in recruitment, combined with a failure to meet UDA targets, have led to some NHS practice owners experiencing record levels of clawback. As a result, some high street banks could be inclined to adopt a more risk-averse approach in lending money to prospective practice buyers where UDA targets have regularly been missed.

For many ambitious dentists, established NHS practices situated in major UK cities close to good transport links and local amenities still represent an astute business venture and attract no shortage of interested buyers. Take the time to determine which option is best for you – NHS, private or mixed – and seek a flexible financial provider that doesn’t operate blanket lending policies who is willing to consider your business plans on a case-by-case basis.

Private practice owners may have the biggest smile

Once considered too risky for many types of purchasers, private practices have now become highly sought after as buyers exercise more caution towards the NHS. According to research conducted by health and care analysts **Laing & Buisson, more than a quarter of UK dental patients now receive private treatment with 25% paying through some form of annual funding plan, up from 20% in 1998.

The growing demand for cosmetic dental treatments and advances in technology, such as 3D printing, electrically accelerated and enhanced remineralisation, have seen private practice owners that are prepared to invest in new equipment enjoy strong growth which is expected to continue in 2019.

New kids on the block are driving up competition

The UK dental market is becoming more consolidated which has resulted in a shift in buyer profiles over the last five years. At one time, competition for buying a dental practice was likely to be in the form of an independent or a corporate group. More recently, the market has seen an increase in multiple practice owners who are quickly looking to grow their equity value by buying practices which will complement their existing business portfolio.

This trend is likely to continue in 2019 where it is anticipated that the market will also see emerging numbers of mini groups and financial buyers. With more potential buyers looking to climb onto the dental practice ladder, those who hesitate before making their move could miss out.

NHS reforms may trigger a selling scramble

Reforms to NHS dental contracts, due to commence from April 2020, may prompt NHS owners who are contemplating retirement to put their practices on the market to accelerate their exit strategy. Any new legislation will be entirely dependent upon the ability of the Government to push it through parliament which could take years to roll out! However, with the market still flourishing with interest from active buyers, NHS practice owners may decide to cash in sooner rather than later rather than risk seeing goodwill values fall, resulting from uncertainty as the April 2020 deadline approaches.

For buyers and sellers of dental practices, 2019 promises to be a frenetic and interesting year. To ascertain where you might stand in current market conditions, talk to specialist dental accountants, sales agents and finance providers who are up to date on the latest trends.