Paul Graham provides insight into how businesses have fared over the past year and reveals what we can expect to see for the year ahead.
The first national lockdown in March 2020 led to an unexpected shock to the start of the new decade. The pandemic outbreak forced many businesses to close, leading to an unprecedented disruption of commerce in most industry sectors.
For banks, the pandemic changed everything. Credit teams were fully deployed, supporting existing customers and processing the Coronavirus Business Interruption Loan Scheme. This meant that new lending became secondary. As a result, deal transactions were largely put on hold until a degree of certainty returned.
This resulted in an instant and dramatic reduction in dental market activity. However, as the profession slowly came to terms with the pandemic and the path to reopening practices became clearer, buyers re-engaged.
Some surprising trends emerged. For example, an increase in enquiries from first-time buyers and a broadening in age profile. This suggests that more experienced associates were looking for greater security through practice ownership.
We also found that, during this period of market uncertainty, the average time from launching a new instruction to an offer being accepted reduced from 12 weeks in 2019 to 10.5 weeks in 2020. This could be due in part to vendors more readily accepting early offers in what were more challenging market conditions during the middle part of 2020.
Strong recovery from July onwards
The dental arena has proven resilient during previous economic downturns. It was always unlikely the market would sit still for long. Even in the turbulence of 2020, we advised on, valued or sold more than 600 dental practices, worth over £650 million.
Within months of practices reopening, we tracked various independent and corporate operators. They were all reporting a strong recovery in revenue, at least proportionate to the number of patients they could see and given fallow time and revised operational procedures.
The journey to recovery and reinvention was a significant focus. Practices have made a lot of progress since reopening in June. The sector has turned massive challenges into meaningful change. It’s evident that COVID-19 has placed a heightened emphasis on oral health.
Today’s independent practice owners through to chief executive officers of corporate dental groups continue to navigate the impacts of the pandemic. Many are already being assertive in order to emerge stronger in their recovery. These leaders are facing the crisis with a spirit of reinvention. They are accelerating transformation and establishing variable cost structures. They are also implementing effective operations as a result of the recommended standard operating procedures shared among the profession.
What distinguishes them, in a word, is agility. From a common purpose, to rapid decision making, to empowered local teams. These companies and independent practices found ways to respond quickly to COVID-19.
From an operational perspective, the crisis environment has proven effective in changing certain habits and practices. Many are likely to continue well after the immediate impact of the pandemic. These practices are becoming agile and ‘future proofed’.
Dental Market Review 2020/21 report
In our recently published Dental Market Review 2020/21 report – which provides an in-depth analysis of the dental market in 2020 and outlook for 2021 – we interviewed a cross-section of corporate and independent operators to find out exactly how they adapted to the huge challenges of last year, and to gain insight into how their businesses have fared and their sentiment for the year ahead. We found:
- Operators were pleasantly surprised at the speed of recovery in demand for private dentistry
- Operators reported that some NHS patients were electing to receive private treatments as a result of lengthening waiting lists and appointment times
- 35% of owners said they now have higher private revenue than before COVID-19, confirming the very quick bounce back from June 2020 when practices reopened
- When compared with hygiene income, over 80% stated that revenue is less than 50% recovered, reflecting the continued challenges of operating with restricted patient numbers
- 85% of owners questioned believed that revenue will have fully recovered by the end of Q2 2021.
Recruitment challenges to remain
The shortage of quality associates has been one of the key challenges in recent years and, before the pandemic, this led to a highly competitive recruitment environment and increased associate costs.
The closure of dental practices in March 2020 instantly led to a shift in the supply and demand dynamic. Many associates in private practices sought the security of the NHS and there was, for a short while, a surplus of associates. This was short-lived. As practices reopened and private dentistry recovered quickly, the same pressures on recruitment have returned to certain UK locations.
Rapid market recovery
More than ever before, it is prudent for sellers to seek professional advice when considering a sale of their practice. Even pre-COVID, it was far too often we witnessed sellers deal directly with a buyer, receiving unfavourable and unrealistic conditions, attached to a mediocre offer.
Though there was undoubtedly market upheaval in 2020, sale prices have held up well. Pre-COVID levels of demand have returned in 2021 for quality practices. The average multiple (a key measure of value) paid for larger practices has marginally increased. This contrasts to the average multiple paid for owner/principal led practices that reduced slightly.
Encouragingly, deals were struck at an average of 103% of asking price in the post-lockdown period with no significant adjustment. Compared with an average of 105% of asking price in Q1 2020. This confirms that demand for practices across the board returned quickly.
The return of strong practice acquisition strategies
Following a pause on new acquisitions in the first half of 2020, several corporate and group operators went into 2021 carrying forward large transaction pipelines.
So far this year, there has been a significant increase in completions. Sellers endeavoured to beat the budget deadline for predicted changes to the tax regime. These predictions fizzled out to nothing particularly onerous for those currently selling their practice. Though, we are yet to see if another deadline frenzy will emerge come the autumn budget.
Going forward into Q2, we believe demand will remain strong for larger general private and mixed practices. Particularly those in suburban locations with an established and loyal patient base. These will still attract strong competition amongst corporate and group buyers. Specialist practices will continue to be in demand. Although, buyers may be sensitive to the effects of any economic downturn on high end treatments and adjust deal terms accordingly.
We are also likely to see buyers being more discerning when it comes to the physical size and flow within the practice environment. Also, ‘COVID-19 compliance’ will add a new element to practice purchases.
Between new opportunities and enhanced operations, the market is likely to find itself in a stronger position as we progress into 2021. Many investors still take a long-term perspective; they are looking ahead to the end of the pandemic, underpinned by a successful vaccine roll-out.
To read the full report Dental Market Review 2020/21 report, visit christie.com/dentalreview.
For more information call 07739 876 621 or email email@example.com.
This article was commissioned for Dentistry magazine. Read the latest issue here.
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