Green shoots for dental M&A market

There are ‘green shoot’s in the dental M&A sector as mid-sized operators look to grow their businesses.

Market leaders provided an overview of the sector at last week’s Healthcare Summit, held in London.

And they revealed that, after a period of reflection among the larger corporates, which saw M&A activity slow, other players are showing their hand and looking at expansion.

Hannah Haines, head of healthcare consultancy at Christie & Co, said there were now 12,000 dental practices in the UK market, with a value of more than £12bn.

Major corporations make up 18% of the total, but single and double ownership is at 70% and these are becoming increasingly attractive to buyers.

“Consolidation stopped in 2023 as a lot of corporates focused entirely on technological improvement and getting their house in order,” she revealed.

“Today, we are seeing more emergence of mid-sized groups coming through looking to grow and the market is warming up.

“Some really big deals this year show there is a clear appetite for large-scale investment into dentistry.”

Alex Cunynghame, investment director of Apposite Capital, an investor in dental group, Riverdale Healthcare, added: “From a corporate view, there has been a slow down in M&A activity, but we are starting to see green shoots.

“NHS performance has rebounded, private growth has continued, and deferred payments have been made or written off, so there is more cash available and that is giving confidence in the market.

“As a mid-sized group, we are looking at what is going on at the top end, and that shows confidence in the sector.”

All speakers agreed that the focus of buyers was not on the scale of the potential asset, but on value creation.

Reena Virdee, former strategy and M&A director at mydentist UK, said: “The rationale has changed. It’s not about scale. There needs to be a credible, realistic value.

“It’s about specialism and richness of the portfolio.

“Whether a practice is large or small, key drivers are revenue stability.

“A mix of NHS and private work also offers flexibility and shields against macro-economic elements.”

Embracing technology is also high on the agenda for operators, and a key focus in any acquisition process.

Cunynghame said: “We are seeing two things – firstly AI and some very exciting stuff in diagnostic images. But, also, the use of technology in administration, with dictation software and call handling, for example.

“Whether running a practice, or looking to buy one, it’s all about operational efficiencies.

“When acquiring a practice it’s about getting the dentists on board and saying if they come on that journey, we will get rid of admin and we will invest in their clinic.”

Virdee added: “Our greatest success has come from digitisation, focusing on our people, and thinking of our patients as customers.

“All of our sellers have seen their earnings increase and the sales are driving stronger multiples.”

The speakers also highlighted the role of the estate in creating practices which are both comfortable for patients, but which also help with employee recruitment and retention.

Cunynghame said: “Currently 30% of our productivity gains are in the estate, so investing in properties is really important.”

Virdee adds: “The quality of the estate is key.

“Capital expenditure requirements can sometimes be big, but we see returns in retention and productivity where the estate has been refurbished.

“Where volumes have come down, we will ask what focus has there been investment in capex and refreshment.”

Members of the panel were also quizzed about the impact of the NHS 10-Year Health Plan.

The policy document proposes a greater focus on preventative dental services, particularly for children; changes to the Dental Contract, including tying newly-qualified dentists into working exclusively for the NHS for three years; and plans to increase the use of hygienists and dental nurses for less-invasive treatments.

Virdee said: “It will all depend on the model and incentives, but I’m sceptical.

“While it sounds fantastic, we need more meat on the bones on what it will look like in reality.

“There needs to be more clarity as the market is fragmented so the model must work for corporates and smaller groups.

“In particular, I do not see how the graduate tie-in will work.

“Forcing any workforce, particularly clinicians, to work in a particular way is not the best way to do it. We need to look at the incentives and how the contract is structured – making NHS dentistry more attractive to deliver, rather than forcing them to deliver it.”

In conclusion, Cunynghame said: “The budget coming up in November may bring additional costs and the sector will be watching closely, but the NHS remains particularly attractive for M&A activity.

“Affordable private medicine is coming in, but the NHS still remains core.

“The direction of travel, I think, will likely be a hybrid model and for potential sellers they will need to prove cash availability and value to drive the best prices.”