Are EBITDA multiples in the UK Dental Market going to grow over the next few years?

I was recently asked this question by a group practice owner, so I thought I would throw my thoughts into the ring.

Over the last few years a lot of the growth in Dental practice values and hence EBITDA multiples has been as a result of increasing amounts of Private Equity (PE) money entering the market.

They have investors cash and want to deploy this to buy and build a dental group, as they have seen some successful exits previously. 

But surely there has to come a point when this will stop or pause at least?

Many of the large UK dental corporates are PE backed and as far as I can remember many of the larger groups have always been discussing a flotation, but none have successfully pulled this off. Failing that, PE investors restructure their holdings and then sell their shareholdings to other PE houses usually making a profit on their original investment. The new owners, then hope they can grow it further and then get this to flotation, but realising this is not going to happen with a suitably sized financial sponsor to get it listed, so they either end up holding their investment or try to -rejig to make it attractive to another PE investor.

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In my opinion, if a successful float can happen, then perhaps the value multiples will rise as more PE will enter the market and then believe that dentistry is the holy grail to growing their investments.

Here in the UK, most of the groups have a large NHS bias, but the question has to be will the NHS change the contract and if it does how will it impact such large groups? With Covid, if I were a betting man, I think the contract will change, but I think many dentists are praying this won’t happen – but who knows?

There is no doubt a shortage of quality dental practices to buy in the main cities across the UK, hence values remain strong, as many younger dentists have entered the profession with a view to owning their own dental practice, but not being able to buy one (either through lack of availability or insufficient funds). So now we are seeing unprecedented demand for people to start their own private dental squat.

It’s an interesting time in UK dentistry currently, and whilst a group could yield more than 10x EBITDA if selling, sometimes the individual parts could be worth more than the whole – so you could sell individual sites to single operators at a stronger premium as they have money saved to get on the ladder (perhaps with the help of their mum and dad).

As long as we don’t have any further major global pandemics, I do think values will remain resilient as demand does currently outstrip supply for quality practices in urban locations.

As for the EBITDA multiple rising higher over the next years than it is currently, I wouldn’t bet against it, but I think we need to see a successful flotation to see multiples move to a much higher level.

Watch this space!

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