Consolidation has been the keyword in the dental sector in 2017. The market remained strong and our agency team completed £90m of transactions in what was a record year. We also undertook over 350 dental practice valuations on behalf of a wide variety of banks, reflecting the appetite to lend to the sector and the high level of deal activity. As in previous years, demand is strongest in London and the South East, the Midlands and the North West, where population density is greatest. Scotland too is consolidating its position as a popular market, with buyers moving north of the border to find better value acquisition opportunities.
The corporate landscape has changed significantly since 2016, with a busy round of mergers and acquisitions affecting a number of the largest providers.
Early in the year, Europe’s largest corporate provider, MyDentist, halted its acquisition programme to focus on the running of its UK wide portfolio. In doing so, it identified a number of practices which were divested.
Oasis, the UK’s second largest corporate dental provider, was sold to Bupa. The sale increased the number of dental practices held by the international healthcare group to well in excess of 400, with further acquisitions recently completed including Avsan Holdings, a group of 16 practices in England and Scotland, and Metrodental, two major London practices. Both acquisitions were brokered by Christie & Co.
Meanwhile, Jacobs Holding, the Zurich-based global investment firm, acquired Southern Dental, the UK’s fourth largest group with 79 practices. It also announced the acquisition of Scandinavian group Colosseum Dental in January, Swiss Smile in June, and further portfolio acquisitions in Finland and Italy, signalling a pan-European consolidation not previously seen in the dental sector.
There was further private equity activity in the UK with investments by CBPE Capital in Rodericks and by August Equity in its dental platform Genesis, which is set to grow rapidly in the coming years. We are now seeing private equity routinely bidding on both small groups and large individual practices and we expect this activity to continue for the foreseeable future. Activity in the independent sector remains strong with smaller groups equally keen to acquire to benefit from a potential shift in exit multiples afforded through growth. A number of newly formed groups offering a ‘partnership’ model continued to expand and are becoming increasingly active.
Further down the market, independents were also expanding with multiple offers generated on most practices, particularly larger businesses in strategic locations.
The dental labour market, in particular, the recruitment of dentists of suitable quality, is emerging as a key issue that the sector must address. The significant delay experienced by new dentists in receiving NHS “performer numbers” has led to a lack of NHS dentists and underperformance of NHS contracts. Generally, the more remote regions of the UK have been experiencing challenging recruitment conditions for a while, but this is now emerging as an issue in more densely populated areas too. A lack of dentists will inevitably put upward pressure on pay scales and could lead to margin erosion.
However, with demand continuing to outstrip supply and good market liquidity supported by strong industry dynamics, we believe that 2018 will continue to support a good level of activity across the market.